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What is buying a call?

 

An investor who buys a call is buying the right to purchase the underlying shares at the specific option strike. Buying a call allows investors the opportunity to participate in the underlying security’s expected appreciation during the length of the option. A call provides an investor the ability to participate in the growth from the underlying security without the capital expenditure and risk of an outright purchase. Typically, an investor will sell the call that they purchased at an appreciated value some point prior to the options expiration. Alternatively, an investor can execute the call contract and take delivery of the shares at the strike price of the option. Because of the smaller capital commitment investors can control more shares and have increased exposure to the underlying security.