What are call options?
Meet Ajay and Ashish. Ajay believes the shares of ABC Mobiles, currently priced at rupees 300 is going to rise. Ashish, who owns some shares of ABC Mobiles is expecting the price to fall. So Ashish agrees to sell his shares to Ajay for rupees 320 each in a month's time. They signed a contract of call option by which Ajay gains the right to buy and Ashish becomes obligated to sell the shares at the agreed price on the said date. The fee that Ajay pays Ashish for the option, called “premium”, is rupees 20 per share. If the share price shoots up to rupees 400 in a month, Ajay can use the option and earn a profit of rupees 60 after deducting the rupees 20 he has paid as premium. If the price stays lower than rupees 320, then Ajay loses the rupees 20 he paid for the option. Call options are for investors waiting to leverage their capital for greater investment returns