What is ‘Call On A Call’
A type of compound option in which the investor has the right to exercise a call on the underlying asset, which is an option. An investor who owns a call on a call option has until the expiration date to exercise the compound option. If exercised, the investor will receive the underlying call option, which will have a set expiration date and a new exercise price. If the underlying option is exercised, the investor receives the underlying assets.
Explaining ‘Call On A Call’
A compound option is an option in which the underlying asset is itself an option – so it is an option on an option. Before expiration, the value of the option depends on the value of the asset the underlying option represents. At expiration, the option can be priced at expiration using the Metron model. This means that the value of the call on a call option (with the underlying good being a stock) increases as the stock’s price increases.
An investor will exercise the call on a call option if, at the expiration date, the price of the underlying call option is worth more than the exercise price of the option.
Further Reading
- Strengthening state capabilities: The role of financial incentives in the call to public service – academic.oup.com [PDF]
- Marginal abatement cost curves: a call for caution – www.tandfonline.com [PDF]
- Why firms issue convertible bonds: the matching of financial and real investment options – www.sciencedirect.com [PDF]
- Varieties of economic constructivism in political economy: Uncertain times call for disparate measures – www.tandfonline.com [PDF]
- Inside the “black box” of sell‐side financial analysts – onlinelibrary.wiley.com [PDF]
- The financial crisis: A wake-up call for strengthening regional monitoring of financial markets and regional coordination of financial sector policies? – www.elgaronline.com [PDF]
- Ringing the changes? Union recognition and organisation in call centres in the UK finance sector – onlinelibrary.wiley.com [PDF]
- The call of the wild: Call centers and economic development in rural areas – onlinelibrary.wiley.com [PDF]
- Founders versus non-founders in large companies: Financial incentives and the call for regulation – link.springer.com [PDF]
