Options strategies diagrams

Options Pricing: Profit and Loss Diagrams.

A profit and loss diagram, or risk graph, is a visual representation of the possible profit and loss of an option strategy at a given point in time. Option traders use profit and loss diagrams to evaluate how a strategy may perform over a range of prices, thereby gaining an understanding of potential outcomes. Because of the visual nature of a diagram, traders can evaluate the potential profit and loss – and the risk and reward of the position – at a glance.

To create a profit and loss diagram, values are plotted along the X and Y axes. The horizontal axis (the x-axis) shows the underlying prices, labeled in order with lower prices on the left and higher prices towards the right. The current underlying price is usually centered along this axis. The vertical axis (the y-axis) represents the potential profit and loss values for the position. The breakeven point (that indicates no profit and no loss) is usually centered on the y-axis, with profits shown above this point (higher along the y-axis) and losses below this point (lower on the axis). Figure 8 shows the basic structure of a profit and loss diagram.

The blue line (below) represents the potential profit and loss across the range of underlying prices. For simplicity, we'll begin by taking a look at a long stock position of 100 shares. Assume an investor buys 100 shares of stock for $25 each, or a total cost of $2,500. The diagram in Figure 9 shows the potential profit and loss for this position. When the blue line is on $25 (the cost per share), note that the profit and loss value is $0.00 (breakeven). As the stock price moves higher, so does the profit; conversely, as the price moves lower, the losses increase. Since there is, in theory, no upper limit to the stock's price, the graph line shows an arrow on one end.

With options, the diagram looks a bit different since your downside risk is limited to the premium you paid for the option. In the example shown in Figure 10, a call option has a strike price of $50 and a $200 cost (for the contract). The downside risk is $200 – the premium paid. If the option expires worthless (for example, the stock price was $50 at expiration), the loss would be $200, as shown by the blue line intersecting the y-axis at a value of negative 200. The breakeven point would be a stock price of $52 at expiration. In this case, the investor would "lose" $200 by paying the premium, which would be offset by the stock's rising price (equal to a $200 gain).

It should be noted that the above example shows a typical graph for a long call; each option strategy – such as long call butterflies and short straddles – has a "signature" profit and loss diagram that characterizes the profit and loss potential for that particular strategy. Figure 11, taken from the Options Industry Council's website, shows various options strategies and their corresponding profit and loss diagrams.

Most options trading platforms and analysis software let you create profit and loss diagrams for specific options. In addition, the charts can be created by hand, by using spreadsheet software such as Microsoft Excel, or by purchasing commercially available analysis tools.

How do I use a call option profit-loss diagram?

Options.

Introduction to profit-loss diagrams.

Diagrams aren’t just horrible, boring torture devises drawn by old Econ teachers on screechy chalk boards. We’ve been there.

For options, profit-loss diagrams are simple tools to help you understand and analyze option strategies before investing. When completed, a profit-loss diagram shows the profit potential, risk potential and breakeven point of a potential option play.

They’re drawn on grids, with the horizontal axis representing a range of stock prices that the underlying stock could go to and the vertical axis representing the corresponding profit or loss for the option investor on a per share basis.

Graphing stock.

Let’s warm up with a basic profit-loss diagram of a normal, purchased stock, because this will get us loose before diving into options diagrams.

Below (Graph 1) is a diagram of “long stock.” The term “long” means that the stock was purchased. It shows your profit or loss on one share of stock purchased for $39 (commissions not included). The blue line is your profit or loss, beginning on the left, where you have a loss, intersecting the X axis at $39, your break even, and rising to the right for share prices above $39, your profit zone.

Graphing a long call.

That was easy. Now let’s look at a “long call.” Graph 2 shows the profit and loss of a call option with a strike price of 40 purchased for 1.50 per share, or in Wall Street lingo, “a 40 Call purchased for 1.50.”

A quick comparison of Graphs 1 and 2 shows the differences between a long stock and a long call.

