1. What is a Sell Call Option?

A call option gives the buyer the right, but not the obligation, to buy an underlying asset at a specified price (strike price) within a specific time period. When you sell a call option, you receive a premium and take on the obligation to sell the asset if the buyer exercises the option.

2. How Does the Calculator Work?

The calculator uses the sell call option profit formula:

Where:

• \( Premium \) — The premium received for selling the call option
• \( S \) — Current price of the underlying asset
• \( Strike \) — Strike price of the call option

Explanation: If the option expires worthless, your profit is the full premium. If the option is exercised, your profit is reduced by the difference between the current price and strike price.

3. Importance of Profit Calculation

Details: Understanding potential profit scenarios helps options traders assess risk/reward ratios and make informed trading decisions.

4. Using the Calculator

Tips: Enter the premium received, strike price, current underlying price, and select whether the option has expired. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is maximum profit for selling a call?
A: The maximum profit is the premium received, achieved when the option expires worthless.

Q2: What is maximum loss for selling a call?
A: Theoretically unlimited, as the underlying asset could rise indefinitely above the strike price.

Q3: When does selling calls make sense?
A: When you believe the underlying asset will stay flat or decline slightly, or when you want to generate income on an asset you own.

Q4: What is assignment risk?
A: The risk that the option buyer will exercise their right to buy the underlying asset from you at the strike price.

Q5: What is a covered call vs naked call?
A: A covered call means you own the underlying asset, while a naked call means you don't - which is much riskier.