Buyer's Call

AAA

DEFINITION of 'Buyer's Call'

An agreement between a buyer and seller whereby a commodity purchase occurs at a specific price above a futures contract for an identical grade and quantity.



Also known as a call sale, this agreement gives the buyer the option to fix the price of the commodity by either purchasing a future from the seller or indicating to the seller a time in which the price of the transaction will be set. A buyer's call is used instead of buying the commodity on the spot market because of the possibility that its price will depreciate.

INVESTOPEDIA EXPLAINS 'Buyer's Call'

Suppose, for example, I was in need of ten barrels of sweet crude today. I could purchase these barrels on the spot market for $50/barrel or enter into a buyer's call with an oil company that presently has the ten barrels but doesn't require them for another six months. By entering into the call, I would either offer to buy a six-month future contract for the oil company in exchange for the barrels of oil or offer to buy ten barrels of oil some point in the future at a fixed market price. The oil company is able to make a profit from my purchase while still obtaining their required amount of oil six months in the future. And I benefit from obtaining the oil today

RELATED TERMS
  1. Basis

    1. The variation between the spot price of a deliverable commodity ...
  2. Basis Grade

    The minimum accepted standard that a deliverable commodity must ...
  3. Basis Quote

    A method for simplifying and shortening the quoted price of a ...
  4. Differential

    The amount of adjustment of the delivery location and grade of ...
  5. Buyer's Market

    A situation in which supply exceeds demand, giving purchasers ...
  6. Multibank Holding Company

    A company that owns or controls two or more banks. Mutlibank ...
Related Articles
  1. What are the advantages of commodities ...
    Retirement

    What are the advantages of commodities ...

  2. What are the disadvantages of commodities ...
    Mutual Funds & ETFs

    What are the disadvantages of commodities ...

  3. All About Liquid Commodities
    Options & Futures

    All About Liquid Commodities

  4. Pick the Right Brokerage Account for ...
    Options & Futures

    Pick the Right Brokerage Account for ...

Hot Definitions
  1. Halloween Strategy

    An investment technique in which an investor sells stocks before May 1 and refrains from reinvesting in the stock market ...
  2. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  3. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  4. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  5. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  6. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
Trading Center