Short Call Payoff Diagram and Formula

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 trade is profitable if

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. Basically, you multiply the profit or loss by -1.

For detailed explanation of the logic behind individual sections of the graph, see long call option payoff.

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:

Only the signs are opposite compared to long call payoff.

Short call payoff per share = initial option price – option value at expiration

Option value at expiration = MAX ( 0, underlying price – strike price )

Short call payoff per share = initial option price – MAX ( 0, underlying price – strike price )

Short call payoff = ( initial option price – MAX ( 0, underlying price – strike price ) ) x number of contracts x contract multiplier

Short Call Break-Even Point

The formula for calculating short call break-even point is exactly the same as the one for long call break-even point:

Short call B/E = strike price + initial option price

For example, if you sell a 45 strike call option for 2.88 per share, the break-even price is 45 + 2.88 = 47.88 as in the example below. 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.

Short Call Payoff Summary


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