Question

You bought a call option with a strike price of $60. The underlying asset is trading for $53 and you paid a premium of $14. What is the most you could lose form this strategy?

Answer 1

Maximum Loss under this strategy will be limited to the extent of premium paid, i.e., $14

Strike Price = $60
Call Option - Right to Buy
Spot @ Expiry	$        40	$          50	$          60	$          70	$          80	$            90	$                  100
Long Call	Out of Money	Out of Money	Out of Money	At the Money	In the Money	In the Money	In the Money
Action	Not Exercised	Not Exercised	Not Exercised	-	Exercise	Exercise	Exercise
Premium Paid	$      (14)	$        (14)	$        (14)	$        (14)	$        (14)	$          (14)	$                  (14)
Settlement	$         -	$           -	$           -	$           -	$          20	$            30	$                    40
Net Payoff	$      (14)	$        (14)	$        (14)	$        (14)	$             6	$            16	$                    26