Certified Management Accountant Practice Exam 2026 – The Comprehensive All-in-One Guide to Exam Success!

A call option provides the holder with the right to purchase shares at a specified price, also known as the strike price. This is a key principle in options trading, where the holder of a call option benefits from an increase in the underlying asset's value. If the market price of the stock exceeds the strike price, the holder can exercise the option to buy at the lower predetermined price, allowing for potential profit.

This feature distinguishes call options from other financial instruments. For instance, the option to sell shares at a fixed price pertains to put options, which provide rights in the opposite direction. Additionally, an obligation to buy shares at market price would typically relate to a different type of financial agreement, rather than an option. The ability to receive dividends is another aspect tied to actual ownership of shares rather than a derivative like an option. Consequently, the essence of a call option lies in granting the holder a right, not an obligation, concerning the purchase of shares under specified conditions.