Option Parameters
Short Call Quick Reference
P/L at Expiration:
P/L = Total Credit - max(S - K, 0) × 100 × Qty
Total Credit = Premium per Share × 100 × Qty
Key Terms:
- S = Stock price at expiration
- K = Strike price
- Qty = Number of contracts
- Breakeven = K + Premium per share
Key Metrics
Formula Breakdown
P/L Diagram
Understanding Short Calls
What Is a Short Call Option?
A short call option (writing a call) obligates you to sell shares at the strike price if the buyer exercises. You collect a premium upfront, and your maximum profit is limited to that premium.
Short calls are a bearish or neutral strategy: you profit when the stock stays at or below the strike price, allowing the option to expire worthless.
Key Characteristics
- Max Profit: Limited to the total premium received (entry credit)
- Max Loss: Theoretically unlimited as the stock rises
- Breakeven: Strike price + premium received per share
- Outlook: Bearish or neutral (you expect the stock to stay flat or fall)
- Time Decay: Works in your favor (option loses value as time passes)
How to Read the P/L Chart
The solid blue line (At Expiration) shows your profit or loss if you hold the position until expiration. The inverted bent shape shows the short call's limited upside (capped at premium received) and unlimited downside above the strike.
The dashed dark blue line (Today / T+0) represents your theoretical P/L at trade entry, computed using the Black-Scholes model. At T+0, this curve sits below the expiration line because the option still holds time value that works against the seller. As time passes, the T+0 curve rises toward the expiration curve — this is time decay working in your favor as a seller.
IV Mode vs. Premium Mode
IV Mode: Enter the implied volatility, and the calculator uses the Black-Scholes model to estimate the theoretical call premium. This mode also enables the "Today (T+0)" P/L curve on the chart, showing how the option value changes before expiration.
Premium Mode: Enter the exact premium you received (or expect to receive) per share. This is useful when you know the actual market price. In this mode, only the expiration payoff curve is shown because IV is needed to compute theoretical values before expiration.
When to Use a Short Call
- You expect the stock to stay flat or decline
- You want to collect premium income from selling options
- You have a bearish or neutral outlook on the stock
- You understand and accept the unlimited risk if the stock rises significantly
Frequently Asked Questions
Disclaimer
This calculator is for educational purposes only. Options trading involves significant risk of loss. Actual option prices and P/L may differ due to market conditions, bid-ask spreads, dividends, early exercise (American options), and other factors. The Black-Scholes model makes simplifying assumptions including constant volatility and European-style exercise. This is not financial advice. Consult a qualified professional before making investment decisions.
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