Commonly asked Long Call questions
+ How do you calculate call options?
An call option's Value at expiry is the amount the underlying stock price exceeds the strike price. The Profit at expiry is the value, less the premium initially paid for the option.
Value = stock price - strike
Profit = (value at expiry - option cost) × (number of contracts × 100)
= ((stock price - strike) - option cost)
× (number of contracts × 100)
The Breakeven at expiry will always be higher than the underlying stock price at the time of purchase and is the strike plus the option price.
Breakeven price = strike + option cost
To calculate profit prior to expiry requires more advanced modelling.
The price corresponds primarily to the probability of the stock closing above the strike price at expiry. This can be generalized to both call and put options having higher extrinsic* premium for strikes closer to the current stock price, longer-dated expiries, and higher stock volatility.
Profit = ((stock price - strike price) - option cost + time value)
× (100 × number of contracts)
*extrinsic premium is any cost above the intrinsic value
You can use our calculator above, which uses the Black Scholes formula to estimate the value of a long call purchase before or at expiry.
Related: What happens when options expire to ensure you capture the maximum profit
+ How to choose the best strike price for a long call?
A strike at or below the stock price provides a balance of return and probability of profit. However, for a bullish outlook, the most profitable strike is usually between the current stock price and the price you expect the stock to reach on the date of expiration.
Use our Option Finder Calculator tool to see the most profitable options, including probability of profit.
+ How much do you make on call options?
There is no cap on the maximum possible profit using a long call strategy, and profit increases linearly with the rising price of the underlying stock. Loss is generally limited to the initial value of the option paid.
+ How do you use volatility on long calls
Whether purchasing a call or put option, a long option purchase with time left till expiry has exposure to changes in the volatility of the underlying stock.
- If the market predicts increased volatility, the option price can go up
- If the market seems to be gaining stability, the price will decrease more rapidly
+ Time value of call options
Time value is any value above the option's intrinsic price that an option is being traded for. For 'Out of the money' calls (above the stock price) the entire value is time value.
Time value decreases as expiration approaches, but not at a linear rate; prices begin to decay more rapidly in the last month or so of a contract.
A call option has no value and is said to 'expire worthless' if the stock price closes below the call's strike price at expiry.
Otherwise the option may be exercised to purchase the stock for the agreed strike price, or the options sold as expiration is approaching.