What are Call Option Contracts ?
Call Option Contracts gives the buyer/holder the right, but not the obligation to buy a stock, bond, commodity, or other instrument at a specified price/ strike price/exercise price within a specific time period. The seller/writer is obliged to sell the stock, bond, commodity or financial instrument at that strike price, if the buyer does choose to exercise the option. Payoff profile of a call option Example: An investor buys One European call option on Infosys at the strike price of Rs. 3500 at a premium of Rs. 100. If the market price of Infosys on the day of expiry is more than Rs. 3500, the option will be exercised. The investor will earn profits once the share price crosses Rs. 3600 (Strike Price + Premium i.e. 3500+100). Suppose stock price is Rs. 3800, the option will be exercised and the investor will buy 1 share of Infosys from the seller of the option at Rs 3500 and sell it in the market at Rs 3800 making a profit of Rs. 200 {(Spot price – Strike price) – Premium}. In another
