A call option is an option contract in which the holder (buyer) has the right (but not the obligation) to buy a specified quantity of a security at a specified price (strike price) within a fixed period of time (until its expiration).
For the writer (seller) of a call option, it represents an obligation to sell the underlying security at the strike price if the option is exercised. The call option writer is paid a premium for taking on the risk associated with the obligation.
Call Options are used when we expect the price of the underlying stock to go up.
For example, if we wanted to rent a house and left a security deposit for it, the money would be used to insure that we could, in fact, rent that house at the price agreed upon when we returned.
If we never returned, we would give up our security deposit, but we would have no other liability. Call options usually increase in value as the value of the underlying instrument increases.
When we buy a Call option, the price we pay is called the option premium, secure our right to buy certain stock at a specified price called the strike price.
If we decided not to use the option to buy the stock, we are not obligated to. Our cost the the option premium.