Section 6, Basic option Calculations and Breakeven

What is the first rule when solving options calculations questions?

Do not read the whole question at once - dissect it action by action by action using the T Chart

In option calculations, how should premiums and stocks transactions be handled?

Keep premiums separate from stock transactions using the T Chart

How do you label a by transaction?

B - (For a Debt/Money Spent)

How do you label a sell transaction?

S+ (For a credit/ Money received)

What are the key transaction words to look for in option calculation questions?

Buy, sell, Exercise, Close

What doe sit mean to “close“ a position?

to exit without exercising the option, doing the opposite of the opening transaction.

How are options gains and losses classified for tax purposes?

Always short-term capital gains or losses

What are the four exercise actions for options?

But Call → Buy Stock

Sell Call → Sell Stock

Buy Put → Sell Stock

Sell Put → Buy Stock

Breakeven for a call (Buy or sell )

Exercise Price + Premium

Breakeven for a Put (Buy or sell )

Exercise Price - Premium

When calculating per-share profit or loss, what should you remember about option contracts?

One Contract = 100 shares.

A customer buys 1 ABC April 40 put for a Premium of 4. He exercises the put with stock purchased at 39. What is the customer’s profit lost?

-300

A customer buys 1 June 50 call @ 4. He exercises he call and sells the stock @ 60. What is the customer’s profit or loss?

600

A customer writes 1 ABC July 20 Call at 5 and Writes 1 ABC July 25 put at 4. The call expires unexercised and the put is exercised against the customer. The customer sells the stock at $22 per share. What is the profit or loss to the customer?

600

A customer buys 2 ABC July 30 calls at 5 and sells 2 ABC July 35 calls at 2. Later the investor closes the ABC July 30 Calls @ 9 and closes the ABC July 35 calls @ 4. What is the profit or loss to the customer?

400

A investor buys 1 June 45 Call @ 3. Later, He exercises the call and sells the stock @ 52 What is the customer’s profit or loss per share?

$4 Per Share

Investor buys 100 shares @ $40 and sells 1 ABC May 40 Call @ 2, what is breakeven?

Premiums | Stock Trans

————————————

S+ 200 | B-4000

- 2800= $28 Per Share

Investor buys 100 shares @ $30 and buys 1 ABC May 30 Call @ 3, what is breakeven?

Premiums | Stock Trans

————————————

S+ 200 | B-3000

- 2700= $27 Per Share

Investor buys 100 shares of ABC @ 35 and buys 1 ABC May 30 Put @1, what’s the breakeven?

Premiums | Stock Trans

————————————

S+100 | B+ 3500

+ 3600 = $36 Per Share

Investor buys 100 shares of ABC@ 50 and buys 1 ABC June 50 call @1, what’s the breakeven?

Premiums | Stock Trans

————————————

B- 400 | S + 5000

+ 4600 = $46 Per Share