When buying a call, the worst case is that the share price doesn’t rise to the strike price and you lose only the cost of the call, 1.50 per share in this example. The horizontal line to the left of 40, the strike price, illustrates that loss. To the right of 40, the profit-loss line slopes up and to the right. Losses are incurred until the long call line crosses the horizontal axis, which is the stock price at which the strategy breaks even. In this example, the breakeven stock price is 41.50, which is calculated by adding the strike price of the call to the price of the call, or 40 + 1.50. Above 41.50, or to its right on the diagram, the long call earns a profit. Note that the diagram is drawn on a per-share basis and commissions are not included.

Graphing a short call.

Now for the third example - a “short call.” Graph 3 shows the profit and loss of selling a call with a strike price of 40 for 1.50 per share, or in Wall Street lingo, “a 40 Call sold for 1.50.”

The seller of the call has the obligation to sell the underlying shares of stock at the strike price of the call. Therefore, a short call has unlimited risk, because the stock price can rise indefinitely. The profit potential, however, is limited to the premium received when the call was sold.

The horizontal line to the left of 40, the strike price in this example, illustrates that the maximum profit is earned when the stock price at or below 40. To the right of 40, the profit-loss line slopes down and to the right. Profits are earned until the short call line crosses the horizontal axis, which is the stock price at which the strategy breaks even. In this example, the breakeven stock price is 41.50, which is calculated by adding the strike price of the call to the premium received for selling the call, or 40 + 1.50. Above 41.50, or to its right on the diagram, the short call incurs a loss. Note that the diagram is drawn on a per-share basis and commissions are not included.

These diagrams help investors in several ways, by:

Visualizing a strategy Revealing profit potential, risk, and the breakeven point Enabling comparisons to other strategies.

You see? That wasn’t so bad. Homework is optional in this class, but with a little practice you can learn to draw profit-loss diagrams and start your life as an options investor.

Related Lessons.

Now that you are ready to invest in options, be sure to understand a trading instruction.

In this video, you will learn how to use the Profit and Loss calculator to model options strategies to see profit and loss potential, change assumptions such as underlying price, volatility, or days to expiration, as well as how to trade directly from the calculator.

Options at Fidelity.

Options research helps identify potential option investments and trading ideas with easy access to pre-defined screens, analysis tools, and daily commentary from experts.

Options trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. Before trading options, please read Characteristics and Risks of Standardized Options. Supporting documentation for any claims, if applicable, will be furnished upon request.

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Option Strategies.

Because options prices are dependent upon the prices of their underlying securities, options can be used in various combinations to earn profits with reduced risk, even in directionless markets. Below is a list of the most common strategies, but there are many more—infinitely more. But this list will give you an idea of the possibilities. Any investor contemplating these strategies should keep in mind the risks, which are more complex than with simple stock options, and the tax consequences, the margin requirements, and the commissions that must be paid to effect these strategies. One particular risk to remember is that American-style options — which are most options where the exercise must be settled by delivering the underlying asset rather than by paying cash — that you write can be exercised at any time; thus, the consequences of being assigned an exercise before expiration must be considered. (Note: The examples in this article ignore transaction costs.)

Option Spreads.

An option spread is established by buying or selling various combinations of calls and puts, at different strike prices and/or different expiration dates on the same underlying security. There are many possibilities of spreads, but they can be classified based on a few parameters.

A vertical spread (aka money spread) has the same expiration dates but different strike prices. A calendar spread (aka time spread, horizontal spread) has different expiration dates but the same strike prices. A diagonal spread has different expiration dates and strike prices.

The money earned writing options lowers the cost of buying options, and may even be profitable. A credit spread results from buying a long position that costs less than the premium received selling the short position of the spread; a debit spread results when the long position costs more than the premium received for the short position — nonetheless, the debit spread still lowers the cost of the position. A combination is defined as any strategy that uses both puts and calls. A covered combination is a combination where the underlying asset is owned.

