A call option gives its buyer the right but not the obligation to buy an asset at an agreed price (the strike price) within a fixed timeframe. The asset might be a stock, commodity or bond, for example.
The person who writes the option is legally obliged to sell the underlying asset (for example shares, if the option is a stock option) to the option buyer.
Coupons from shops often behave like call options:
Your local pizza place may have a coupon good for the next thirty days that allows you to buy a large pizza for $10. That is similar to a call option. It is like a contract that locks in the purchase price over a fixed time period. After that time period, the option to buy at that price expires… The big difference between a coupon and a call option is that you must pay for the option, while coupons are generally handed out free of charge.
Bill Johnson with James DiGeorgia and David Nichols, An Investor’s Guide to Understanding and Mastering Options Trading
Call options are profitable for the buyer when the underlying asset’s price rises to reach or exceed the strike price.
When the price of the underlying asset is higher than strike price, the option is in-the-money.
Buyers of options can lose no more than the price they pay for the option. Their gains are potentially very high.
If the asset’s price rises, but does not reach the strike price, the option holder might still be able to sell it on profitably to another trader, provided that trader sees a potential profit in the time remaining before the option expires.
Call options are sold (written) by people who believe the price of the underlying asset is unlikely to rise.
The writer sells the call for a sum of money called the premium.
Potential losses for people who write naked options can be very large.