BROWSE

Call On A Call

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]
… O - Economic Development, Innovation, Technological Change, and Growth; P - Economic Systems; Q - Agricultural and … State Capabilities: The Role of Financial Incentives in the Call to Public … Google Scholar. Martín A. Rossi. The Quarterly Journal of Economics, Volume 128 …

Marginal abatement cost curves: a call for cautionMarginal abatement cost curves: a call for caution
www.tandfonline.com [PDF]
… O - Economic Development, Innovation, Technological Change, and Growth; P - Economic Systems; Q - Agricultural and … State Capabilities: The Role of Financial Incentives in the Call to Public … Google Scholar. Martín A. Rossi. The Quarterly Journal of Economics, Volume 128 …

Why firms issue convertible bonds: the matching of financial and real investment optionsWhy firms issue convertible bonds: the matching of financial and real investment options
www.sciencedirect.com [PDF]
… O - Economic Development, Innovation, Technological Change, and Growth; P - Economic Systems; Q - Agricultural and … State Capabilities: The Role of Financial Incentives in the Call to Public … Google Scholar. Martín A. Rossi. The Quarterly Journal of Economics, Volume 128 …

Varieties of economic constructivism in political economy: Uncertain times call for disparate measuresVarieties of economic constructivism in political economy: Uncertain times call for disparate measures
www.tandfonline.com [PDF]
… O - Economic Development, Innovation, Technological Change, and Growth; P - Economic Systems; Q - Agricultural and … State Capabilities: The Role of Financial Incentives in the Call to Public … Google Scholar. Martín A. Rossi. The Quarterly Journal of Economics, Volume 128 …

Inside the “black box” of sell‐side financial analystsInside the “black box” of sell‐side financial analysts
onlinelibrary.wiley.com [PDF]
… O - Economic Development, Innovation, Technological Change, and Growth; P - Economic Systems; Q - Agricultural and … State Capabilities: The Role of Financial Incentives in the Call to Public … Google Scholar. Martín A. Rossi. The Quarterly Journal of Economics, Volume 128 …

The financial crisis: A wake-up call for strengthening regional monitoring of financial markets and regional coordination of financial sector policies?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]
… O - Economic Development, Innovation, Technological Change, and Growth; P - Economic Systems; Q - Agricultural and … State Capabilities: The Role of Financial Incentives in the Call to Public … Google Scholar. Martín A. Rossi. The Quarterly Journal of Economics, Volume 128 …

Ringing the changes? Union recognition and organisation in call centres in the UK finance sectorRinging the changes? Union recognition and organisation in call centres in the UK finance sector
onlinelibrary.wiley.com [PDF]
… O - Economic Development, Innovation, Technological Change, and Growth; P - Economic Systems; Q - Agricultural and … State Capabilities: The Role of Financial Incentives in the Call to Public … Google Scholar. Martín A. Rossi. The Quarterly Journal of Economics, Volume 128 …

The call of the wild: Call centers and economic development in rural areasThe call of the wild: Call centers and economic development in rural areas
onlinelibrary.wiley.com [PDF]
… O - Economic Development, Innovation, Technological Change, and Growth; P - Economic Systems; Q - Agricultural and … State Capabilities: The Role of Financial Incentives in the Call to Public … Google Scholar. Martín A. Rossi. The Quarterly Journal of Economics, Volume 128 …

Founders versus non-founders in large companies: Financial incentives and the call for regulationFounders versus non-founders in large companies: Financial incentives and the call for regulation
link.springer.com [PDF]
… O - Economic Development, Innovation, Technological Change, and Growth; P - Economic Systems; Q - Agricultural and … State Capabilities: The Role of Financial Incentives in the Call to Public … Google Scholar. Martín A. Rossi. The Quarterly Journal of Economics, Volume 128 …



Q&A About Call On A Call


What is a compound option?

A compound option is an option in which the underlying asset is itself an option.

If exercised, what will happen if you own a call on a call?

You will receive the underlying assets.

Why would an investor exercise their right to buy stocks with this type of compound option?

The investor would exercise because they believe that they could sell their stocks for more than its current market value.

How can you price at expiration using Metron model for options that are compounds?

This means that the value of the call on a call increases as stock's price increases.

How do you determine what value an option has?

Option values vary with changes in underlying instrument's value over time which means that there is no fixed formula for determining its value since this depends on many factors including volatility and interest rates among others which change constantly over time so it must be calculated continuously using complex mathematical models based on these factors which take into account all possible outcomes given different scenarios about how markets might move in future so that one can calculate probabilities associated with each outcome before deciding whether or not one should exercise their rights under those circumstances based on what one thinks will happen most likely given

If you own a call on a call, what do you have until expiration date to do?

The investor has until expiration date to exercise the compound option.

Why would someone want to buy an option?

Someone who wants to buy an asset in future may wish to pay less than its current market value by buying options on it instead. This is because they are only paying for rights not obligations. They can then decide whether or not they want to exercise their rights later depending on how much they think that asset's value will have changed by then. If their prediction was correct, they save money; if incorrect, they lose money. In other words, options give them leverage over assets whose prices are expected to change significantly in future. Options can also be used as part of speculative strategies such as spread betting and futures trading where investors trade according to predictions about how markets will move in future rather than buying and selling assets now with no guarantee of making profits later even if their predictions were correct.

What does it mean when you say that the buyer has the right, but not obligation, to buy an agreed quantity of a particular commodity or financial instrument from the seller of the option at a certain time for a certain price?

The buyer pays money (a premium) for this right.