A money spread , or vertical spread , involves the buying of options and the writing of other options with different strike prices, but with the same expiration dates.

A time spread , or calendar spread , involves buying and writing options with different expiration dates. A horizontal spread is a time spread with the same strike prices. A diagonal spread has different strike prices and different expiration dates.

A bullish spread increases in value as the stock price increases, whereas a bearish spread increases in value as the stock price decreases .

Example — Bullish Money Spread.

On October 6, 2006, you buy, for $850, 10 calls for Microsoft, with a strike price of $30 that expires in April, 2007, and you write 10 calls for Microsoft with a strike price of $32.50 that expires in April, 2007, for which you receive $200. At expiration, if the stock price stays below $30 per share, then both calls expire worthless, which results in a net loss, excluding commissions, of $650 ( $850 paid for long calls - $200 received for written short calls ). If the stock rises to $32.50, then the 10 calls that you purchased are worth $2,500 , and your written calls expire worthless . This results in a net $1,850 ( $2,500 long call value + $200 premium for short call - $850 premium for the long call ). If the price of Microsoft rises above $32.50, then you exercise your long call to cover your short call , netting you the difference of $2,500 plus the premium of your short call minus the premium of your long call minus commissions.

Ratio Spreads.

There are many types of option spreads: covered calls, straddles and strangles, butterflies and condors, calendar spreads, and so on. Most options spreads are usually undertaken to earn a limited profit in exchange for limited risk. Usually, this is accomplished by equalizing the number of short and long positions. Unbalanced option spreads , also known as ratio spreads , have an unequal number of long and short contracts based on the same underlying asset. They may consist of all calls, all puts, or a combination of both. Unlike other, better-defined, spreads, unbalanced spreads have many more possibilities; thus, it is difficult to generalize about their characteristics, such as reward/risk profiles. However, if long contracts exceed short contracts, then the spread will have unlimited profit potential on the excess long contracts and with limited risk. An unbalanced spread with an excess of short contracts will have limited profit potential and with unlimited risk on the excess short contracts. As with other spreads, the only reason to accept unlimited risk for a limited profit potential is that the spread is more likely to be profitable. Margin must be maintained on the short options that are not balanced by long positions.

The ratio in a ratio spread designates the number of long contracts over short contracts, which can vary widely, but, in most cases, neither the numerator nor the denominator will be greater than 5. A front spread is a spread where the short contracts exceed the long contracts; a back spread has more long contracts than short contracts. A front spread is also sometimes referred to as a ratio spread, but front spread is a more specific term, so I will continue to use front spread only for front spreads and ratio spreads for unbalanced spreads.

Whether a spread results in a credit or a debit depends on the strike prices of the options, expiration dates, and the ratio of long and short contracts. Ratio spreads may also have more than one breakeven point, since different options will go into the money at different price points.

Covered Call.

The simplest option strategy is the covered call, which simply involves writing a call for stock already owned. If the call is unexercised, then the call writer keeps the premium, but retains the stock, for which he can still receive any dividends. If the call is exercised, then the call writer gets the exercise price for his stock in addition to the premium, but he foregoes the stock profit above the strike price. If the call is unexercised, then more calls can be written for later expiration months, earning more money while holding the stock. A more complete discussion can be found at Covered Calls.

Example—Covered Call.

On October 6, 2006, you own 1,000 shares of Microsoft stock, which is currently trading at $27.87 per share. You write 10 call contracts for Microsoft with a strike price of $30 per share that expire in January, 2007. You receive . 35 per share for your calls, which equals $35.00 per contract for a total of $350.00 . If Microsoft doesn't rise above $30, you get to keep the premium as well as the stock. If Microsoft is above $30 per share at expiration, then you still get $30,000 for your stock, and you still get to keep the $350 premium .

Protective Put.

