Christmas is only a day away and, for a Christmas present, Della wants to buy Jim a gold watch chain for his gold watch. They do not have much to be proud or happy about, but Jim is very proud of that watch. And Della? Della is most proud of her beautiful long hair. But she really wants to buy that gold chain for Jim's watch. Too bad she only has $1.87. So, she decides to sell her hair to a woman who makes wigs and other hair articles. The woman pays Della $20 for her hair. The chain costs $21, so she now has enough money. She buys the chain to give to Jim. She goes home and prepares Jim's dinner and waits for him to come home, a little bit worried that Jim will be shocked when he sees her with all her beautiful hair cut off.

When Jim comes home, he does look shocked when he sees Della with short hair. He stares at her in a strange way and it scares her. She explains to Jim how she sold her hair to buy him

She had seen them in a shop before, but they were so expensive. How was Jim able to afford them? Suddenly, she remembers Jim's present. She gives him the gold chain. The chain is beautiful, but when Della asks Jim to put it on his watch, Jim surprises her. He sold the watch to buy her those nice combs.

Were they both foolish to sell their favorite possessions? O.Henry tells us that, no, they were wise. They were wise because they had each sacrificed their most valuable possessions for the person they loved. They were like the three wise men — the Magi — who brought presents for Jesus Christ after he was born. Keep in mind, that this is why Christians still give presents on Christmas Day: to remember the gifts the Magi brought Christ on that very first Christmas.

To cut back is to reduce salary or spending which is usually done in times of recession or slow business. It can be used as a phrasal verb or as a noun.

groceries noun

Groceries, as a countable noun, are food provisions. We usually consider these as essential food items (milk, eggs, rice, vegetables, etc). As a non-countable noun, grocery is used to describe the store where groceries are purchased.

watch chain noun

A watch chain is a chain that attached to an old-fashioned pocket-watch. The other end of the chain was attached to a waistcoat button hole so that the watch would not be lost if it fell out of the pocket.

Too bad adjective (colloquial)

Too bad is an expression which is similar to it's a shame, or it's a pity. It expresses a feeling of disappointment at not being able to do something.

wigs noun

A wig is a false hair covering for the head. Wig makers pay for real hair by its length. A person like Della, with extremely long hair, would be able to get a good price for cutting it short. Other words such as hairpiece and toupee (pronounced too pay) are also commonly used to describe smaller coverings that are not full wigs.

To be shocked is to be very surprised. It is also a noun (shock) and a verb (to shock).

strange adjective

Strange means unusual. In this case it refers to the way Jim looks at Della in an unexpected manner.

possessions noun

Possessions are personal belongings. The things that we own. It is related to the verb possess which means to hold, to keep or to own.

sacrificed verb

Here sacrificed is used as a verb. To sacrifice something is to give away something valuable in order to help somebody else. It can also be used as a noun, together with the verb "to make", e.g.

He made a big sacrifice to help his family.

valuable adjective

When something is valuable it is either worth a lot of money, or it has strong emotional value and is something that can not easily be replaced.