You speculate that the value of Stock ABC is going up. It means that if you are long on Nifty 10,500 call option at a price of Rs50, you are profitable if the Nifty moves above Rs50.28. You purchase it when you expect prices to rise and want to benefit from that rise. Currently, it is priced at $50. But when it comes to complex multiple leg options strategies, such as Butterfly, it is difficult to analyze the profit-loss potential that quickly. For example, if you pay a $0.10 debit (which is actually $10 - remember that 1 option contract controls 100 shares of stock so you have to multiply $.10 x 100 to get $10) to potentially make $0.90 on a $1.00 wide spread; you would have a P.O.P. 100 - [(the max profit / strike price width) x 100]. How to Calculate the Return on an Option. Placing a covered call sets up a potential profit. If the difference between the strike price and the current price is negative, the loss would be greater. Payoff Formula. The flat return (static return) assumes that the stock price does not change by expiration. What’s the risk-reward profile of a long call option? Call options give the buyer of the option the right, but not the obligation, to buy the underlying security. Although using the options chart may not be totally necessary for the more basic calculations, working with the chart now can help you get used to the tool so you’ll be ready when the Series 7 exam tests your sanity with more-complex calculations. Since they can be no limit as to how high the stock price can be at expiration date, there is no limit to the maximum profit possible when implementing the long call option strategy. A call option, often simply labeled a "call", is a contract, between the buyer and the seller of the call option, to exchange a security at a set price. can make a risk free profit. References. ... Let's look at a call. Options are sold in contracts, with each contract representing 100 options. HOW TO CALCULATE BULL CALL VERTICAL SPREAD - PROFIT MAXIMUM PROFIT (Cannot make more than this): 1. Call Option payoff diagrams. A Straddle is where you have a long position on both a call option and a put option. After getting the option chain for the stock, this program will populate various dropdown, charts, etc. Valuation of options The discussion we had above allowed us to see upper or lower limits on value of options. Understand how … If the prevailing call option price is more than 1.36, then I can short the call, long the put and long the share, and lock a risk free profit. Next, she sold the DPY 55 call for a premium of 6, so you need to enter $600 (6 × 100 shares per option) on the Money In side of the chart because she received money for selling that option. The profit is based on a person buying an option at low price and selling it at a higher price before the option expires. 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