A stockholder buys protective puts for stock already owned to protect his position by minimizing any loss. If the stock rises, then the put expires worthless, but the stockholder benefits from the rise in the stock price. If the stock price drops below the strike price of the put, then the put's value increases 1 dollar for each dollar drop in the stock price, thus, minimizing losses. The net payoff for the protective put position is the value of the stock plus the put, minus the premium paid for the put.

Protective Put Payoff = Stock Value + Put Value – Put Premium.

Example—Protective Put.

Using the same example above for the covered call, you instead buy 10 put contracts at $0.25 per share , or $25.00 per contract for a total of $250 for the 10 puts with a strike of $25 that expires in January, 2007. If Microsoft drops to $20 a share, your puts are worth $5,000 and your stock is worth $20,000 for a total of $25,000. No matter how far Microsoft drops, the value of your puts will increase proportionately, so your position will not be worth less than $25,000 before the expiration of the puts—thus, the puts protect your position.

A collar is the use of a protective put and covered call to collar the value of a security position between 2 bounds. A protective put is bought to protect the lower bound, while a call is sold at a strike price for the upper bound, which helps pay for the protective put. This position limits an investor's potential loss, but allows a reasonable profit. However, as with the covered call, the upside potential is limited to the strike price of the written call.

Collars are one of the most effective ways of earning a reasonable profit while also protecting the downside. Indeed, portfolio managers often use collars to protect their position, since it is difficult to sell so many securities in a short time without moving the market, especially when the market is expected to decline. However, this tends to make puts more expensive to buy, especially for options on the major market indexes, such as the S&P 500, while decreasing the amount received for the sold calls. In this case, the implied volatility for the puts is greater than that for the calls.

Example—Collar.

On October 6, 2006, you own 1,000 shares of Microsoft stock, which is currently trading at $27.87 per share. You want to hang onto the stock until next year to delay paying taxes on your profit, and to pay only the lower long-term capital gains tax. To protect your position, you buy 10 protective puts with a strike price of $25 that expires in January, 2007, and sell 10 calls with a strike price of $30 that also expires in January, 2007. You get $350.00 for the 10 call contracts , and you pay $250 for the 10 put contracts for a net of $100. If Microsoft rises above $30 per share, then you get $30,000 for your 1,000 shares of Microsoft. If Microsoft should drop to $23 per share, then your Microsoft stock is worth $23,000, and your puts are worth a total of $2,000. If Microsoft drops further, then the puts become more valuable — increasing in value in direct proportion to the drop in the stock price below the strike. Thus, the most you'll get is $30,000 for your stock, but the least value of your position will be $25,000. And since you earned $100 net by selling the calls and writing the puts, your position is collared at $25,100 below and $30,100 . Note, however, that your risk is that the written calls might be exercised before the end of the year, thus forcing you, anyway, to pay short-term capital gains taxes in 2007 instead of long-term capital gains taxes in 2008.

Straddles and Strangles.

A long straddle is established by buying both a put and call on the same security at the same strike price and with the same expiration. This investment strategy is profitable if the stock moves substantially up or down, and is often done in anticipation of a big movement in the stock price, but without knowing which way it will go. For instance, if an important court case is going to be decided soon that will have a substantial impact on the stock price, but whether it will favor or hurt the company is not known beforehand, then the straddle would be a good investment strategy. The greatest loss for the straddle is the premiums paid for the put and call, which will expire worthless if the stock price doesn't move enough.

To be profitable, the price of the underlier must move substantially before the expiration date of the options; otherwise, they will expire either worthless or for a fraction of the premium paid. The straddle buyer can only profit if the value of either the call or the put is greater than the cost of the premiums of both options.

A short straddle is created when one writes both a put and a call with the same strike price and expiration date, which one would do if she believes that the stock will not move much before the expiration of the options. If the stock price remains flat, then both options expire worthless, allowing the straddle writer to keep both premiums.

