Option Profit: formula
Option Profit: worked example
| Option type | Call |
|---|---|
| Strike price | $100 |
| Premium paid per share | $3.50 |
| Share price at expiration | $110 |
| Number of contracts | 2 |
| Profit or loss at expiration | $1,300 |
| Break-even share price | $104 |
| Return on premium paid | 185.7% |
The result is the value at expiration only and ignores time value, so before expiry an option's price also moves with volatility and time left. Early exercise, dividends and assignment can change outcomes. Selling options carries different, sometimes unlimited risk not shown here.
Options can lose their entire premium quickly, and most retail traders should learn on paper first.
Option Profit: changing Share price at expiration
| Share price at expiration | Profit or loss at expiration | Break-even share price | Return on premium paid |
|---|---|---|---|
| $88 | -$700 | $104 | -100.0% |
| $99 | -$700 | $104 | -100.0% |
| $110 (example) | $1,300 | $104 | 185.7% |
| $121 | $3,500 | $104 | 500.0% |
| $132 | $5,700 | $104 | 814.3% |
Option Profit: compare input ranges
| Input | Tested from | To | Profit or loss at expiration: low input | Profit or loss at expiration: high input | Swing |
|---|---|---|---|---|---|
| Option type | Call | Put | $1,300 | -$700 | $2,000 (154%) |
| Strike price | $90 | $110 | $3,300 | -$700 | $4,000 (308%) |
| Share price at expiration | $99 | $121 | -$700 | $3,500 | $4,200 (323%) |
| Number of contracts | 1 | 3 | $650 | $1,950 | $1,300 (100%) |
| Premium paid per share | $3.15 | $3.85 | $1,370 | $1,230 | $140 (11%) |
Option Profit: individual input comparisons
| Input | Value | Profit or loss at expiration | Break-even share price | Return on premium paid |
|---|---|---|---|---|
| Option type | Call | $1,300 | $104 | 185.7% |
| Put | -$700 | $97 | -100.0% | |
| Strike price | $80 | $5,300 | $84 | 757.1% |
| $90 | $3,300 | $94 | 471.4% | |
| $100 | $1,300 | $104 | 185.7% | |
| $110 | -$700 | $114 | -100.0% | |
| $120 | -$700 | $124 | -100.0% | |
| Premium paid per share | $2.80 | $1,440 | $103 | 257.1% |
| $3.15 | $1,370 | $103 | 217.5% | |
| $3.50 | $1,300 | $104 | 185.7% | |
| $3.85 | $1,230 | $104 | 159.7% | |
| $4.20 | $1,160 | $104 | 138.1% | |
| Share price at expiration | $88 | -$700 | $104 | -100.0% |
| $99 | -$700 | $104 | -100.0% | |
| $110 | $1,300 | $104 | 185.7% | |
| $121 | $3,500 | $104 | 500.0% | |
| $132 | $5,700 | $104 | 814.3% | |
| Number of contracts | 0 | $0.00 | $104 | 185.7% |
| 1 | $650 | $104 | 185.7% | |
| 2 | $1,300 | $104 | 185.7% | |
| 3 | $1,950 | $104 | 185.7% | |
| 4 | $2,600 | $104 | 185.7% |
Option Profit: combined input changes
| Share price at expiration / Strike price | $80 | $100 | $120 |
|---|---|---|---|
| $88 | $900 | -$700 | -$700 |
| $99 | $3,100 | -$700 | -$700 |
| $110 | $5,300 | $1,300 | -$700 |
| $121 | $7,500 | $3,500 | -$500 |
| $132 | $9,700 | $5,700 | $1,700 |
Option Profit: which assumptions move the result?
Option Profit: values and definitions
| Quantity and definition | Value used |
|---|---|
| Option type — A call gains when the price rises above the strike. A put gains when it falls below. | Call |
| Strike price | $100 |
| Premium paid per share | $3.50 |
| Share price at expiration | $110 |
| Number of contracts — Each contract covers 100 shares. | 2 |
| Profit or loss at expiration | $1,300 |
| Break-even share price | $104 |
| Return on premium paid | 185.7% |
Choose whether the option is a call or a put, then enter the strike price, the premium paid per share and the number of contracts. One contract covers 100 shares, so a premium of $3.50 costs $350 per contract. Share price at expiration is your scenario.
Use the price from your trade confirmation for the premium, and include any commissions by adding them to the premium per share.
Common error: Thinking the break-even is the strike price. The share must move past the strike by the full premium before the position makes money.
Investing & Returns calculators: Position Size Calculator, Risk Reward Ratio Calculator, Kelly Criterion Calculator, Net Present Value (NPV) Calculator, Continuous Compounding Calculator, Compound Interest & Future Value Calculator.
An option's payoff at expiration is simple: a call pays the amount the share price ends above the strike, a put pays the amount it ends below. You then subtract the premium you paid. A $100 call bought for $3.50 and finishing at $110 earns $6.50 a share, or $1,300 on two contracts.
The break-even price is the strike plus the premium, $103.50, and the loss on a long option is capped at the premium.
Remember that a contract covers 100 shares and that fees and taxes come on top. The result shows the payoff at the expiration date only.
The position size and risk-reward calculators help size a trade, and the stock profit calculator covers shares. The Kelly criterion page relates size to your edge. Tax treatment of options gains depends on the holding period and type, so check before trading.
What is the most I can lose buying an option?
The premium you paid. An unexercised long option expiring worthless loses its premium plus costs. Exercise, settlement and a resulting underlying position require separate cash and risk analysis.
Why do options cover 100 shares?
A standard equity option contract represents 100 shares of the underlying stock, so the premium per share is multiplied by 100 for the cost of one contract.
What is the break-even for a put?
The strike price minus the premium paid. The stock must fall below that level at expiration for the put buyer to make money.