Do call option holders ever have a negative "payoff"? not profit.?

Question

thanx

Answer 1

First let me make sure my understanding of your questions is the same as yours.

An option holder is someone who owns an option through a "buy to open" transaction.

A negative payoff occurs when you are required to pay additional money to close a position.

A "not profit" situation occus when you do not sell the option you hold for more than you paid for it.

A "not profit" situation is common for call option holders, more common than makng a profit. The option usually is either sold for a loss or allowed to expire worthless, in which case the holder loses 100% of his investment.

A call option holder can never directly have a negative payoff as I defined it above since a long option position can never have a value less than zero.

Indirectly, it is possible that buying a call option can cause you to lose more money than the cost of the option. If an option is in the money by $0.05 or more at expiration, and you do not give explicit contrary instructions to our broker, the option will automatically be exercised and you will buy the underlying at the strike price. The price of the underlying can then decline leading to a loss greater than the price of the option.

Answer 2

If you buy a call, the most you can lose is the call premium.

If you sell a covered call (own the underlying stock), you get paid the premium. The worst that can happen is that you're call and have to sell your stock at the strike price. Just make sure that when you sell the call, that the strike price is at or above the price you paid for the stock.

If you sell a naked call (don't own the underlying stock), you have unlimited downside risk. Most responsible broker will not allow you to do this until you have gained some experience.
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Answer 3

Buyers lose the option price. Writers lose tons more than that. Options are killers.