Long Call and Put Profit and Loss at Expiration
Summary
This tutorial explains how to calculate the expiration profit or loss of a long call or put. It distinguishes an option’s intrinsic value at expiration from the position’s net result by subtracting the premium paid. Worked examples show a call finishing above and below its strike, and a put finishing below its strike; the associated payoffs are then used to describe each position’s profile.
For a long call, the maximum loss is the premium, gains increase as the underlying rises, and the expiration breakeven is strike plus premium. For a long put, the maximum loss is also the premium, with breakeven at strike minus premium; the put’s value rises as the underlying falls, though its maximum payoff is bounded by the underlying reaching zero. The examples assume holding through expiration and omit fees, early exercise, and other contract details. The tutorial closes by pointing toward portfolio hedging as a later application.
Key ideas
- A long option’s net expiration profit or loss equals its expiration value minus the premium paid.
- A long call expires with value when the underlying is above its strike, and its breakeven adds premium to strike.
- A long put expires with value when the underlying is below its strike, and its breakeven subtracts premium from strike.
- For either long position, the premium paid limits the maximum loss.
- The profiles describe expiration outcomes and do not cover interim pricing or trading costs.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.