Call On A Call

DEFINITION of '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.

BREAKING DOWN '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.

RELATED TERMS
  1. Put On A Call

    One of the four types of compound options, this is a "put" option ...
  2. Early Exercise

    The exercise of an option prior to its expiration date. Early ...
  3. Compound Option

    An option for which the underlying is another option. Therefore, ...
  4. Exercise Price

    The price at which the underlying security can be purchased (call ...
  5. Call On A Put

    One of the four types of compound options, this is a call option ...
  6. European Option

    An option that can only be exercised at the end of its life, ...
Related Articles
  1. Trading

    Exploring European Options

    The ability to exercise only on the expiration date is what sets these options apart.
  2. Trading

    Three Ways to Profit Using Call Options

    A brief overview of how to provide from using call options in your portfolio.
  3. Investing

    4 Reasons To Hold Onto An Option

    There are times when an investor shouldn't exercise an option. Find out when to hold and when to fold.
  4. Trading

    Options Pricing: A Review Of Basic Terms

    The following is intended as a review of basic option terminology, which can be used as a reference as needed: American Options - An option that can be at any point during the life of the contract. ...
  5. Investing

    Getting Acquainted With Options Trading

    Learn more about stock options, including some basic terminology and the source of profits.
  6. Investing

    Exploring The World Of Exotic Options

    Exotic options provide investors with new alternatives to manage their portfolio risks and speculate on various market opportunities. The pricing for such instruments is considerably complex, ...
  7. Trading

    Three Ways to Profit Using Put Options

    A brief overview of how to profit from using put options in your portfolio.
  8. Investing

    Types of Options

    There are many different types of options. In addition to general put options and call option, we will discuss 13 different types of options. Some of these option types are better suited to day ...
  9. Trading

    Going Long On Calls

    Learn how to buy calls and then sell or exercise them to earn a profit.
  10. Trading

    What Drives An Option's Price?

    The primary drivers of an option’s price are the underlying stock’s current price, the option’s intrinsic value, its time to expiration and volatility.
RELATED FAQS
  1. When holding an option through expiration date, are you automatically paid any profits, ...

    Holding an option through the expiration date without selling does not automatically guarantee you profits, but it might ... Read Answer >>
  2. How do I change my strike price once the trade has been placed already?

    Learn how the strike prices for call and put options work, and understand how different types of options can be exercised ... Read Answer >>
  3. Can an option be exercised on the expiration date?

    The use of options has increased dramatically over the years as a way to profit from or hedge against the volatile movements ... Read Answer >>
  4. After exercising a put option, can I still hold my option contract in order to sell ...

    Once a put option contract has been exercised, that contract does not exist anymore. A put option grants you the right to ... Read Answer >>
  5. What is the difference between "right" and "obligation" on a call option?

    Learn what a call option is, what determines a buyer and seller of an option, and what the difference between a right and ... Read Answer >>
  6. When is a call option considered to be "in the money"?

    Learn about call options, their intrinsic values and why a call option is in the money when the underlying stock price is ... Read Answer >>
Hot Definitions
  1. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  2. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  3. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  4. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  5. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  6. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
Trading Center