What is a call option?

A call option is accurately defined as a financial contract that grants the holder the right, but not the obligation, to purchase an underlying asset at a predetermined price (known as the strike price) before or at the expiration date of the option. This means that the buyer of a call option can benefit from any increase in the underlying asset's price, as they can acquire that asset at a lower, fixed price under the terms of the option.

This type of financial instrument is often used in investment strategies to maximize profits based on expectations of rising asset prices. If the market price of the underlying asset exceeds the strike price, the holder can exercise the option, purchase the asset at the lower strike price, and possibly sell it at the higher market price for a profit.

The other options do not encapsulate the definition of a call option accurately. For instance, a contract that obligates the seller to buy an underlying asset describes a different type of agreement, and an agreement to sell a security at any future date does not specify the purchase rights associated with a call option. Additionally, the last choice concerning selling an asset relates more to a put option, rather than a call option, which concerns buying rather than selling.