![]() Say we let it ride.īy the expiration date, the price tanks and is now $62. You almost doubled our money in just three weeks! You could sell your options, which is called "closing your position," and take your profits–unless, of course, you think the stock price will continue to rise. Subtract what you paid for the contract, and your profit is ($8.25 - $3.15) x 100 = $510. The options contract has increased along with the stock price and is now worth $8.25 x 100 = $825. Three weeks later the stock price is $78. But don't forget that you've paid $315 for the option, so you are currently down by this amount. When the stock price is $67, it's less than the $70 strike price, so the option is worthless. The strike price of $70 means that the stock price must rise above $70 before the call option is worth anything furthermore, because the contract is $3.15 per share, the break-even price would be $73.15. Remember, a stock option contract is the option to buy 100 shares that's why you must multiply the contract by 100 to get the total price. In reality, you'd also have to take commissions into account, but we'll ignore them for this example. The total price of the contract is $3.15 x 100 = $315. is $67 and the premium (cost) is $3.15 for a July 70 Call, which indicates that the expiration is the 3rd Friday of July and the strike price is $70. Let's say that on May 1st, the stock price of Cory's Tequila Co. We'll use a fictional firm called Cory's Tequila Company. Now that you know the basics of options, here is an example of how they work. ![]()
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