What Is a Call Option Contract?
Call option contracts confer the right, but not an obligation, to buy shares of a stock (the “underlying security”) at a stated price called the “strike price.” The call option is good until its expiration date (called the “expiry”). Investors use call option contracts as a way of leveraging stock transactions because they cost far less than the stock itself. That increases the potential return, but also magnifies the risk involved. Most call option contracts follow a standardized format, although some over-the-counter contracts have special features (these are referred to as exotic options). Employee stock options are a form of call option contracts issued by a particular company to employees.
