The four positions
There are only four single-leg option positions, and what separates them is not complexity but where the risk is bounded. This is the whole table worth memorising:
| Position | Max profit | Max loss |
|---|---|---|
| Buy a call | Unlimited | The premium |
| Buy a put | Strike less premium | The premium |
| Sell a put | The premium | Strike less premium |
| Sell a call | The premium | Unlimited |
Buying an option puts a floor under your loss: the premium is the whole risk, and it is known the moment you pay it. Selling one caps your profit at the premium instead — and in the case of a naked call, leaves the loss with no bound at all, because there is no limit to how high a stock can go.
The formula
At expiration an option is worth only its intrinsic value:
call value = max( 0, underlying − strike ) put value = max( 0, strike − underlying ) bought: P/L = ( value − premium ) × contracts × 100 sold: P/L = ( premium − value ) × contracts × 100 call breakeven = strike + premium put breakeven = strike − premium
Note that the buyer and the seller of the same contract are exact mirrors — one’s profit is the other’s loss at every price. Both share a breakeven; they simply profit on opposite sides of it.
A worked example
You buy one $50 call for $1.15. One contract covers 100 shares, so it costs $115.
- Breakeven: $50 + $1.15 = $51.15
- Below $50 at expiry the call is worthless — you lose the full $115
- At $51.15 you are flat: the $1.15 of intrinsic value equals what you paid
- At $55 it is worth $5.00 a share, so $500 − $115 = $385
- Above that it keeps going, with no cap
Now flip the position to Sell and the same numbers invert: you receive $115, keep it if the stock stays below $50, and at $55 you are down $385 — with no floor beneath that as the stock rises.
What this deliberately does not do
It does not price an option before expiration. Doing that needs a pricing model, an implied volatility input and a live quote, and the output would be an estimate rather than arithmetic. The practical consequence: a losing position on this page may often be closed today for less than the figure shown, because time value has not yet run out.
It also handles one leg at a time. Payoffs are additive at expiration, so you can run two legs and add them to reason about a simple spread — but the page will not check that the legs form the structure you had in mind.
Frequently asked questions
Why is the loss on a short call shown as unlimited?
Because there is no ceiling on how high the underlying can go, and a short call obliges you to deliver shares at the strike no matter where it trades. A short put is different: its worst case is the underlying falling to zero, which is a large loss but a finite one you can calculate. That asymmetry is the single most important thing to understand before selling an option, and it is why the page states it in red rather than leaving you to infer it from a blank field.
Does this account for time value before expiration?
No, deliberately. Every figure here is intrinsic value at expiry. Before expiration an option is normally worth more than these numbers because time value has not yet decayed away, so a position showing a loss on this page may well be closeable for less of a loss today. Pricing an option mid-life requires a model, an implied volatility input and a live quote — and a modelled number presented as a result is a different kind of claim from arithmetic on what you typed in.
Why do a long and a short of the same option share a breakeven?
Because the breakeven is a property of the contract, not of which side you took. It is the underlying price at which the option's intrinsic value exactly equals the premium paid or received. What differs is which side of that price makes money: the buyer profits beyond it, the seller profits short of it. At the breakeven itself both are flat, which the page's own tests check for all four positions.
What does the premium input mean — per share or per contract?
Per share, which is how option prices are quoted. One standard equity contract covers 100 shares, so a quoted premium of $1.15 costs $115 for one contract. This is a common source of confusion in both directions, so the calculator shows the total cash you pay or receive alongside the per-share figures.
Can I use this for spreads or multi-leg positions?
Not directly. This calculates one leg. You can reason about a simple vertical spread by running each leg and adding the results, since the payoffs are additive at expiration, but the page does not do that for you and will not check that the legs you chose actually form the spread you intended.
Related
Selling a call against shares you already own is a different position from the naked short call above, and a much more common starting point — see the covered call calculator. For stock positions rather than options, the position size calculator works out how many shares a trade should be. Everything is on the tools page.
Options strategies that run to rules rather than to attention — the wheel, credit spreads — are available as bots on the broker account you already have, priced on the pricing page.
Options involve risk and are not suitable for every investor. Selling options can produce losses substantially greater than the premium received, and in the case of an uncovered call there is no theoretical limit to that loss. This page is educational, is not financial advice or a recommendation, and predicts nothing. See the full risk disclosure.