How to Calculate Option Profit
What is Option Profit?
Options give the holder the right (not obligation) to buy (call) or sell (put) an asset at a set price (strike) before expiry. Profit depends on where the stock price is at expiry relative to strike and premium paid.
Formula
Call profit = max(0, S−K) − premium | Put profit = max(0, K−S) − premium where S=stock price, K=strike price
- S
- Stock Price at Expiry ($)
- K
- Strike Price ($)
- P
- Premium Paid ($)
Step-by-Step Guide
- 1Call profit at expiry = max(0, Stock − Strike) − Premium
- 2Put profit at expiry = max(0, Strike − Stock) − Premium
- 3Break-even (call) = Strike + Premium
- 4Break-even (put) = Strike − Premium
- 5Max loss = Premium paid × 100 × Contracts
Worked Examples
Input
Call: Strike $150, Premium $5, Stock at $165
Result
Intrinsic value $15, profit $10 per share ($1,000 per contract)
Input
Call at expiry: Stock $145 (below strike)
Result
Option expires worthless, loss = $500 premium paid
Frequently Asked Questions
What's the difference between a call and a put?
A call gives the right to BUY at strike price (profits if stock rises). A put gives the right to SELL at strike price (profits if stock falls).
What is the maximum loss on an option?
Maximum loss is the premium paid. If the option expires worthless, you lose what you paid for it — but never more.
Why do people buy options instead of stocks?
Options provide leverage: control 100 shares with less capital. But they expire and have time decay, making them higher-risk, higher-reward instruments.