Short Call P/L Formula:
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A short call is an options strategy where the seller (writer) receives a premium for giving the buyer the right to purchase the underlying asset at a specified strike price before expiration. The seller profits if the underlying price remains below the strike price.
The calculator uses the short call P/L formula:
Where:
Explanation: The maximum profit is limited to the premium received. The potential loss is unlimited as the underlying price rises above the strike.
Details: Short calls have limited upside (premium received) and theoretically unlimited downside risk. They require margin and are typically used by experienced traders.
Tips: Enter the premium received, current underlying price, and strike price. All values must be positive numbers in USD.
Q1: When would you sell a call option?
A: When you believe the underlying asset will stay flat or decline, or when you want to generate income on a position you own (covered call).
Q2: What's the breakeven point?
A: Breakeven = Strike Price + Premium Received. Above this price, losses begin.
Q3: What are the margin requirements?
A: For naked calls, margin is typically 20% of underlying value + premium - out-of-money amount. Covered calls require owning the underlying.
Q4: How does time decay affect short calls?
A: Time decay (theta) works in the seller's favor as options lose time value approaching expiration.
Q5: When should you close a short call position?
A: Consider closing for partial profit when most time value has decayed, or to limit losses if the position moves against you.