Also known as: call options · call-option · call-options · call
Written by attorneys · grounded in primary & secondary sources — see below
A contractual right that entitles the holder to purchase a specified underlying asset from the writer at a fixed strike price on or before a designated expiration date. The right becomes more valuable when the market price of the asset exceeds the strike price.
Charlotte Chung purchased a call option on Cardinal Insurance shares with a strike price of forty dollars. At expiration the market price reached fifty-five dollars. She exercised the option and the writer was obligated to deliver the shares at the strike price.
Corinne Cho and Curtis Cannon each bought call options on Cascade Manufacturing stock. When the share price rose sharply they sold their options on the exchange and captured the time value remaining before expiration.
Copperfield Mining wrote call options on its own shares. After the market price climbed above the strike the firm bought identical calls in the open market to close the position and limit further loss.
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Cedar Creek Farms issued call options convertible into common stock. When the board approved a merger the option contract required an adjustment to the strike price and deliverable shares to preserve the holder's economic position.
Christine Castro received call options as part of merger consideration from Virginia Bankshares. The proxy statement failed to disclose the board's belief that the options had no value, leading minority shareholders to challenge the transaction's fairness.
Carlos Castillo bought call options on TSC Industries stock. The proxy materials omitted facts showing the acquiror would gain control, facts that a reasonable investor would have viewed as significantly altering the total mix of information about the options' value.
A call option grants the holder the right to buy the underlying asset at the strike price. A put option instead grants the right to sell the asset at the strike price.
Intrinsic value exists when the current market price of the underlying asset exceeds the strike price. At that point the holder can exercise and capture the difference between the two prices.
A call option issued by an S corporation may be treated as a second class of stock unless it falls within a regulatory safe harbor. The regulations address the circumstances under which such options jeopardize the one-class-of-stock requirement.
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