Option Math To Expiration For Long Calls And Puts

In this options trading math video, we are going to discuss the trading math to expiration for long call and long put trades.

Understanding the options trading basics are necessary for being able to understand day trading options math, and how much the price will change with a change in the underlying price – which is how you will determine if you have enough  room to a target to get a profit on a given trade.

The math to expiration for long options is based on intrinsic value, because this is the actual value and what you will receive for your options – all of the time value that was priced into the option is lost at expiration.

Long Calls

  • Long calls have intrinsic value by the amount the call strike is below the expiration price, or the amount that it is in the money
  • If you buy a 695c for 5.00 and expiration is 698, then your strike is below 698 by 3.00, and that is what you will receive for your option – but you will lose 2.00 because that is the amount that is time value and greater than intrinsic value
  • Break even is an expiration price at the call strike + the amount paid = 695 strike + 5.00 = 700 – and any expiration greater than 700 is profit

Long Puts

  • Long puts have intrinsic value by the amount the put strike is above the expiration price, or the amount that it is in the money
  • If you buy a 700 put for 3.00 and expiration, then your strike is above 698 by 2.00, and that is what you will receive for your option – but you will lose 1.00 because that is the amount that is time value and greater than intrinsic value
  • Break even is an expiration price at the put strike – the amount paid = 700 strike – 3.00 = 697 – and any expiration less than 697 is profit