Call option
Principles of Finance glossary · Time Value of Money
Definition
A contract granting the holder the right, but not the obligation, to buy an asset at a specified strike price.
Call option in plain English
A call option is basically a coupon that says "I'm allowed to buy this thing at this locked-in price, but I don't have to." The locked-in price is called the "strike price," and the "holder" is just whoever owns the option. You'd use it if the real price climbs above your locked price — say your coupon lets you buy a $100 sneaker for $60, and the sneaker is now selling for $150, so you cash in your right and pocket the difference; if the price instead falls, you simply throw the coupon away and lose nothing but what you paid for it. The whole appeal is that magic word "right, but not the obligation" — your downside is capped while your upside is open.
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