1.1 Understanding Call Options

A call option is a financial contract that gives the buyer the right, but not the obligation, to buy a specified quantity of an underlying asset at a predetermined price (known as the strike price) within a specified time period.

In traditional markets, purchasing a call option typically means you are speculating that the price of the underlying asset will rise above the strike price before the expiration date. If this happens, you can exercise the option to buy the asset at a discount or sell the option for a profit. If the price does not rise above the strike price, the option will expire worthless, and the buyer loses the premium paid to the seller.

Key components of a call option include:

• Strike Price: The price at which the underlying asset can be purchased.

• Expiration Date: The last date the option can be exercised.

• Premium: The price paid by the buyer to the seller to obtain the option.

• Underlying Asset: The asset which the option grants the right to purchase.

Call options are used for various purposes, including speculation, hedging, and leveraging investment positions.