Protective call
Short the shares and buy a call to cap the loss if the price rises.
Hedge2 legsCredit
Illustrative: underlying at 100, strikes every 2.5, 45 days to expiry, implied volatility 25%, model prices. One lot = 100 shares.
Key figures
| Opens for | a credit of $9,821 |
|---|---|
| Max profit | +$9,821 if the shares went to zero |
| Max loss | −$679 |
| Break-even | 98.21 |
| Position delta today | −67 shares |
| Outlook | Hedge |
The legs
| Action | Quantity | Option | Model price |
|---|---|---|---|
| Sell short | 100 shares | Shares | 100.00 |
| Buy | 1 | 105 call, 45 days | 1.79 |
How it works
Short the shares and buy a call to cap the loss if the price rises. Single options are the building blocks: the right to buy (a call) or to sell (a put) 100 shares at a fixed price, the strike, until expiry. Combined with shares, they add income or protection to a holding.
When it fits
It suits a holder who wants to limit the damage from a move against an existing position.
What can go wrong
The most it can lose at expiry in this example is −$679. Bought options lose value as time passes, so the move has to come before expiry.
Building it in Trident
In the Strategy Lab, choose protective call and the days to expiry. Trident applies these strike rules to your live chain, prices each leg and draws the trade on the risk graph, where you can drag the days to expiry, change implied volatility or switch on the crash band. When it looks right, send it to order management; nothing reaches your broker until you send it.
Frequently asked questions
What is a protective call?
Short the shares and buy a call to cap the loss if the price rises.
What is the maximum loss on a protective call?
In this illustrative example it is −$679 for one lot at expiry.
Where does a protective call break even?
With the underlying at 100 in this illustrative example, the break-even at expiry is 98.21.
Can I build a protective call in Trident?
Yes. Pick it in the Strategy Lab and Trident chooses the strikes from your live chain, prices the legs and draws it on the risk graph.
Illustrative example with model prices, not a recommendation. Options carry risk of loss. See the risk disclosure.