← Strategy LabLesson 1 · 3:32
Long call
Summary
Use a long call when you think the stock will rise past the strike plus the premium, and soon. You buy the $100 call for $3.45 a share, so $345 is the most you can lose, and above $100 the gain has no limit. You break even at $103.45 on the last day.
Key terms
- call option
- The right to buy 100 shares at a set price, the strike, any time before the option expires.
- strike price
- The locked price in an option at which you can buy or sell.
- premium
- What you pay for an option, which you don't get back, and the most you can lose when you buy one.
- contract of 100 shares
- 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.
- last-day line
- The line on a payoff graph that shows your result on the option's last day, also called the expiry line.
- T plus zero line
- The blue line on the chart showing your result today, if you closed the trade right now.
- time value
- The rest of an option's price, paid for the chance things get better before the end, and gone by the last day.
Check yourself
Answer each question to see why the right answer is right.
1. You buy one XYZ $100 call priced at $3.45 a share. What do you pay for the contract?
2. Where does this long call break even on the last day?
3. XYZ ends at $110 on the last day. What is your result on the long call?
4. XYZ ends at $90 on the last day. What is your result?
5. XYZ sits at $105 and days pass with nothing else changing. What happens to your result?
Finished the video and the quiz? .