SIE (Training Consultants v3.5, 2025): Ch. 3 Equity Options, Sec. 6 – Basic Option Calculations and Breakevens
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25 Terms
Closing a Position
Doing the opposite transaction of opening; not exercising the option.
Capital Assets
Options are treated as capital assets, so all gains/losses are short-term capital gains or losses.
Breakeven Price (Call)
Strike Price + Premium for both long and short calls.
Breakeven Price (Put)
Strike Price – Premium for both long and short puts.
Breakeven Price with Stock Position
Adjust stock purchase price by premium received or paid for option.
How do you calculate profit/loss for an exercised call?
Subtract the total premium paid from the gain on stock transactions.
Example: Buy 1 June 50 Call @ 4, exercise at 50, sell stock @ 60. Profit?
Stock gain = 60–50 = 10 × 100 = 1,000; Premium paid = 4 × 100 = 400; Total profit = 1,000 – 400 = $600.
How do you calculate breakeven for a long call?
Strike Price + Premium Paid.
How do you calculate breakeven for a short call?
Strike Price + Premium Received.
How do you calculate breakeven for a long put?
Strike Price – Premium Paid.
How do you calculate breakeven for a short put?
Strike Price – Premium Received.
Example: Buy 1 ABC Aug 40 Call @4. Breakeven?
40 + 4 = $44.
Example: Buy 1 ABC May 50 Put @4. Breakeven?
50 – 4 = $46.
Example: Buy 100 shares ABC @40, sell 1 May 40 Call @2. Breakeven?
40 – 2 = $38 per share.
Example: Buy 100 shares ABC @30, buy 1 May 30 Put @3. Breakeven?
30 + 3 = $33 per share.
Example: Short 100 shares ABC @35, sell 1 May 30 Put @1. Breakeven?
35 + 1 = $36 per share.
Example: Short 100 shares ABC @50, buy 1 June 50 Call @4. Breakeven?
50 + 4 = $54 per share. (Wait—let’s check: Sells short 50 × 100 = 5,000, buys call 400 → 5,000 + 400 = 5,400 /100 = $54.) ✅
Maximum Profit – Long Call
Unlimited. Maximum Loss
Maximum Profit – Short Call
Premium Received. Maximum Loss
Maximum Profit – Long Put
Strike Price – Premium Paid. Maximum Loss
Maximum Profit – Short Put
Premium Received. Maximum Loss
Bullish Strategies
Buy Calls or Sell Puts.
Bearish Strategies
Buy Puts or Sell Calls.
Purpose of Buying Options
Maximize profit potential.
Purpose of Selling Options
Generate income to improve portfolio return. #