Long Call Risk Profile
We already know that a call option is the right to buy an asset. Logically, this suggests that the call option risk profile direction will be similar to that of buying the
asset itself. So let's have a look at an example:
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Stock Price
|
$56.00
|
|
Call Premium
|
7.33
|
|
Exercise Price
|
50.00
|
|
Time to Expiration
|
2 months
|
Remember that:
Buying gives you the Right
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Buying a call option gives you the right, not the obligation to buy an underlying instrument (eg a share).
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When you buy a call option you are not obligated to buy the underlying instrument - you simply have the right to do so at the strike price.
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Your maximum risk, when you buy an option, is simply the price you paid for it.
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Your maximum reward is uncapped.