Can you end up with a loss with call option even if the underlying stock value increases above strike price?
- StephenWeinsteinLv 710 months ago
Yes. To break even, you need it to increase to the strike price PLUS what you paid for the option. If it increases by less than what you paid for the option, you still lose money.
- zman492Lv 710 months ago
For example, if you buy a call option with a strike price of $50 for $1.00. At expiration the stock is at $50.50. You paid $1.00 for an option which is only worth $0.50.
If you do not exercise or sell the option you will lose the $100 premium you paid for the option. If you sell the option you will probably get, at most, $45 for it so you will reduce your loss to $55. If you exercise the option and sell the stock for $5,050 you will reduce your loss to $50.
In the examples I assumed you do not pay any commissions on your trades. If you pay commissions you need to increase your losses by the amount to paid in commissions.