What are call options?


Quick Answer

Call options are investments in which people buy the right to purchase stocks at specific prices before the options' expiration dates, states Forbes. If stocks rise, those with call options can purchase them at the previously agreed upon price, or they can sell their options to another investor.

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Full Answer

Investors purchase call options when they believe that a company's stock is about to rise, allowing them to then purchase that stock at a price below market value, notes Forbes. Investors must exercise their call options before the expiration date or they lose the total value of their investment. Investors also lose money if stock prices fall for the companies for which they purchased call options, as other investors are not willing to purchase those options at a price higher than market value.

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