A strap is a specific option contract consisting of 1 put and 2 calls for the same stock, strike price, and expiration date. A strip is a contract for 2 puts and 1 call for the same stock. Hence, straps and strips are ratio spreads. Because strips and straps are 1 contract for 3 options, they are also called triple options , and the premiums are less then if each option were purchased individually.

A strangle is the same as a straddle except that the put has a lower strike price than the call, both of which are usually out-of-the-money when the strangle is established. The maximum profit will be less than for an equivalent straddle. For the long position, a strangle profits when the price of the underlying is below the strike price of the put or above the strike price of the call. The maximum loss will occur if the price of the underlying is between the 2 strike prices. For the short position, the maximum profit will be earned if the price of the underlying is between the 2 strike prices. As with the short straddle, potential losses have no definite limit, but they will be less than for an equivalent short straddle, depending on the strike prices chosen. See Straddles and Strangles: Non-Directional Option Strategies for more in-depth coverage.

Example—Long and Short Strangle.

Merck is embroiled in potentially thousands of lawsuits concerning VIOXX, which was withdrawn from the market. On October, 31, 2006, Merck's stock was trading at $45.29, near its 52-week high. Merck has been winning and losing the lawsuits. If the trend goes one way or the other in a definite direction, it could have a major impact on the stock price, and you think it might happen before 2008, so you buy 10 puts with a strike price of $40 and 10 calls with a strike price of $50 that expire in January, 2008. You pay $2.30 per share for the calls , for a total of $2,300 for 10 contracts . You pay $1.75 per share for the puts , for a total of $1,750 for the 10 put contracts . Your total cost is $4,050 plus commissions. On the other hand, your sister, Sally, decides to write the strangle, receiving the total premium of $4,050 minus commissions.

Let's say, that, by expiration, Merck is clearly losing; it's stock price drops to $30 per share. Your calls expire worthless , but your puts are now in the money by $10 per share, for a net value of $10,000 . Therefore, your total profit is almost $6,000 after subtracting the premiums for the options and the commissions to buy them, as well as the exercise commission to exercise your puts. Your sister, Sally, has lost that much. She buys the 1,000 shares of Merck for $40 per share as per the put contracts that she sold, but the stock is only worth $30 per share, for a net $30,000. Her loss of $10,000 is offset by the $4,050 premiums that she received for writing the strangle. Your gain is her loss. (Actually, she lost a little more than you gained, because commissions have to be subtracted from your gains and added to her losses.) A similar scenario would occur if Merck wins, and the stock rises to $60 per share. However, if, by expiration, the stock is less than $50 but more than $40, then all of your options expire worthless, and you lose the entire $4,050 plus the commissions to buy those options. For you to make any money, the stock would either have to fall a little below $36 per share or rise a little above $54 per share to compensate you for the premiums for both the calls and the puts and the commission to buy them and exercise them.

Payoff Diagrams.

The best way to understand option strategies is to look at a diagram of how they behave.

Let's look again at the basics of a Call Option. Here is an example;

Type: Call Option.

Exercise Price: $25.

Expiry Date: 25th May (60 days until expiration)

Let's imagine that this option is worth $1.2. This means that the shares have to be trading at $26.20 for us to break even (Exercise Price of $25 plus the Option Premium of $1.20). If the shares are trading anywhere above $26.20 then we can start counting the profits. Anywhere below $26.20 and we lose out by the premium - $1.20. So, with a long call we have limited risk (the Option Premium) while at the same time having unlimited profit potential. Let's look at a graph of this concept;

The horizontal line across the bottom (the x-axis) represents the underlying instrument - in this example, the share price of Microsoft. The vertical axis illustrates our profit/loss as the shares move up or down.

The blue line is our payoff.

You can see that the vertical distance between the 0 profit line and the blue line is our maximum loss, i. e. the amount we paid for the option. So, anywhere under our break even point of $26.20 means that the option isn't profitable and we will not exercise and we will lose any premium we paid. If the market crashes and the stock goes bankrupt, our maximum loss will still only be the premium we paid.

