Debt Management and Leverage

Option contracts

Call options

A call option is a contract giving you the right to buy a certain amount of the underlying asset at a certain price (known as the strike price) within or at a stated time.

A call option is purchased when you anticipate the market price of the asset will rise.

The call option locks in a purchase price for a particular period.

Should the market rise as anticipated, your gain will be the difference between the current price of the asset and the strike price, less the price you paid for the option.

The pricing of options is very complex as it is based on the strike and market price of the underlying asset and the remaining time until expiry.

Most options are traded on an exchange so the price is also influenced by buyers and sellers in the market.

To get an idea of how Option Contracts work, it is best to review an example.