Call Option

A Call Option is a financial derivative that gives the holder the right, but not the obligation, to buy an underlying asset (such as a stock, commodity, or financial instrument) at a specified strike price on or before a predetermined expiration date. The buyer of a call option profits when the price of the underlying asset increases above the strike price, allowing them to purchase the asset at a discount compared to the current market value. In exchange for this right, the buyer pays an option premium to the seller. 

An example is buying a Tata Motors call option. Suppose a trader anticipates that Tata Motors’ stock price will rise in the near future. They might purchase a Tata Motors call option expiring in the current or next monthly cycle by paying a premium. If the stock rises substantially and the value of their call option goes up they can make a profit. The call option allowed the trader to benefit from the stock’s upside while limiting their loss to the premium paid.

Before 1973, options trading was conducted over the counter (OTC), which was often opaque and unregulated. The CBOE was established to create a regulated marketplace for standardized options, including call options, making trading more accessible and transparent. With standardized contracts, investors could buy and sell call options with well-defined terms such as strike prices, expiration dates, and settlement conditions. This made options trading more efficient and liquid, attracting a broader base of participants, including retail investors.