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root strategies

Long Call

Analyzing the risk profile of a long call strategy
True or False: Long calls have a high probability of success
True
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False
Correct! Long calls have a low theoretical probability of success.
You buy a 50 strike call for a total debit of $120. What is your break even?
$50
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$120
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$51.20
Correct! Your break even for a long call is calculated by adding the debit paid to the strike price. In this case $1.20 ($120 divided by 100 shares) is added to the $50 strike price.
$70
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XYZ is trading for $50. Which of these is going to be the least expensive call strike?
$35
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$45
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$55
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$65
Correct! The $65 strike is farthest OTM and will have the lowest price and the lowest probability of profit
XYZ is trading for $35. You paid $0.50 for the 30∆ call. What is your max loss?
$35
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$3500
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$50
Correct! The most you can lose on a long call is the amount you pay for it. In this case, you paid $0.50 – $0.50 × 100 shares = $50
$500
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XYZ is trading for $50. Which of these call strikes will most resemble the risk of 100 long shares?
$30
Correct! The $30 strike would be deepest ITM and have the highest delta value. As delta approaches 100, the risk increasingly resembles that of 100 shares.
$45
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$50
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$65
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XYZ is trading for $50. You buy the 45 call for $6.75. How much extrinsic value are you paying?
$6.75
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$4.50
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$1.75
Correct! The 45 call has $5 of intrinsic value ($50 - $45). The excess value is $1.75 ($6.75 - $5). You paid $1.75 of extrinsic value for this call.
$0.50
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root strategies
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