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Call Option

A call option or "call" is a derivative security giving the holder the right to buy the underlying securities at a fixed price. An employee stock option is a type of call option in that you have the right to buy stock at a fixed price for a period (for the opposite, see Put Option).

Holders of concentrated stock positions sometimes sell call options against their shares to generate cash (see Covered Call). Of course, if the stock is above the call price at expiration, the holder will have to hand over the stock or pay the difference between the market and the call strike prices. Many companies do not allow employees to sell calls against their company stock, as this could force them to sell shares during a blackout period.

See also a good short article by The Motley Fool on the basics of put and call options (not the employee kind of options).

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