What is a Long Call?

Jul 16 14:33

An option is a contract that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price within a specific time period.

A call option gives the right to buythe asset, while a put option gives the right to sell it.

Here's an example to illustrate a call option:

Suppose today someone offers you a deal allowing you to buy 100 shares of TUTU stock at $110 per share any time up to March 1 (three months from now).

In return, you need to pay $9 per share upfront.

If you ultimately decide not to buy the underlying shares, this $9 is non-refundable.

Believing that TUTU's stock might reach $130 or higher by then, you find this deal worthwhile.

Thus, a call option contract is created.

Option Buyer (Option Holder):

You pay $900 ($9 * 100) to acquire the right to buy 100 shares of TUTU at $110 per share any day before or on March 1.

You may exercise this right or not, but the $900 you paid will not be refunded.

Option Seller (Option Writer):

The seller receives the $900 you paid and bears the corresponding obligation.

If you decide to buy 100 shares at $110 per share at any time up to and including March 1, the seller must provide the shares and cannot refuse.

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This presentation is for informational and educational use only and is not a recommendation or endorsement of any particular investment or investment strategy. Investment information provided in this content is general in nature, strictly for illustrative purposes, and may not be appropriate for all investors. Read more

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What is a Long Call?

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