Calculate Profit and Loss for Options Contracts

Options trading can be profitable, but understanding your potential profit or loss before entering a trade is crucial. Whether you're buying or selling call or put options, this guide will help you learn how to calculate P&L (Profit and Loss), break-even price, and intrinsic value accurately.

What Is an Option Contract?

An options contract gives the buyer the right, but not the obligation, to buy (Call) or sell (Put) an underlying asset at a specific price (strike price) before or at expiration. Each contract typically controls 100 shares.

Formulas Used in the Options Calculator

Intrinsic Value

For Call Options:

$\text{Intrinsic Value}=max(0,\text{Market Price}-\text{Strike Price})$

For Put Options:

$\text{Intrinsic Value}=max(0,\text{Strike Price}-\text{Market Price})$​​​​​​​
 

2. Profit or Loss Per Share

For Buyers:

$\text{P/L per share}=\text{Intrinsic Value}-\text{Premium}$

For Sellers:

$\text{P/L per share}=\text{Premium}-\text{Intrinsic Value}$

3. Profit or Loss Per Contract

$\text{P/L per contract}=\text{P/L per share}\times \text{Contract Size}$

4. Total Profit or Loss

$\text{Total P/L}=\text{P/L per contract}\times \text{Number of Contracts}$

5. Break-Even Price

For Call Buyer or Seller:

$\text{Break-even}=\text{Strike Price}+\text{Premium}$

For Put Buyer or Seller:

$\text{Break-even}=\text{Strike Price}-\text{Premium}$

Example: Call Option Buyer

Let’s say you're a buyer of 2 call option contracts with the following details:

• Strike Price = $100
• Premium Paid = $5
• Market Price at Expiry = $115
• Contract Size = 100 shares
• Number of Contracts = 2

Step-by-Step Calculation:

Step 1: Intrinsic Value

$\text{Intrinsic Value}=max(0,115-100)=15$

Step 2: P/L per share

$\text{P/L per share}=15-5=10$

Step 3: P/L per contract

$10\times 100=1000$

Step 4: Total P/L

$1000\times 2=2000$

Step 5: Break-Even Price

$100+5=105$​​​​​​​

Final Output:

• Intrinsic Value: $1,500
• Profit per Contract: $1,000
• Total Profit: $2,000
• Break-Even Price: $105

Conclusion

Understanding how to calculate profit and loss for options gives you clarity and confidence in your trading decisions. Use this calculator before placing any trade, whether buying or selling calls or puts.

Make informed decisions and reduce the risk of unexpected losses.