Call Options
Call - an option to buy at a specific price until a specific point in time.
Options are used as both a hedging
tool and a leveraging tool.
As a speculator, if you buy a call option you think the price of the underlying security is going to increase.
If you sell a call option, you think that either the price will not increase or you think the price will decrease.
If you sell a uncovered call option, you have unlimited loss potential.
Call option writers are usually investors who own a stock that they feel rarely increases in price; they are making extra money from the option premium so long as the stock price does not increase.
As a hedge, If you buy a call option to protect a short position, your maximum gain is the short sale price less the option premium. The maximum loss is the strike price plus the option premium less the short sale price. The break even would be the short sale price less the option premium.
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In the bond market, call just means to redeem a bond before maturity (some bond are callable by the issuer).
