Call Option Trading  

Definition of a Call Option.

This is when someone holds a contract which gives the right to buy a security at a certain fixed price in the future. When the contract expires If the current price of the good is greater than the option price then the holder will not buy. If the contract price is higher than the current price then they can buy and sell at a profit to the market.

Call options can be a way to insure against falling commodity prices.

Call Option trading

Call options are usually traded in 100 unit contracts. Thus if the share was £3, then the cost of buying a call option would be £300. If the price of the good fell below the contract price you would end up losing £300. But, if the price went above the contract price, you would make a % profit.

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