However, as the shares trade past the $26.20 mark we start making money. If, at expiry, Microsoft shares are trading at $50 then we will make $23.80 per share.

How? Because we will exercise our right and have the seller of the option hand over Microsoft shares at a value of $25 (the exercise price). Minus the amount we have already paid for the option and we have a profit per share of $23.80.

What about if we sell a call option?

If the shares trade anywhere below $25 then we keep the $1.20 that we received when we sold the call option - the option premium.

However, if the market rallies then our losses become unlimited.

For more option payoff charts, be sure to check out the option strategies link. Or, to see option strategies in action, take a look at the option tutorials section.

Options 101 What are Options? Why Trade Options? Who Trades Options? Where are Options Traded? Option Types Option Style Option Value Volatility Time Decay In-The-Money? Payoff Diagrams Put Call Parity Weekly Options Delta Hedging Options Asset Types Index Option Volatility Option Currency Options Stock Options.

Comments (38)

Peter February 6th, 2017 at 4:11am.

Ali February 5th, 2017 at 4:10am.

I am sorry, But the "blue line" you talked about is the "Profit".

Its not the payoff. Payoff is the line which doesn't represent the impact of the Future values of costs and Premiums paid or received.

mahesh February 26th, 2015 at 5:02am.

Peter February 25th, 2015 at 6:54am.

mahesh February 25th, 2015 at 6:27am.

if i baught xyz call at 5 and after a week it is 25.but now it has no buyer at this value.

what should i do should i buy put of same strike prise ?

explain profits in that case.

Peter August 29th, 2012 at 7:19pm.

migh August 24th, 2012 at 3:06am.

suppose a stockm price is 40 and effective annual interest rate is 8%.draw a single payoff and profit diagram for the following option.

strike price is 35 with premium of 9.

Peter February 15th, 2012 at 10:17pm.

I'd say the best way to trade is to paper trade your ideas. If you don't want to wait until opening a brokerage account before testing then you can use an application like Visual Options Analyzer [link removed as the product no longer exists] where you can enter trades and manage them against downloaded option prices.

Jon February 15th, 2012 at 4:04pm.

So what would be the best way to just 'test the waters' without extreme risk of loosing a lot of money? The least risky version of options trading?

Peter February 6th, 2012 at 8:28pm.

If the option expires worthless, yes, you will always keep 100% of the premium received.

Jason February 6th, 2012 at 7:50pm.

If you sell short an option at $1.20 and the stock goes lower - the direction you intended you would most likely not walk with $120. Within the last 30 days to expiration, even in the money options can take a beating. You may only walk with $20. So, what is the best strategy? Buy to close with 15% profit?

Peter October 30th, 2011 at 6:13am.

Hi Steve, if the bond doesn't convert to anything (i. e. convert to a call option on the stock) then the payoff in this example would simply be the stock price plus $500 per year. Unless I have misunderstood?

Steve October 28th, 2011 at 9:34am.

Will someone please offer some help?

Peter October 12th, 2011 at 6:43pm.

Nancy October 12th, 2011 at 9:06am.

I'm struggling with how to arrive at a good strike price for a call. Does one ever choose, for instance, a strike price which is below the current stock price? As the price, goes up, I would still be profitable regardless of the strike price, right? Specifically, I'm looking at AMZN April 225 call. It is currently floating around that number now.

Peter September 5th, 2011 at 5:55pm.

Hi Gurko, if the price only reaches $26 then your loss would be less at $1.00 instead of $1.20.

Gurko September 5th, 2011 at 6:08am.

In the first example you said that if the price of the stock is below $26.20 you wouldn't exersize it and you will lose the premium that you paid ($1,20).

What if the price reaches $26 - wouldn't it be more profitable to exersize the option and to lose only $0.2 ?

