Call (Options and Auctions) - Explained
What is a Call?
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Table of ContentsWhat is a Call Auction?How do Call Options Work?Call OptionCall AuctionAcademic Research on Call
What is a Call Auction?
A call either refers to a call auction or a call option.A call option is an agreement or a contract that gives a person the right but not an obligation to purchase a portion of an underlying asset at a specified time and price. In this trading method, a timeframe is set in which the underlying assets must be purchased at the specified price. A call auction is a trading method in which a seller sets a minimum price to sell a security and the buyers set or fix the maximum price to buy the security. The security is offered to the highest bidder afterwards. Key Takeaways
- A call refers to either a call option or a call auction.
- A call option offers the holder the right to buy an option or underlying asset at a specified time and price.
- A call auction entails a seller fixing a minimum satisfactory price to sell a stock while the buyers or participants fix a maximum acceptable price at which the stock can be purchased.
- A call auction is also a call market.
- A call option is a formal trading arrangement, like an over-the-counter trading.
Back to:INVESTMENTS & TRADING
How do Call Options Work?
Generally, a call auction is a trading approach used when trading a security or an underlying asset on an exchange. A call auction can also mean a call market. In this method, prices are determined by trading activities at a particular time. The seller sets a minimum satisfactory price at which he wishes to sell the commodity and the buyers set the maximum price to buy the commodity. A call option can be likened to over-the-counter transaction. Securities products are formally traded at a specific time and a specified time frame. Investment banks or institutional lenders sometimes use this method to demand repayment for a loan.
Different securities such as bonds, stocks, currencies and other debt instruments can be traded in a call option. In this trading arrangement, the can owner can exercise the right to buy an underlying security at a fixed time and specific timeframe. This is however not an obligation, it is just a right. The seller of the option or security is often referred to as the writer. Holders of calls enjoy many benefits for holding this right. For instance, if a security has a lower stake price on the call date, the holder of the call can purchase the option, thereby benefiting from a reduced price. The current market value often determine the stake price for options. A put option is different from a call option, this right is enjoyed by a seller. The seller has the right to sell a security at a specific price and specified time frame but not obligated.
When there is a limited number of stocks to be offered in an exchange, a call auction can be used as the trading strategy. The time that this type of trade will take place is also set. Buyers of stocks in this arrangement, set a maximum acceptable price at which they can buy the stocks while the seller also set a minimum satisfactory price to sell the stock. In a trade of this nature, all interested buyers and the seller must be present at the designated venue at the appropriate time. Participants that are present at a call auction state the price that are willing to pay for an offered stock, the satisfied price is arrived at during the auction by the seller. In most cases, the highest bidder takes the asset.