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Call Option

Definition of Call Option

A call option is a type of derivative contract that gives the right but not the obligation to buy an underlying asset like shares, commodities, currencies, and others at a pre-agreed price and date.

There are three components to a call option:

  • Premium: the price paid to buy a call option

  • Strike price: the pre-agreed price of the underlying asset

  • Expiration date: the day after which the option contract will be worthless

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