Customize - Urban Dictionary Store

Pro Customization

Create unique products with your own words and definitions

Preview

Personalize Your Design

Your Word

Your Definition

(FINANCE) create a call option that allows the future owner to buy a set number of shares of an [underlying stock] at a fixed strike price. May also be for traded items other than stock. The writer of a call option is both the counterparty and the originator of the [derivative].
______________________________

A call option is a product that allows an investor to take a long position on a stock without actually owning it; if the [underlying stock] rises in value, the call option rises a lot more. The increased potential windfall is offset by the much greater likelihood that the investor will lose the entire initial investment.

The writer of the option is presumed to own the thing offered for sale; if the price of the [underlying stock] rises above the strike price, then the owner of the option will presumably exercise it and pocket the profit. Thus, there is a risk to the writer of the option that all of the profits from owning the stock will go to the buyer of the option. This risk is offset by the fees the writer charges for the option.

In some cases, a speculator may write an option for shares of stock that she does not own. This is particularly risky, since the price of the underlying stock could rise above the strike price, forcing the writer to buy the shares at a high price in order to sell them at a low price.

Text fits

Menu

Pro Customization

Preview

Personalize Your Design

Shopping Assistant