![]() The breakeven price for the call seller is also $24 and anything above that level will see them suffer losses on a one to one basis. The profit scenario is reversed for the call option seller because the maximum profit they can achieve is equal to the premium received and the potential losses are unlimited. If the stock moves lower, the most the trade can lose is the premium paid which would occur if the stock finishes below the strike price of $22. The breakeven price on the trade is $24 because we need to add the premium paid to the strike price. If the stock finished at $26 on the expiration day, the profit would be:Īs each contract represents 100 shares, the total profit to the investor would be $200. Let’s say a trader purchased a $22 strike call and paid $2 in premium. CALL OPTION BUYERįor the buyer, the return on the trade is calculated by taking the ending stock price, minus the strike price and the premium paid. When calculating the profit on a call option, there are two different scenarios depending on whether you are the buyer or the seller of the option. When determining the profit for the call option buyer we need to take into account to cost of the premium. This is the seller’s to keep no matter what happens. Call Option Premiumįor receiving the right to buy the underlying shares, the call option buyer must pay to the seller a premium. If you’re a more advanced trader, you will want to check out these articles. If you’re new to options, you may want to check out my 11,000 word beginner guide by clicking the button below. On the other hand, the seller of a call option has an obligation to sell the stock if the buyer exercises the option. Up until the contract expires, the buyer of a call has the right to purchase the stock at the agreed price. The contract will be for the right to purchase a certain stock at a certain price, up until a certain date (called the expiration date). ![]() What Are Call Options?Ī call option is a contract between a buyer and seller. In today’s article, I’ll show you just that and even provide a nice calculator for you that you can download and use for yourself. Long calls are probably the easiest strategy for beginners to understand but you may be wondering how to calculate the profits? Options are increasing in popularity by the day due to commission free brokers such as Robinhood and celebrity day traders like Dave Portnoy. Read the article or jump straight in and download the calculator below:ĭownload The Call Option Profit Calculator This free call option profit calculator will allow you to visualize the payoff graph and see the profit at various price points.
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