In the context of financial derivatives, what is a "call option"?

A call option is a financial contract that gives the holder the right, but not the obligation, to buy an asset at a specified price within a predetermined time frame. This is a key feature of a call option that distinguishes it from other derivatives, particularly put options, which provide the right to sell an asset instead of buying.

In the context of trading and investing, a call option can be advantageous if the market price of the underlying asset rises above the specified strike price. The holder can exercise the option to purchase the asset at the lower strike price, potentially realizing a profit by selling it at the current market price. This mechanism allows investors to leverage their positions without requiring them to purchase the underlying asset outright, providing increased investment flexibility.

Other answer choices refer to different concepts in finance: a put option, which is related to selling rather than buying; a general type of financial security; and methods related to futures trading, none of which accurately define a call option as an agreement that allows the holder to buy an asset at a specified price.