Our word of the day is "Call" Traders just use the word "call" to signal

that an asset is going to move up, but it represents a financial contract between two

parties, the buyer and the seller. The buyer of the call option has the right, but not

the obligation to buy an agreed quantity of a particular commodity or financial instrument

from the seller of the option at a certain time for a certain price known as the strike

price. The seller is obligated to sell the commodity or financial instrument should the

buyer so decide. The buyer pays a fee called a premium for this right.

The buyer of a call option purchases it in the hope that the price of the underlying

instrument will rise in the future. The seller of the option either expects that it will

not, or is willing to give up some of the upside from a price rise in return for the

premium and retaining the opportunity to make a gain up to the strike price (see below for

examples). Call options are most profitable for the buyer

when the underlying instrument moves up, making the price of the underlying instrument closer

to, or above, and the strike price. The call buyer believes it's likely the price of the

underlying asset will rise by the expiry. The risk is limited to the premium. The profit

for the buyer can be very large, and is limited by how high the underlying instrument's spot

price rises. When the price of the underlying instrument surpasses the strike price, the

option is said to be "in the money".