Call Option

A contract, for which a premium is generally paid, that grants the holder the right to buy a fixed number of shares of a certain stock, at a predetermined rate (the strike price), for a certain length of time. Because an option allows the holder to buy shares at a set price, the holder may be able to buy shares at less than the market value, if the market price of the shares rises above the set price. If stock prices remain the same or decrease, the holder, who is not obligated to purchase shares, can let the option expire. Options involve risk and are not suitable for all investors.