← BeginnerLesson 3 · 4:23
What is a call?
Summary
You can say what a call is: the right to buy something at a set price, up to a set date. You know a rising stock is what helps it, and you can work out its value on the last day as the stock price minus the strike price, or zero. You can show how a small rise can still lose money.
Key terms
- call
- The right to buy something at a set price, up to a set date; it gains as the stock rises.
- strike price
- The locked price in an option at which you can buy or sell.
- value on the last day
- no ceiling in theory
Check yourself
Answer each question to see why the right answer is right.
1. You pay a shop $20 to lock a $500 bike price for 30 days. The bike drops to $400. What do you do, and where do you end up?
2. On the last day, what is a call worth?
3. You bought a call on XYZ with a strike of $100 for $3.45. XYZ rises a little and finishes at $102. What is your result per share?
4. Same call, strike $100, bought for $3.45. XYZ falls to $70. What is your result per share?
5. Why does a call have no ceiling on its gain, in theory?
Finished the video and the quiz? .