Fiduciary Call

AAA

DEFINITION of 'Fiduciary Call'

A cost effective strategy designed to limit the costs associated with exercising a call option. When a European call option is purchased, the present value of the strike price is invested in a risk-free interest bearing account. When the investment matures, the value of the account will be enough to cover the costs of exercising the European option if the holder chooses to do so.

INVESTOPEDIA EXPLAINS 'Fiduciary Call'

A fiduciary call is a smart way to cover the cost of exercising a stock if the investor has the spare cash available. If the option holder decides to let the option expire, then they will have a return on an investment that may be higher then the risk-free rate of return.

The strategy can also be implemented for an American option if the time to exercise the option can be reasonably estimated.

RELATED TERMS
  1. European Option

    An option that can only be exercised at the end of its life, ...
  2. Option

    A financial derivative that represents a contract sold by one ...
  3. Buy-Write

    A trading strategy that consists of writing call options on an ...
  4. American Option

    An option that can be exercised anytime during its life. American ...
  5. Call Option

    An agreement that gives an investor the right (but not the obligation) ...
  6. Multibank Holding Company

    A company that owns or controls two or more banks. Mutlibank ...
Related Articles
  1. Options & Futures

    The "True" Cost Of Stock Options

    Perhaps the real cost of employee stock options is already accounted for in the expense of buyback programs.
  2. Options & Futures

    Going Long On Calls

    Learn how to buy calls and then sell or exercise them to earn a profit.
  3. Options & Futures

    Understanding Option Pricing

    Take advantage of stock movements by getting to know these derivatives.
  4. Options & Futures

    The 4 Advantages of Options

    Flexible and cost efficient, options are more popular than ever. Find out why.
  5. Options & Futures

    Are there any risks involved in trading put options through a traditional broker?

    Explore put option trading and different put option strategies. Learn the difference between traditional, online and direct option brokers.
  6. Options & Futures

    Options -- Accessing Stakes In Apple At Less Cost

    Finding Apple stock costly to trade? Here are multiple ways to trade it through low-cost Apple options.
  7. Options & Futures

    These Are The Top Brokerage Firms For Options Trading

    Trading options? Here is the list of the best brokerage firms for options trading, with features, functionality, and brokerage rates.
  8. Options & Futures

    What is a volatility smile?

    Discover what options traders mean when they refer to a "volatility smile," and learn why a volatility smile's existence perplexes many investors and analysts.
  9. Options & Futures

    How do you use put options to profit from a bear market?

    Learn how traders use put options in their trading strategies to remain profitable, even in a bear market. Everyday investors can learn these tactics, too.
  10. Options & Futures

    Apple As An Example Of How a Protective Collar Works

    We define a protective collar, using Apple (AAPL) as an example. A protective collar is a combination of a covered call plus long put position.

You May Also Like

Hot Definitions
  1. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  2. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  3. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  4. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  5. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  6. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
Trading Center