Long Call Calculator

Search a symbol to visualize the potential profit and loss for a long call option strategy.

What is a long call?

AProfitLossStock Price
BullishUnlimited ProfitLimited Loss

A call option is one of the two basic types of options. The owner of a call option has the right, but not the obligation, to buy 100 shares of the underlying stock at the strike price in the future.

It is helpful to know some basic terminology about the strike of a call option:

  • In-The-Money (ITM): The stock price is greater than the strike price.
  • At-The-Money (ATM): The stock price is equal to the strike price.
  • Out-of-the-money (OTM): The stock price is less than the strike price.

Options that are out of the money will expire worthless, while options in the money will be worth some amount at expiration. However, this doesn't mean that any in-the-money option returns a profit. You must also factor in the price you paid for the option. If you paid $5 per contract and the option is ITM by $2, you would lose $3. If you are holding the option until expiration, you need for the option to be ITM by at least the amount you paid for it.

OptionStrat's options profit calculator tool can help you quickly find the breakeven points and understand how the profit and loss of your position will change throughout the life of the option, depending on what the stock does. To get started, type in a stock, index, or ETF in the above text box.

Steps:

  1. Open your trading app or brokerage account (the service you use to trade, such as Robinhood, TD, Schwab, WeBull, etc.)
  2. Navigate to the stock you want to trade and open the option chain. The option chain is usually a list of both calls and puts at various expiration dates and strike prices. Some brokers will require that you are approved before you can trade options.
  3. Find the call you want to buy by selecting an expiration date and then a strike price. Strikes that are further above the stock price can give bigger rewards, but they come with more risk since there is less of a chance that they will be ITM.
  4. Enter a limit price for the option if it is not already provided. This will ensure that your order only executes if you get that price or better. Brokers will usually fill this price in automatically based on the best price available, however some will allow for "market orders", which are not recommended for options. (A market order will allow you to purchase immediately, however the price you purchase at is up to the market to decide, meaning you could get an unfavorable price if the market moves quickly or if there is low liquidity)
  5. Submit the order! Double check that you are "buying to open", and not "selling to open", which is a different strategy (a short call). If your account is only approved for a lower level, this is probably the only action you can take anyways. Since a long call is a debit strategy, it will result in cash taken out of your account to buy the option. However, since you now own an option of equal value, the balance of your trading account will not immediately adjust much (since you can sell your option back for roughly the price you paid for it). As time progresses and the stock price changes, you will see the option price (and your unrealized gain/loss) move as well.

Goal:

To breakeven at expiration, you need for the underlying stock price to be above the strike price plus the premium you paid for the option.

For example, if you paid $5.00 for a 100 call, and the stock is at 103, you would still be losing money ($2 x 100 = $200) because you must make up for the cost of the option itself.

Because of this, you really want the stock to go well above your strike price (depending on how much you paid for the option). Otherwise you will constantly be worrying if the stock is going to make it, which often leads to panic selling.

However, you can also sell your call at any time to lock in your profits (or losses, hopefully not). If you sell your call before expiration, the breakeven price will be lower as there is still time value left.

Effect of Time:

A call option will lose value as time passes due to theta decay. The rate of this accelerates as expiration approaches, with the majority of the decay happening in the final days or weeks of the option's lifetime.

Time decay occurs because as time passes, the chance of the stock making a large move decreases. An out-of-the-money contract can have plenty of value months before expiration, but as the final days approach, it will rapidly lose value if it is still out of the money. Simply put, when there is less time remaining, there is less of a chance that the stock will be able to move in time, making the price that others are willing to pay for the option less.

Time decay can be "fought" by other factors. The most obvious of course, is the price of the underlying stock. If the stock moves upwards enough, it can increase the value of the call more than the time decay is taking away from the call. Another factor is implied volatility, which can offset the decay if it increases enough.

Absent of these factors, a call will lose value as expiration approaches. The final price of a call will depend on how far in-the-money it is. All out-of-the-money calls, which previously were worth something due to the time value, will be worthless at expiration.

Effect of Volatility:

Volatility is a large unknown when trading options. Like the price of the stock itself, it is one thing that we cannot easily predict. Options will increase in value as implied volatility increases, and decrease when IV decreases. In fact, implied volatility is actually calculated from the price of the option itself compared to the "fair value" price of the option. When other traders are willing to pay more for an option, it increases that gap, which IV represents.

