A call option is a type of options contract that gives the holder the right, but not the obligation, to buy a specific underlying asset at a predetermined price (strike price) within a specified time frame.
For example, let’s say you believe that the stock price of Company XYZ is going to increase in the near future, and it is currently trading at $50 per share. You can buy a call option with a strike price of $55 that expires in three months, which means that you have the right to buy 100 shares of Company XYZ at $55 per share within the next three months. If the stock price rises to $60 per share within that time frame, you can exercise your call option and buy the shares at the lower $55 strike price, then sell them on the open market for a profit. However, if the stock price does not increase, you can let the option expire and only lose the premium (cost) paid for the option.