CR stands for call Option or Call European. CE is the investment contract that provides the investor the liberty to purchase a stock, products, asset, instrument, and many other things at a static price and within a particular time frame.
The option trading is full of complications only because of its popularity and some complicated terms like CE (call option). It is an investment contract that provides an investor the right to buy a stock or share at a fixed price and within a certain time frame. There must not be a delay in buying the stock.
The investor can buy an asset and it can be a share, commodity, or bond. The increase in the worth of the asset will directly gain more profit to the investor or the buyer.
The main specification of the call option is that a buyer or investor can buy the asset with security within a specific timeframe and a fixed price. There will be no limitations and in-depth terms and conditions to be agreed upon before the call option contract.
What Is The Correct Time To Buy The Call Option Contract?
There is a great time to buy a call option contract. Let’s suppose the Adani enterprises annual general meet (AGM) is going to be held next month and you are expected to hear a big announcement in the meeting. After the announcement, the share that costs around INR 2000 will increase from INR 2000 to INR 3000.
You have an idea about the announcement and wanted to buy the shares. But it is risky to buy bulk in cash because of the limitless risks of the annual share market.
In that situation, you can buy the shares from your surplus amount of money from the call option contract. CE is perfect for this situation only if you are ready to risk a little amount of your money to buy the asset. CE is known for its security and privacy.
Advantages of CE
There are numerous advantages of CE (call option), some of them are mentioned below:
- CE will magnify the gains in the stock price, and CE investors will attain a massive profit after any increase in the value of the stock.
- They will allow a trader or investor to lock the stock in a particular piece to buy in the future. After the gains, the owner will buy the stock and sell them at a profit.
- Traders or investors will set a specific date or time frame to buy the stocks, the time frame will extend to a few months or sometimes for years. No time limit foundations will be applied.
- There are no in-depth rules and regulations or set of terms and conditions before buying an asset through CE.
- The owner of the stocks can simply sell the stocks to another buyer at the fair market value and attain gains.
Disadvantages of CE
Everything has both advantages and disadvantages, same with CE. Some of the major disadvantages of CE are mentioned below:
- The buyer needs to pay for the stocks within a specific time frame to avoid any issues related to his ownership of those assets.
- If the stock price will decrease from the strike price then the owner will face massive loss and be surrounded by debts all around.
- In countries like India, where the stock market is unpredictable it is risky to buy an asset in CE.
- Due to several frauds like the Harshad Mehta scam, Vijay Malia, and Neerad Modu scams, it is difficult to predict the future value of stocks and upcoming frauds in a diverse country like India.
- For beginners and new investors, we recommend going far away from CE and only invest under the supervision of an expert.