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Finance GlossaryCall Option
Call Option
Definition of Call Option
A call option is a type of derivative contract that gives the right but not the obligation to buy an underlying asset like shares, commodities, currencies, and others at a pre-agreed price and date.
There are three components to a call option:
- Premium: the price paid to buy a call option
- Strike price: the pre-agreed price of the underlying asset
- Expiration date: the day after which the option contract will be worthless
Related Terms
Capital Asset Pricing Model
Capital Asset Pricing Model or CAPM is used to determine the expected return one can earn on an asset by evaluating the associated risks and how markets price the asset.
Backtesting
Backtesting means simulating trading strategies and models using historical data to understand whether they are effective.
In many ways, backtesting is considered to be an important part of crafting trading strategies that work.
If backtesting leads to positive results, then the trading strategy or model may be viable.
In many ways, backtesting is considered to be an important part of crafting trading strategies that work.
If backtesting leads to positive results, then the trading strategy or model may be viable.
Forex Trading
Forex trading means buying and selling currency pairs through exchange-traded derivatives or on the OTC market. A currency can only be bought and sold in exchange for another currency, which is why forex trading is always done in pairs.
Trading forex derivatives is carried out on stock exchanges authorized by regulatory bodies (SEBI & RBI), in tandem with approved brokers who allow users to engage with the forex futures trading and options trading markets.
Trading forex derivatives is carried out on stock exchanges authorized by regulatory bodies (SEBI & RBI), in tandem with approved brokers who allow users to engage with the forex futures trading and options trading markets.
Future Trading
Futures trading is the buying and selling of futures contracts on a recognized exchange or over the counter. Futures contracts are derivatives that oblige a trader to buy or sell the underlying security at a predetermined price and date.
Trading futures is possible for equity shares, commodities, currencies, as well as interest rates. Those who trade futures are generally classified as speculators or hedgers.
Speculators trade futures to make a profit. Hedgers delve into futures trading to manage risk, which simply means protecting themselves from unfavorable movements in the market.
Trading futures is possible for equity shares, commodities, currencies, as well as interest rates. Those who trade futures are generally classified as speculators or hedgers.
Speculators trade futures to make a profit. Hedgers delve into futures trading to manage risk, which simply means protecting themselves from unfavorable movements in the market.
Beta Stocks
Beta of stocks measures the risk that the shares carry compared to the broader market. Theoretically, the market is said to have a default Beta of 1. As a result, Beta stocks can be of four types:
- High Beta Stocks : typically having a Beta value of more than 1, these stocks are known to be high-risk, high-reward investments
- Low Beta Stocks : typically having a Beta value of less than 1, these stocks are known to be low-risk, low-reward investments
- Negative Beta Stocks : typically having a Beta value of less than zero, these stocks are known to have an inverse correlation with the market
- Same as the market : typically having a Beta that’s equal to 1, these stocks are known to share characteristics with the market
Common Stocks
A common stock is a type of share that gives the holder the right to a part of a company’s profits, voting on key policies and decisions. Common stockholders have an advantage over preferred stockholders because they can:
- Get higher returns
- A part of the assets left after a company is liquidated (in case of default)
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Registered Office: 302, The Western Edge I, Off Western Express Highway, Borivali East, Mumbai - 400066, Maharashtra, India.
Corporate Office: 302, The Western Edge I, Off Western Express Highway, Borivali East, Mumbai - 400066, Maharashtra, India. Customer Care: 9987761000.
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