investor who buys the Call Option will be bullish in nature and would be expecting the market to give decent
returns in the near future.
- Risk: The risk of the buyer is the amount paid by him to buy the Call Option i.e. the premium value.
- Reward: The reward will be unlimited as the underlying asset value can rise up to any value until the expiry.
- Break-Even Point: The break-even point for the Call Option Holder will be ‘Strike Price + Premium.’
Construction
- Buy 1 Call Option
Example:
Currently NIFTY is trading around 5300 levels, and Mr. X is bullish on NIFTY and buys one 5200 Call Option
(ITM) for Rs. 200 premium. Lot size is 50. The investment amount will be Rs. 10000. (200*50)
Case 1: NIFTY closes at 5500 levels; Mr. X will make a profit of Rs. 5000. [(300-200)*50]
Case 2: NIFTY dips to 5100 levels; Mr. X will incur a loss of Rs. 10000 (200*50) which is the premium he paid
for buying one lot of 5200 Call Option.
Payoff Chart:
