What does a call option represent?

A call option gives the buyer the right, but not the obligation, to purchase an underlying asset at a predetermined price within a specified timeframe. This means that if the market price of the asset rises above the specified price, the option holder can exercise the call option to buy the asset at the lower predetermined price, thereby potentially profiting from the price increase. This feature of having the right to buy is what distinguishes call options from other types of financial instruments, making them a commonly used tool in trading and investment strategies.

Understanding this concept is crucial for anyone involved in options trading, as it reflects the bullish sentiment associated with call options; investors use them to speculate on or hedge against increases in the prices of underlying assets.