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 the 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 ...