Could you make that clear to me ?

Peter December 7th, 2010 at 9:09am.

What figures do you mean. the payoff charts? They are not currency specific. they are the same no matter what asset/currency the options are traded in.

nic December 7th, 2010 at 7:40am.

Hi, I was just wondering how recent these figures are? and do you how i would get hold of the british figures if possible?

Peter October 9th, 2010 at 6:41am.

It depends on your broker. Short positions require a margin, rather than just paying out the premium if you were to buy the option. A good guide, however, is to multiply the volume of contracts by the strike price and then multiplied by the contract size, which for US options is 100.

benjamin October 9th, 2010 at 2:48am.

i am looking to short uncovered options. i will be short selling 5-7 option contracts. how much $$$ would i need in my account?

Peter June 9th, 2010 at 12:37am.

Hi Dolf, the question Carter asks is in relation to a naked call, not a covered call - they have different payoff profiles. Sure, a covered call's losses is technically limited to the stock price going to zero. Not unlimited - but a lot.

Dolfandave June 8th, 2010 at 1:46pm.

Peter, As Carter mentione (two years ago:) in the first post below there is some question to "unlimited" losses. Yes if this is a naked call. I have been studying covered calls in my trek to learn options trading and if it were a covered call I personally don't view it as an unlimited loss. If I buy an OTM option as I understand this is the best technique w/ covered calls, then I will make the premium paid to me for writing the call plus the difference between the purchase price of my stock and the strike price. I don't think this is a bad deal nor would I really cry about it if I got called out in this situation. I wouldn't necessarily buy back the same security if I got called out. Your thoughts?

joel April 8th, 2010 at 1:54pm.

thanks guys i was struggling to understand the pay offs now it has become easy.

Peter June 11th, 2009 at 12:03pm.

henry June 9th, 2009 at 9:10am.

Hi, silly question im sure.

Peter May 21st, 2009 at 6:37am.

Rajeev May 20th, 2009 at 9:52pm.

This is very useful After going through the whole thing, I have a question. If I decide to exercise the call option, who is the other side, who is going to sell the stock. On the same thought, if I bought the call option for 1.20, sold it for 2.00 3 months later, at the time of maturity, if the buyer decides to exercise the right, am I supposed to provide the shares or the whoever wrote the call option originally.

Peter May 5th, 2009 at 7:32pm.

Tom May 5th, 2009 at 10:59am.

Sorry for the very basic question, but if you're buying an option priced at $1.20 as in the above example, are you physically paying $1.20, or is it multiplied by 100, i. e. $120?

Peter April 13th, 2009 at 7:01am.

Chuck April 11th, 2009 at 5:04pm.

If you intend to exercise your in the money call option and sell the stock immediately to realize your profit, would you also incur two stock trade fees as well as the original option purchase fee ? Are option trading fees similar to stock trading fees ?

Peter April 9th, 2009 at 7:42am.

The last trading day for April 09 options in the US is Friday the 17th. CBOE shows the 18th (Saturday) as the expiration date but Yahoo! is currently showing 17th when checking MSFT options. I couldn't see the 11th mentioned. I would say that's what it comes down to. "technically" they expire on the Saturday following the third Friday of the expiration month. But really Friday is the last trading day. i. e. you cannot get out of the option by trading it on a Saturday.

Jack April 8th, 2009 at 1:39pm.

april contracts on scottrade expire on 4/18. april contracts on yahoo financial expire on 4/11. I don't understand.

Admin October 9th, 2008 at 4:52am.

Queenie October 6th, 2008 at 7:44am.

"If, at expiry, Microsoft shares are trading at $50 then we will make $23.80 per share."

Admin October 3rd, 2008 at 8:43pm.

carter October 3rd, 2008 at 6:57pm.

Why would our options be unlimited if the market rallies in the last example? Wouldn't we only lose the price of the contract, as in the other scenario, if the stock doesn't go above $26.20?