When do I breakeven when utilizing a Short Call strategy?

The breakeven is defined as Strike Price plus the Premium (credit) received.

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Level

Beginner

Long Call Long Put Cash Secured Put Covered Call Covered Put Protective Call Protective Put Long Strangle

Intermediate

Long Straddle Call Credit Spread Call Debit Spread Collar Put Credit Spread Put Debit Spread Long Call Broken-Wing Butterfly Long Call Butterfly Short Iron Butterfly Short Iron Condor Long Put Butterfly Bearish Broken-Wing Butterfly

Advanced

Call Backspread Put Backspread

Advanced ** Risk of Ruin

Short Call Short Put Short Straddle Short Strangle Bearish Risk Reversal Call Frontspread Put Frontspread Risk Reversal Synthetic Short Synthetic Long

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Option Strategies Details

Q: What is the max loss of a Short Call?

The max loss is Theoretically unlimited minus the credit received for the Call.

Q: What is the typical application of a Short Call?

The typical applicatio is: 1. Speculate on a decrease in volatility and a neutral or slightly-decreasing price.

Setup

Sell a Call

Typical Application

1. Speculate on a decrease in volatility and a neutral or slightly-decreasing price

Volatility forecast

Down

Price forecast

Neutral to Down

Breakeven

Strike Price plus the Premium (credit) received

PnL Equivalent

Covered Put

Max contract loss

Theoretically unlimited minus the credit received for the Call

Max position loss

same as Max Contract Loss

Short Call

Level: Advanced ** Risk of Ruin

1 Leg

Credit

Advanced ** Risk of Ruin

Other names

Naked Call

You sell (short) a Call

Description

A trader who wants to speculate on a decrease in volatility and a neutral or slightly-decreasing price can sell a Call. The trader receives a credit, called a premium, to sell the Call and has the obligation to sell 100 shares at the strike price.

Suppose stock XYZ is trading at $23. You forecast a decrease in volatility and a neutral to slightly-decreasing XYZ price.

You sell a $24 Call for $0.50 to express this view. Your breakeven XYZ price at expiry is $24 (strike price) + $0.50 (premium received) = $24.50, but since the time component of your trade plan may not extend all the way to expiration you should be prepared to buy to close at a variety of XYZ prices as the market value of your $24 Call changes. Because the price of XYZ can increase infinitely in theory, selling a Call without owning shares as collateral or buying a further OTM Call to create a fixed-risk spread carries a high "risk of ruin". This means that an adverse price move, like a surprise earnings beat or buyout that increases price greatly, can cause catastrophic losses.