Long Call Options Calculator
Results Summary
Total Cost (Basis):
Breakeven Price:
Net Profit/Loss:
Return on Investment:
Understanding the Long Call Strategy
A long call is a fundamental options trading strategy where an investor purchases a call option with the expectation that the underlying asset's price will rise significantly above the strike price before the option expires. It is a bullish strategy that offers limited risk (the premium paid) and theoretically unlimited reward.
Key Components of a Long Call
- Strike Price: The set price at which you have the right to buy the underlying stock.
- Premium: The cost you pay per share to own the option contract. Since one contract usually represents 100 shares, the total cost is the premium multiplied by 100.
- Expiration Date: The date when the option contract becomes void.
- Intrinsic Value: The amount by which the current stock price exceeds the strike price.
How the Calculation Works
To determine the success of a long call trade, we look at several metrics:
- Total Investment: Premium Paid × Number of Contracts × 100 shares.
- Breakeven Point: Strike Price + Premium Paid. The stock must trade above this level for the trade to be profitable at expiration.
- Gross Profit: (Current Stock Price – Strike Price) × Contracts × 100. This is only applicable if the current price is higher than the strike price.
- Net Profit/Loss: Gross Profit – Total Investment.
Example Scenario
Suppose you believe Stock XYZ, currently trading at $145, will go up. You buy 1 contract of a $150 Strike Call for a $3.00 premium.
- Initial Outlay: $3.00 × 1 × 100 = $300.00.
- Breakeven: $150.00 + $3.00 = $153.00.
- Outcome A (Stock goes to $160): The option is worth $10.00 per share ($160 – $150). Total value is $1,000. Your net profit is $1,000 – $300 = $700.
- Outcome B (Stock stays below $150): The option expires worthless. You lose your $300 investment.
Risk vs. Reward
The primary advantage of a long call is leverage. You can control a large amount of stock with a relatively small amount of capital. However, the risk is that the option has a finite lifespan; if the stock doesn't move above the strike price plus the premium before expiration, the entire investment can be lost.