Mastering Options

CHAPTER 2

Option Profit-and-Loss Diagrams

Call Options

The call option buyer (option holder) has the right but not the obligation to buy the underlying asset at a specified time in the future (expiration date) at a specified price (strike price). The call option writer has the obligation to sell the option if exercised at the specified price and date in return for a premium paid by the option buyer (Table 2.1).

Call Profit-and-Loss Diagrams

We will start with looking at the profit-and-loss diagram for the long call option. The long call is the position of the holder (buyer) of the call option. We will assume that you have purchased a call option on ABC stock at a strike price of $43 per share and paid a premium of $2 per share. In the real world, ...