Call Option

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Accounting glossary · Understand, connect, apply

A call option gives its holder the right to buy the underlying item at an agreed strike price under the option’s exercise terms.

Example

At expiry, a share is worth 55 and a call has a strike of 50. Its intrinsic value is 5 per share before accounting for the premium.

Remember the difference

A positive exercise value does not establish overall profit. The buyer must also consider the premium and transaction costs.

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Prepared with AI assistance. Examples are fictional and simplified for learning.

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Examples are simplified for learning. Where a term depends on US law, IFRS, US GAAP or a historical rule, check the context explained above and the requirements relevant to your course.

Study references: OpenStax financial accounting and managerial accounting. For reporting requirements, consult the applicable IFRS Standards or FASB guidance. US tax terms should be checked against the relevant tax-year IRS instructions.

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