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Call put profit calculator12/31/2023 If the current price is above the strike price, we say the call option is in the money. Then the new owner of the shares could sell them for a profit if they want. In other words, the call owner has the right (but not the obligation) to buy the underlying asset shares from the option writer at the strike price, regardless of the current market price. Strike price of a call option: The strike price definition refers to the predetermined asset price, let's say stock, at which, if the market price of the underlying stock goes over the agreed price, the call option can be executed. You can use our call option calculator to see the profits considering the current underlying asset price in the market, or you can calculate your possible profits if you have a target price in mind. put option scenarios.Ĭurrent price and target price: These are the underlying asset prices from which the call option derives its value. We will explain what each variable means in our put call option calculator and what it means to be "in the money," "at the money," and "out of the money" in the call vs. Similarly, our put option calculator can also be named a long put option calculator.īefore we explore how to calculate call options profit, we must review the terminology used in an option contract. In other words, you would be able to sell your shares at a higher price than the current stock market price if you are long in the put option. In that sense, our call option calculator can also be named a long call option calculator.Ī put option gives the owner, i.e., the one who bought the option contract, the right (but not the obligation) to sell at a predetermined price over a given period of time, regardless of the current market price of the stock.Ĭontrarily to the long call option strategy, in the put option, you expect the price to fall below the agreed fixed price so you can sell the shares at this price and cover yourself in case the market stock price keeps falling. The buyer is considered to be long in the call option. This way of action implies a bullish view of the asset (you expect the asset price to increase). You have two option contracts class: a call option and a put option.Ī call option gives the owner, i.e., the one who bought the option contract, the right (but not the obligation!) to buy a stock at a predetermined price (see What is the strike price? in the FAQ section), over a given period of time, regardless of the current market price of the stock.Īs you can see, the utility of a call option for the buyer is that it can get shares of a stock for a reduced price compared to the market and then sell the call option for profits. Traders (not necessarily investors) use option contracts to speculate about future asset's price movement. It is important to mention that the asset from which the option contract derives its value is known as the underlying asset. You might want to exercise the option if the price has spiked or peaked earlier than the one year expiration.An option contract is a derivative, meaning that its value is derived from the value of another asset for example, stocks, commodities, or market index ETFs. Since the contract allows you to exercise the option at any time, you could exercise anytime during the year. Note in either of the cases, the owner keeps your $10,000. The amount you agreed to pay to enter the contract. It would not make sense to pay $210,000 for a house valued at only $205,000. Therefore, you would not exercise your option. You then immediately sell the house for $300,000 making a $80,000 profit. Therefore, you exercise your option to purchase house. You can exercise the contract at anytime.Īfter one year, the value of the house rises to $300,000.To enter the contract you have to pay the house owner $10,000.The selling price of the house will be $210,000.The contract will expire 1 year from today.You and the house owner agree to the following contract. You approach the owner and talk about an option to buy the house in the future. You do not want to purchase the house or do not have sufficient funds or credit for the purchase.You believe the value of a particular house with a value of $200,000 is expected to rise in the future.Most likely, this will be more easily understood than using stocks. This example will use a house instead of a stock to explain options.
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