Why would an investor pay more for an option than the theoretical fair value? There are many reasons, all of which involve real world events that factor into their decision. The most common reason is that an earnings announcement is upcoming. Typically, a stock moves either up or down a fair bit when earnings are announced, as the company either beats or doesn't meet earning expectations. You might think this would be the perfect time to buy a call, as there is a chance the stock makes a big move in the coming days. Of course, everyone else in the market also thinks this and wants to get in on the action. Demand from lots of buyers of an option will cause the price of the option to go up. (Just like how lots of demand from home buyers or concert-goers allows for sellers to charge more) It goes the other way too, as option sellers know their worth and aren't going to sell an option that could double in the coming days for cheap. Since these options are going for more than they usually would, implied volatility for them increases. However, after the announcement, implied volatility (and the price of the option) rapidly collapse to normal levels. This is known as "IV crush" and is one of the biggest gotchas for new option traders.

The Greeks:

Date: 26d remaining
Fri Dec 2nd (now)Thu Dec 15th (13d)Thu Dec 22nd (20d)Expiration (26d)
Risk
AProfitLossStock Price
As the stock price increases, the call will increase in value. The increase is greater for calls that are more out-the-money, and less for calls that are more in-the-money. You can make unlimited profit in theory, but can only lose what you paid for the option.
Theta
A+-Stock Price
Theta is always negative for a call, meaning it will lose value as time passes. The rate of this loss will accelerate as it gets closer to expiration, with the call losing the majority of it's value in the final days or weeks.
Delta
A+-Stock Price
Delta is always positive, meaning the call will gain value as the stock increases (assuming volatility stays the same), and lose value as the stock decreases. As expiration nears, delta will become stronger, making the call more sensitive to price changes.
Vega
A+-Stock Price
Vega is positive, making an increase in volatility helpful to a call and a decrease harmful. Vega is highest when the underlying is near the strike price, making the call most sensitive to IV during this time.
Gamma
A+-Stock Price
Gamma, or the rate of change of delta, is positive for a long call and highest near the strike. This means delta will most rapidly move when the stock is near the strike price.
Rho
A+-Stock Price
Rho is positive, making calls more valuable as interest rates increase. (As rather than buying a call, you could have bought the shares immediately and missed out on earning interest on the cash used)

Pros:

  • Buying a call is much cheaper than buying 100 shares of the underlying stock, giving you lots of leverage for relatively little capital.
  • Like owning shares, a long call has no profit cap.
  • You can never lose more than 100% of your investment. (This may sound like a con, but it is a benefit over other option strategies that have uncapped loss potential)

Cons:

  • If the stock doesn't reach your breakeven point, you will lose your entire investment. If you owned shares instead, you may only be down a small amount, as the chance of a stock going to zero is slim. (But don't forget about Lehman Brothers)
  • Being highly leveraged means that even a small downwards move can send the call plummeting, leaving you with a tough decision to cut your losses or hold out for longer.

Tips:

  • Have a plan before you enter the trade. Think about how far you are willing to let the call fall before you cut your losses, and set a stop-loss if your broker supports it. This helps takes the emotion out of the trade by avoiding decisions in the moment.
  • The risk of a call can be tailored to your needs based on the strike price. A conservative investor may choose an ITM strike price with a more achievable breakeven, while a riskier investor may choose an OTM strike price that has a higher profit potential in exchange for a higher risk. Use our profit calculator to compare the risk/reward scenarios between each strike.

The Math:

The value of a call at expiry can be calculated with a simple formula, which is also the formula for finding the intrinsic value of the call:

option price = max(stock price - strike, 0)

This is because at expiration, an in-the-money option can be exercised to buy the shares at the strike price. So if the strike is $100 and the stock is now at $105, the option can be exercised to purchase 100 shares at $100, below the current market price. Then, the shares can be sold for $105, netting a $5 profit per share.

The value of a call before expiry includes the extrinsic value (time value), which cannot be easily calculated by hand. Instead, an options model must be used. Use our options profit calculator to easily visualize this.

To find the breakeven, simply add the price you paid for the contract(s) to the strike price:

breakeven = strike + cost basis