In option trading, call refers to a contract that gives the buyer the right, but not the obligation, to buy an underlying asset at a specified price (the "strike price") within a specific time period (the "expiration"). Calls are typically purchased when the investor expects the price of the underlying asset to increase. For example, if you buy a call option on a stock with a strike price of $50 and the stock price rises above $50 by the expiration date, you can exercise the option and buy the stock at the lower strike price, profiting from the difference in price12.
Break-even is a term used in options trading to describe the price level at which an investor will neither gain nor lose money on a particular trade or investment. It is calculated by adding the premium paid for the option to the strike price of the underlying asset. If the underlying asset's price is below the break-even price at expiration, the investor has incurred a loss equal to the premium paid for the option; if the price is above the break-even price, the investor has a profit, but only to the extent that the price exceeds the break-even price45.
In essence, the break-even price is the point at which the cost of the option (including the premium paid) is covered, and any further movement in the underlying asset's price begins to generate a profit or loss for the investor. This concept is crucial for options traders to understand as it helps in evaluating the potential profitability of a trade and managing risk56.
10/6/2024 11:35am
