| Position: | '+action.toUpperCase()+' '+type.toUpperCase()+' |
| Total Premium Paid/Received: | $'+totalCost.toFixed(2)+' |
| Break-even Price: | $'+breakeven.toFixed(2)+' |
| Return on Investment: | '+roi.toFixed(2)+'% |
| Option Intrinsic Value at Expiry: | $'+(grossProfit/shares).toFixed(2)+' per share |
Using the Options Profit Calculator
Trading options involves understanding the relationship between the strike price, the premium paid or received, and the movement of the underlying stock. This options profit calculator allows you to visualize your potential gains or losses before you place a trade. By entering the specific details of a contract, you can determine exactly where your break-even point lies and how much capital is at risk.
Whether you are buying a simple long call or selling a covered put, knowing the math behind the trade is essential for risk management. The calculator handles standard equity options where one contract represents 100 shares of the underlying stock.
- Strike Price
- The set price at which the option holder can buy (call) or sell (put) the underlying asset.
- Premium per Share
- The market price you pay to buy an option or receive when selling one. Multiply this by 100 to get the cost per contract.
- Stock Price at Expiry
- The hypothetical or actual price of the stock when the option contract expires.
How the Profit is Calculated
The mechanics of an options profit calculator depend on whether you are the buyer (long) or the seller (short). The primary formulas used are based on the "intrinsic value" of the option at expiration minus the "extrinsic value" (premium) paid at the start.
Long Call Profit = [(Price at Expiry – Strike Price) – Premium] × 100 × Contracts
- Calls: Profit when the stock price rises above the strike price plus premium.
- Puts: Profit when the stock price falls below the strike price minus premium.
- Long Positions: Risk is limited to the premium paid.
- Short Positions: Profit is limited to the premium received, while risk can be substantial (or infinite for naked calls).
Options Trading Examples
Example 1: Buying a Call (Bullish)
Imagine you believe Stock ABC, currently at $145, will rise. You buy one call contract with a $150 strike price for a $5.00 premium. Your total cost is $500 ($5.00 x 100 shares).
Step-by-step solution:
- Strike Price = $150
- Premium = $5.00
- Contracts = 1
- If Price at Expiry = $165:
- Intrinsic Value = $165 – $150 = $15.00
- Profit per Share = $15.00 – $5.00 (premium) = $10.00
- Total Profit = $10.00 × 100 = $1,000.00
Example 2: Buying a Put (Bearish)
If you expect Stock XYZ to drop, you buy a $100 Strike Put for $3.00. If the stock drops to $80 at expiration, your profit is calculated as ($100 – $80 – $3) x 100 = $1,700.
Common Questions
What is the break-even point?
The break-even point is the stock price at which your trade results in $0 profit and $0 loss. For a long call, it is Strike + Premium. For a long put, it is Strike – Premium. Any price beyond this point in the favorable direction results in profit.
How does the number of contracts affect profit?
Each standard equity option contract represents 100 shares. The options profit calculator multiplies the per-share profit by 100 and then by the number of contracts. While more contracts increase potential profit, they also proportionally increase the total premium at risk.
Can I lose more than I invest?
When buying options (Long), your risk is strictly limited to the premium you paid. However, if you are selling options (Short) without owning the underlying stock (naked selling), your risk can be significantly higher than the premium received, sometimes theoretically infinite in the case of naked calls.