A call option, often simply labelled a "call", is a financial contract between two parties, the buyer and the seller of this type of option. The buyer of the call option has the right, but not the obligation to buy an agreed quantity of a particular asset, commodity, currency or any agreed financial instrument (the underlying) from the seller of the option at a certain time (the expiration date) for a certain price (the strike price). The seller (or "writer") is obligated to sell the asset, commodity, currency or any agreed financial instrument to the buyer if the buyer so decides. The buyer pays a fee to the seller (called an option premium) for this right.
The buyer of a call option purchases it in the hope that the price of the underlying instrument will rise in the future. The seller of the option expects that it will not.
Call options are most profitable for the buyer when the underlying instrument moves up above the strike price by more than the premium paid. The buyer's maximum loss is limited to the option premium.
The call writer does not believe the price of the underlying security is likely to rise significantly above the strike price. The writer sells the call to collect the premium and does not receive any gain if the stock rises above the strike price.
A European call option allows the holder to exercise the option (i.e., to buy) only on the option expiration date. An American call option allows exercise at any time during the life of the option.