Call Option or Call European is abbreviated as CR. CE is an investment contract that allows an investor to buy a stock, a product, an asset, an instrument, or a variety of other things at a fixed price and within a given time frame.
Because of its popularity and certain technical terminologies like CE (call option), option trading is fraught with complexities. It is a type of investment contract that gives an investor the right to purchase a stock or share at a set price and within a set time frame. The stock must be purchased as soon as possible.
An asset can be a stock, a commodity, or a bond that the investor can purchase. An increase in the asset’s value will result in more profit for the investor or buyer.
The key feature of a call option is that it allows a buyer or investor to purchase an asset with certainty within a given timeframe and at a set price. There will be no restrictions and the call option contract will be subject to extensive terms and conditions.
What Is The Correct Time To Buy The Call Option Contract?
Now is an excellent moment to purchase a call option contract. Let’s pretend the Adani enterprises annual general meeting (AGM) is coming up next month, and you’re expecting a major announcement. Following the announcement, the cost of a share worth roughly INR 2000 will rise to INR 3000.
You have an idea about the announcement and wanted to buy the shares. But it is risky to buy bulk in cash because of the limitless risks of the annual share market.
In that case, you can purchase the shares with the money left over from the call option transaction. CE is ideal for this circumstance if you are willing to put a small quantity of money into the asset. CE is noted for its privacy and security.
Advantages of CE
CE (call option) has various advantages, some of which are listed below:
- CE will magnify stock price gains, allowing CE investors to profit handsomely from any increase in the stock’s value.
- They will enable a trader or investor to reserve stock in a specific piece for future purchase. Following the profits, the owner will purchase the stock and sell it for a profit.
- Traders or investors will specify a certain date or time period for purchasing equities, which can range from a few months to years. Foundations will be applied with no time constraint.
- Before purchasing an asset through CE, there are no detailed rules and regulations or terms and conditions.
- The stock owner can easily sell the stock to another buyer at the fair market value and profit.
Disadvantages of CE
CE, like everything else, has both advantages and cons. The following are some of the key downsides of CE:
- To avoid any complications with his ownership of those assets, the buyer must pay for the stocks within a certain time range.
- If the stock price falls below the strike price, the owner would suffer a significant loss and will be encircled by obligations.
- Purchasing a CE asset in a country like India, where the stock market is volatile, is dangerous.
- It’s difficult to predict the future value of stocks and upcoming frauds in a diverse country like India because of frauds like the Harshad Mehta, Vijay Malia, and Neerad Modu scams.
- We advise beginners and new investors to stay away from CE and only invest under the supervision of a professional.