- A cost effective strategy designed to limit the costs associated with exercising a call option. When a European call option is purchased, the present value of the strike price is invested in a risk-free interest bearing account. When the investment matures, the value of the account will be enough to cover the costs of exercising the European option if the holder chooses to do so.
A fiduciary call is a smart way to cover the cost of exercising a stock if the investor has the spare cash available. If the option holder decides to let the option expire, then they will have a return on an investment that may be higher then the risk-free rate of return.
The strategy can also be implemented for an American option if the time to exercise the option can be reasonably estimated.
Investment dictionary. Academic. 2012.
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