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Equity Call Option

Filed in: Exam Content, Series 24, Series 65, Series 66, Series 7

An equity call option is a security that gives the buyer (AKA “owner” or “long”) the right, but not the obligation, to purchase 100 shares of the underlying stock at a specified price (the strike price) at any time until the option expires (the “expiration date”). For this right the buyer of the call option pays the seller of the call option a premium (calculated on a per share basis).

Example: The buyer of one ABC Jan 45 call option at 3 has the right to buy 100 shares of ABC at $45 per share until January expiration. For this right the buyer paid the seller $3 per share, or a total of $300.

The seller (AKA “writer” or “short”) has the obligation to sell 100 shares of the underlying stock at the stated exercise price if assigned an exercise notice at any time before the option expires.

Example: The seller of one XYZ June 90 call option at 6 has the obligation to sell 100 shares of XYZ stock at $90 per share if assigned at any time until the June expiration. In exchange for taking on this obligation the seller of the call receives $6 per share, or a total of $600.

KNOPMAN NOTES
Call options always have two counter-parties: 1) a buyer and 2) a seller. The buyer has the right to buy shares at a set price, and the seller has the obligation to sell shares at a set price.

Written by Dave Meshkov

Dave's mission (and job: Managing Director of Course Design) is to make FINRA exam training engaging, approachable, and dare he even say, enjoyable. Having trained and coached over ten thousand students to exam success he knows how to present complex subjects in memorable and understandable ways. Prior to joining Knopman Marks in 2011, Dave practiced bankruptcy law at Weil, Gotshal & Manages and served as a law clerk in a the Southern District of New York Bankruptcy Court working on the General Motors and Lehman Brothers bankruptcies. Building on his legal expertise and training allows him to keep all our courses updated with the latest legislative and rule-making changes. Dave currently trains for the Securities Industry Essentials (SIE) exam and the Top-Off Series 6, 7, 24, 57, 63, 65, 66, 79, 86, 87, and 99 exams. He also delivers executive one-on-one training and shares his passion for learning outside of work as a ski instructor and yoga teacher. Dave graduated magna cum laude from Fordham Law School, and cum laude with a BA from the University of Pennsylvania.

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