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Binary options market pull strategy
A short call position is the opposite of a long call option position the other side of the trade. You sell a call option and receive cash in the beginning. Then you either buy the option back or wait until expiration.
The payoff diagram of a short call position is the inverse of long call diagram, as you are taking the other side of the trade. Basically, you multiply the profit or loss by For detailed explanation of the logic behind individual sections of the graph, see long call option payoff. The formulas are the same as those for long call option strategy, only the profit or loss is multiplied by -1, because you are taking the other side of the trade.
The formula for calculating short call break-even point is exactly the same as the one for long call break-even point:. For example, if you sell a 45 strike call option for 2. The trade is profitable if underlying price ends up below this point.
If it gets above, the trade is losing money and the loss increases proportionally with underlying price. If you don't agree with any part of this Agreement, please leave the website now. All information is for educational purposes only and may be inaccurate, incomplete, outdated or plain wrong.
Macroption is not liable for any damages resulting from using the content. No financial, investment or trading advice is given at any time. Home Calculators Tutorials About Contact. Tutorial 1 Tutorial 2 Tutorial 3 Tutorial 4. Short Call Payoff Diagram and Formula. The trade is profitable if you buy the option back for a lower price than what you sold it for, or if the option expires worthless or with intrinsic value lower than what you sold the option for. Short Call Payoff Diagram The payoff diagram of a short call position is the inverse of long call diagram, as you are taking the other side of the trade.
Short Call Payoff Formulas The formulas are the same as those for long call option strategy, only the profit or loss is multiplied by -1, because you are taking the other side of the trade.
There are again two components of the total profit or loss: The initial option price The value of the option at expiration Only the signs are opposite compared to long call payoff. It is also a short volatility strategy, as the value of a call option declines when volatility decreases, which means your short call position becomes more profitable. You want the underlying price to end up below the strike price.
Short call strategy has limited upside, equal to the cash you get when selling the call option in the beginning. This is the maximum you can gain from the trade. It has unlimited risk, because your total loss from the trade rises proportionally with the underlying price, which theoretically can go up infinitely.