What is “Call Option”?
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The option that gives the buyer the right to buy is called a call option.
A call option grants the holders of the contract the right, but not the obligation, to purchase a good from the writer of the option in consideration for the payment of cash (the option premium).
Example: Suppose you have bought a call option of 2,000 shares of Reliance Industries Limited(RIL) at a strike price of Rs1250 per share. This option gives you the right to buy 2,000 shares of RIL at Rs1250 per share on or before March 28, 2006. The seller of this call option who has given you the right to buy from him is under the obligation to sell 2,000 shares of RIL at Rs250 per share on or before specified date say March 28, 2004 whenever asked.
