What is a "call option"?

A "call option" is correctly defined as a financial contract that gives the holder the right, but not the obligation, to purchase an underlying asset at a predetermined price, known as the strike price, within a specified time period. This option can be advantageous when the investor anticipates that the price of the underlying asset will rise above the strike price before the option expires. By exercising the call option, the investor can buy the asset at the lower strike price and potentially sell it at the higher market price, thus realizing a profit.

In contrast, the other options describe different financial concepts. A contract to sell an asset at a set price is indicative of a "put option," which provides the holder the right to sell rather than buy. A method of short selling in stocks refers to a different strategy where an investor borrows shares to sell them in anticipation of lower prices, which is unrelated to call options. Lastly, an agreement for dividends from stocks does not relate to options trading; dividends are a form of profit distribution to shareholders and not a contract option regarding asset purchase or sale.