Financial Terms related to Call This document is part of the valuable contents available at www.ftpall.com, a free online glossary with more than five thousand financial and business terms. This document can be copied and distributed freely Find thousands of financial terms at www.ftpall.com respecting its original format. It is forbidden its transcription, translation or change on its format without authorization of its author or editor. CALL Call • (1) An option contract giving the owner the right to buy a specified amount of an underlying security at a specified price within a specified time. (2) The act of exercising a call option. See also: Put. • An option that gives the right to buy the underlying futures contract. • An option that gives the holder the right to buy the underlying security at a specified price during a fixed time period. Call an option • To exercise a call option. Call date • A date before maturity, specified at issuance, when the issuer of a bond may retire part of the bond for a specified call price. www.ftpall.com 2|Page Call feature • A feature that is included in almost all corporate bond issues that gives the issuer the opportunity to repurchase bonds prior to maturity at a stated price. Call money • Interest-bearing bank deposits that can be withdrawn on 24-hours' notice. Many Eurodeposits take the form of call money. Call money rate Find thousands of financial terms at www.ftpall.com • Also called the broker loan rate, the interest rate that banks charge brokers to finance margin loans to investors. The broker charges the investor the call money rate plus a service charge. Call option • The right to purchase stock at a specified (exercise) price within a specified time period. • A Call Option is the right to buy (but not the obligation) an underlying asset at a fixed price (called the exercise price) during a fixed time period. To obtain the call option, the buyer pays a premium to the seller. The seller of the call option has the obligation to deliver the asset and receive the exercise price. • Is a contract whereby the purchaser, owner or holder is given the right but is not obligated to purchase the underlying security or commodity at a fixed strike price within a limited time frame. • An option contract that gives its holder the right (but not the obligation) to purchase a specified number of shares of the underlying stock at the given strike price, on or before the expiration date of the contract. • An option to purchase 100 common shares of a specific company on or before a specified future date at a stated price. www.ftpall.com 3|Page Call premium • The amount by which a bond's call price exceeds its par value. • Premium in price above the par value of a bond or share of preferred stock that must be paid to holders to redeem the bond or share of preferred stock before its scheduled maturity date. Call price • The price, specified at issuance, at which the issuer of a bond may retire part of the Find thousands of financial terms at www.ftpall.com bond at a specified call date. Call price bond • The stated price at which a bond may be repurchased, by use of a call feature, prior to maturity. Call price preferred • The repurchase price for a preferred share issue. Generally the stated value plus a call premium. Call protection • A feature of some callable bonds that establishes an initial period when the bonds may not be called. Call provision • An embedded option granting a bond issuer the right to buy back all or part of the issue prior to maturity. Call risk • The combination of cash flow uncertainty and reinvestment risk introduced by a call provision. Call swaption www.ftpall.com 4|Page • A swaption in which the buyer has the right to enter into a swap as a fixed-rate payer. The writer therefore becomes the fixed-rate receiver/floating rate payer. Callable • A financial security such as a bond with a call option attached to it, i.e., the issuer has the right to call the security. Callable bond • A bond that the issuer has the right to redeem prior to maturity by paying some Find thousands of financial terms at www.ftpall.com specified call price. • A bond that can be redeemed by the issuer prior to its Maturity. Usually a premium is paid to the bond owner when the bond is called. Conference call • A publicly-traded company's communication with Analysts, Shareholders, and investors by telephone and/or via the Internet. Covered call • A short call option position in which the writer owns the number of shares of the underlying stock represented by the option contracts. Covered calls generally limit the risk the writer takes because the stock does not have to be bought at the market price, if the holder of that option decides to exercise it. Covered call write • Selling calls against securities owned by the call seller. Covered call writing strategy • A strategy that involves writing a call option on securities that the investor owns in his or her portfolio. See covered or hedge option strategies. Deferred call • A provision that prohibits the company from calling the bond before a certain date. www.ftpall.com 5|Page During this period the bond is said to be call protected. Effective call price • The strike price in an optional redemption provision plus the accrued interest to the redemption date. Equitize a margin call • Is an event whereby a previously unsatisfied margin call is eliminated by an effective transfer of ownership. In 1998, Long Term Capital Management transfereda Find thousands of financial terms at www.ftpall.com portion of ownership to its creditors. In some respects, it was a debt for equity swap. The immediate benefit to the previous creditors is that the regulatory capital requirement is not impaired by a default. It also extends the horizon for position liquidation. First call • With CMOs, the start of the cash flow cycle for the cash flow window. Implied call • The right of the homeowner to prepay, or call, the mortgage at any time. Irrational call option • The implied call imbedded in the MBS. Identified as irrational because the call is sometimes not exercised when it is in the money (interest rates are below the threshold to refinance). Sometimes exercised when not in the money (home sold without regard to the relative level of interest rates). Margin call • A demand for additional funds because of adverse price movement. Maintenance margin requirement, security deposit maintenance • The Federal Reserve Board's demand that a customer deposit a specified amount of money or securities when a purchase is made in a Margin Account. The amount is www.ftpall.com 6|Page expressed as a percentage of the market value of the securities at the time of purchase. The deposit must be made within one payment period. See also: Margin; Fed Call. • Is the phrase used to represent a call for additional funds. This demand for more funds in either cash and/or securities is to restore an account to its initial margin requirement level. Generally, this occurs when the price action is adverse to the account holders positions. It can also reflect an increase in margin requirements. Provisional call feature Find thousands of financial terms at www.ftpall.com • A feature in a convertible issue that allows the issuer to call the issue during the non-call period if the price of the stock reaches a certain level. Purchased call • Is a bullish strategy. It confers the right but not the obligation to exercise the contract into a long position in underlying instrument. The risk is limited to the premium paid, and the reward is theoretically considered to be unlimited. Put call parity relationship • The relationship between the price of a put and the price of a call on the same underlying security with the same expiration date, which prevents arbitrage opportunities. Holding the stock and buying a put will deliver the exact payoff as buying one call and investing the present value (PV) of the exercise price. The call value equals C=S+P-PV(k). Sold call • Is a bearish strategy. It requires the grantor of the option to fulfill the contract by accepting a short position in the underlying instrument upon exercise. The risk is unlimited and the reward is limited to the premium received. Synthetic long call • Is a long position in the underlying instrument or futures combined with a long or www.ftpall.com 7|Page purchased put. Synthetic short call • Is a short position in the underlying instrument or futures combined with a short put position. Uncovered call • A short call option position in which the writer does not own shares of underlying stock represented by his option contracts. Also called a naked call, it is much riskier Find thousands of financial terms at www.ftpall.com for the writer than a covered call, where the writer owns the underlying stock. If the buyer of a call exercises the option to call, the writer would be forced to buy the stock at market price. Yield to call • The percentage rate of a bond or note, if you were to buy and hold the security until the call date. This yield is valid only if the security is called prior to maturity. Generally bonds are callable over several years and normally are called at a slight premium. The calculation of yield to call is based on the coupon rate, length of time to the call and the market price. Yield to call, option or event date • Is akin to Yield to Maturity but adjusts for a short life expectancy. It is the rate of return which is measured by the current expected income stream relative to the prevailing market price assuming that the asset is held until the exercise of the first option or termination event. If the instrument is trading at a discount, then the yield to call, option or event date, will be greater than the coupon rate. If the instrument is trading at a premium, then the yield to call, option or event date, will be less than the coupon rate.