Figure 19‐2 illustrates the profit situation for a call buyer. The stock price is assumed to be $48, and a six‐month call with an exercise price of $50 has a premium of $4. Up to the exercise price of $50, the loss is $4 (which is the maximum loss). The breakeven point for the investor is the sum of the exercise price and the premium, or $50 + $4 = $54. If the price of the stock rises above $54, the value of the call increases with it, point for point, as shown by the two parallel lines above the $0 profit–loss line.

Figure 19‐2

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Profit $ Loss 20 10 -10 -20 10 Breakeven for stock purchase 20 30 40 Market price Purchase the stock Purchase a call 50 Breakeven for call 60 70