Buying a Call Option

A call option is a contract that allows the purchase of the underlying at a given strike price, within a given period of time. A call option typically involves two parties: the option buyer and the option seller. The option buyer has a long position, while the seller has a short position. Once the option is purchased, the option buyer is in control of what happens next. (S)He can choose to exercise, or go through with the purchase of the underlying asset, or (s)he can choose to let the option expire. If the buyer does choose to exercise, the seller must fulfill the contract at the agreed upon price.

While there are varying strategies for buying or selling options, covered more in strategies, here we will discuss the basics from the point of view of the call buyer and seller using the real estate example.