← BeginnerLesson 7 · 3:31
What does a call's graph tell you?
Summary
You can read a call's profit and loss graph on the last day and see your worst case, your break-even and your upside at a glance. You can find a call's break-even by adding the premium to the strike. You know the graph shows results, not odds, and only for the last day.
Key terms
- profit and loss graph
- A picture with the stock price on the last day along the bottom and your profit or loss up the side.
- break-even
- The stock price on the last day where you neither make nor lose money: strike plus premium for a call, strike minus premium for a put.
- maximum loss
- The most a trade can lose; for an option you buy, it is the premium you paid.
- unlimited upside in theory
Check yourself
Answer each question to see why the right answer is right.
1. On the graph for the $100 call bought for $345, what does the flat part on the left tell you?
2. What is the break-even for the call with a strike of $100, bought for $3.45 a share?
3. XYZ finishes at $102. What is your result on one contract of the $100 call bought for $345?
4. Above the break-even, how much does each extra dollar on XYZ add to your result on one contract?
5. What does the call's graph not tell you?
Finished the video and the quiz? .