Call Short

Market expectation

A call short is recommended if you expect prices to remain unchanged or fall slightly.

You should choose your calls depending on your market expectations. The more negative these expectations are, the further the calls can be "in-the-money" when selling.

Profit potential

In the case of a call short, the maximum profit is the option premium received on the sale. You reach it if the call is not exercised on the expiry date, i.e. the price is below the strike price.

The break-even point for the call short is the strike price plus premium. In the illustration, this is the intersection with the horizontal line at profit 0.

Risk of loss

The maximum loss is virtually unlimited, as the loss increases in proportion to the rising price of the underlying if it is above the strike. The higher the price on the expiry date, the higher the loss, as you are obliged to deliver the shares at the strike price.

Time effect

The call short benefits from a decreasing remaining term, as in this case you are the writer. The call loses time value and can be bought at a lower price to close it out.

Volatility effect

If the volatility of the underlying increases during the remaining term, the risk of the price rising above the strike price increases.