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. The Basics of Options Profitability
    Options & Futures

    The Basics of Options Profitability

  2. Want to Day Trade? Try Binary Options ...
    Options & Futures

    Want to Day Trade? Try Binary Options ...

  3. Curious About Stock Index Futures? Read ...
    Options & Futures

    Curious About Stock Index Futures? Read ...

  4. Selling Premium As Small Caps Play Catch ...
    Options & Futures

    Selling Premium As Small Caps Play Catch ...

comments powered by Disqus
Hot Definitions
  1. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  2. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  3. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  4. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  5. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  6. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
Trading Center