What is a ‘Call’
A call auction is sometimes referred to a call market; it’s a time on an exchange when buyers set a maximum price that they are willing to pay for a given security, and sellers set a minimum that they are willing to accept. The buyers and sellers are matched in a process that can increase liquidity and decrease volatility.
A call auction, also known as a call market, is a type of trading on a securities exchange, while a call option is a derivative product.
In this type of trading, the exchange sets a specific time to trade a stock. It’s most common on smaller exchanges where a limited number of stocks are traded. Larger exchanges also sometimes utilize this structure for less liquid stocks. Stocks might all be called to trade at the same time, or they could be done sequentially. Buyers stipulate the maximum price that they are willing to pay, and sellers do the same for their minimum. All interested traders must be present at the same time. Once the call period is concluded, the security is illiquid until it is called again. Governments sometimes use call auctions when they sell notes, bills and bonds.
The owner of a call option has the right but not the obligation to buy the underlying instrument at a given price (the strike price) within a given period of time. The seller of a call is sometimes referred to as the writer of the option. The underlying instrument could be a stock, a bond, a foreign currency, a commodity or any other traded instrument. A put is essentially the opposite of a call; it is the right but not the obligation to sell at the strike price within a given period.
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