Loading the player...

What is a 'Call'

A call is an option contract giving the owner the right, but not the obligation, to buy a specified amount of an underlying security at a specified price within a specified time. 

A call auction is a time when buyers set maximum acceptable price to buy, and sellers set the minimum satisfactory price to sell a security on an exchange. Matching buyers and sellers in this process increases liquidity and decreases volatility. The auction is sometimes referred to as a call market.

BREAKING DOWN 'Call'

A call auction is also known as a call market. The call auction is a type of trading method on a securities exchange. A call option is a derivative product, which is traded on a formal exchange or in the over-the-counter marketplace. The term call is also used by lenders when they wish to demand the full repayment of a secured loan. 

Call Option

For call options, the underlying instrument could be a stock, bond, foreign currency, commodity, or any other traded instrument. The call owner has the right, but not the obligation, to buy the underlying securities instrument at a given strike price within a given period. The seller of an option is sometimes termed as the writer. A seller must fulfill the contract, delivering the underlying asset if the option is exercised.

When the strike price on the call is less than the market price on the exercise date, the holder of the option can use their call option to buy the instrument at the lower strike price. If the market price is less than the strike price, the call expires unused and worthless. The call options can also be sold before the maturity date if it has intrinsic value based on the market's movements.

The put option is the opposite of a call option. The put owner holds the right, but not the obligation, to sell an underlying instrument at the given strike price and period. Derivatives traders often combine calls and put to increase, decrease, or otherwise manage, the amount of risk that they take.

Call Auction

In a call auction, the exchange sets a specific timeframe in which to trade a stock. Auctions are most common on smaller exchanges with the offering of a limited number of stocks. All securities can be called for trade simultaneously, or they could trade sequentially. Buyers of a stock will stipulate their maximum acceptable price and sellers will designate their minimum acceptable price. All interested traders must be present at the same time. At the termination of the auction call period, the security is illiquid until its next call. Governments will sometimes employ call auctions when they sell treasury notes, bills, and bonds.

On more substantial exchanges, call auctions are used for the sale of less liquid stocks. Regular trading on these exchanges uses the alternative, more common, continuous trading method. With continuous trading, potential buyers and sellers post their desired price and matching accomplished on an ongoing basis in an order book. Deals happen throughout the day in all securities.
RELATED TERMS
  1. Call Market

    A call market determines transactions at predetermined time intervals ...
  2. Auction Market

    An auction market is one where buyers and sellers enter competitive ...
  3. Auction

    An auction is a process where potential buyers place competitive ...
  4. Short Call

    A type of strategy regarding a call option, which is a contract ...
  5. Options Contract

    A contract that allows the holder to buy or sell an underlying ...
  6. Call Option

    An agreement that gives an investor the right (but not the obligation) ...
Related Articles
  1. Investing

    Should you buy a house at auction?

    The traditional real estate market isn't the only place to conduct your home search. Auctions also bring many buying opportunities.
  2. Personal Finance

    Auction Rate Securities: Bidding On The Long Run

    These investments do better with a long-term horizon. Should you buy them before they're going, going, gone?
  3. Trading

    Three Ways to Profit Using Call Options

    A brief overview of how to provide from using call options in your portfolio.
  4. Retirement

    Write Covered Calls To Increase Your IRA Income

    Covered calls may require more attention than bonds or mutual funds, but the payoffs can be worth the trouble.
  5. Trading

    The Basics of Covered Calls

    Learn how this options strategy can lower the risk of stock or futures contract ownership while increasing potential profits.
  6. Managing Wealth

    3 Reasons To Buy Government Surplus for Your Small Business

    Learn why it's wise to access government surplus auctions to buy furnishings, equipment and other items to start a new business or expand an existing business.
  7. Trading

    What is a Bear Call Spread?

    A bear call spread is an option strategy that involves the sale of a call option, and the simultaneous purchase of a call option (on the same underlying asset) with the same expiration date but ...
RELATED FAQS
  1. 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 >>
  2. How does a forward contract differ from a call option? (AAPL)

    Find out more about forward contracts, call options, the mechanics of these financial instruments and the difference between ... Read Answer >>
  3. What Does It Mean to Be Long or Short a Derivative?

    Find out more about derivative securities and what it indicates when traders or investors establish a long or short position ... Read Answer >>
Hot Definitions
  1. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  2. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  3. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  4. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  5. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
  6. Current Ratio

    The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
Trading Center