Put Option Profit Formula

In order to be profitable in this scenario, you would need the intrinsic value to be at least $20 by the time the option reaches expiration. Putting that all together, we can derive the profit formula for a put option:

  • Profit = (( Strike Price – Underlying Price ) – Initial Option Price ) x number of contracts.

Using the previous data points, let’s say that the underlying price at expiration is $50, so we get:

  • Profit = (( $75 – $50) – $20) x 100 contracts.
  • Profit = (( $25 ) – $20 ) x 100 contracts.
  • Profit = $5 x 100 contracts.
  • Profit = $500.

Similarly, if the stock doesn’t decline as much (i.e. the intrinsic value is less than $20), we will make a loss. For example, if the price was instead $65 at expiration, we would have the following:

  • Profit = (( $75 – $65) – $20) x 100 contracts.
  • Profit = (( $10 ) – $20 ) x 100 contracts.
  • Profit = – $10 x 100 contracts.
  • Profit = – $1000 (i.e. a loss of $1,000).
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Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are ...

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