What is an example of a call option contract?

For example, suppose ABC Company’s stock is selling at $40 and a call option contract with a strike price of $40 and an expiry of one month is priced at $2. The buyer is optimistic that the stock price will rise and pays $200 for one ABC call option with a strike price of $40.

How much does it cost to sell a call option?

The investor decides to sell a call option at a strike price of $110 and an option price of $5. Since call option contracts include 100 shares, the total price of the call option is $500 ($5 x 100). If we assume that there is always a buyer, the seller will earn $500 in premiums when they sell the call option contract.

What happens if you sell a call option?

The payoff calculations for the seller for a call option are not very different. If you sell an ABC options contract with the same strike price and expiration date, you stand to gain only if the price declines. Depending on whether your call is covered or naked, your losses could be limited or unlimited.