Call contract is an open arrangement or a financial contract between two parties, a buyer and a seller. The buyer of the call contract has the right, but not the obligation, to buy an agreed quantity of a particular contracted goods or services under conditions specified in the contract including the expiration date and the strike price. The seller, on the other hand, is obligated to sell the commodity or financial instrument to the buyer if the buyer so decides. The buyer pays a fee, called a premium, for this right. Another term for call contract is call option or simply ’call‘.

When a person buys a call option, he/she is buying the right to buy a stock at the strike price, regardless of the stock price in the future before the expiration date. On the other hand, the sell can short or ’write‘ the call option, giving the buyer the right to buy the stock from the seller any time before the option expires. To compensate or the risk taken by the seller, the buyer pays them a premium also known as the price of the call. The seller of the call is said to have shorted the call option and keeps the premium, whether or not the buyer ever exercises the option.

Call options have the following characteristics:
  1. Strike price – the price at which a person can buy the stock, if he/she bought a call option, or the price at which the person must sell the stock, if he/she sold a call option.
  2. Expiry Date – this is when the option expires or becomes worthless, if the buyer does not exercise it.
  3. Premium – the price the person has to pay when he/she buys an option and the price that he/she receives when they sell an option.