Call
A call in the world of the stock market is not about a call, but here the buyer first acquires an option to buy from the seller (writer). However, the buyer and the writer have previously defined the conditions (e.g. purchase price for the share and the duration of the validity of this option). During this pre-determined time (e.g. one month), the purchaser of the call has the option to exercise the option at any time and buy the share at the previously agreed price. He pays the writer a premium for this purchase option.
With a call, the buyer is guaranteed the right to buy a share at a certain base value from the seller in a certain time window. This agreement is recorded in writing. The buyer now has the option of exercising this right to purchase, letting it expire or selling the option on to a third party at any time during this time window. In return for this option, the writer receives a premium from the buyer of the call, the amount of which is based on comparable investments on the market.
An investor always buys a call when he is convinced that the price of a share will rise. If the price actually rises, the buyer can make a profit by exercising the option. Of course, this is only the case if the difference between the purchase price and the course price is positive (if the course rises, this is the case). However, if the price falls, the buyer of the call will certainly not exercise the option. By and large, relatively low fees are incurred for trading with so-called calls. If the buyer does not want to make use of the option, it will expire after the agreed date.
In a nutshell:
The buyer hopes for price increases
The writer (seller) expects prices to fall or stay the same.
The buyer acquires the call and pays the writer a premium for the right to exercise the option (to be able to buy a certain underlying asset within a specified time).
If the price rises, the buyer takes the option and receives the share at the specified base value. The writer has to sell the stock for the now lower price.
If the price falls, the buyer will not exercise the option, because he usually does not want to buy the share for a higher price, especially since he can buy this share at a lower price on the stock exchanges.
The writer can be seen as an insurance policy. It insures the uncertainty or hope of investors and receives a premium in return.
However, there is not always provision for a base value to be paid out for calls. If this is not the case, the investor can demand the difference between the current purchase price and the price on the stock exchange from the issuing house.