beginner question on options exercise

T

tradethetrade

Vendor
Hi everyone!

I have a question related to exercising options and I hope someone can help me here.

Let's say I long 1 contract of MSFT paying $1 for the contract with a strike of $400. My cost is $100.

Let's say I get exercised.

How much money did I make on my options trade? From what I understand, the trade is closed automatically and I don't make or lose anything, I get to keep the investment I made which was $100 and my pnl was $0.

Now, I get 100 shares of MSFT at 400 and can sell it at any time.

Is that how it works? How would my pnl differ when being assigned? I get to keep my $100 too right? Thanks for all everyone's time.
 
You are not providing enough information to answer. If you hold that call to expiration and the call is in the money, and you exercise it, your profit comes from where you close the 100 long shares -minus the cost of the options. Anything over 401 is profit. Your profile days "Vendor." What is your business?

tradethetrade said:
Hi everyone!

I have a question related to exercising options and I hope someone can help me here.

Let's say I long 1 contract of MSFT paying $1 for the contract with a strike of $400. My cost is $100.

Let's say I get exercised.

How much money did I make on my options trade? From what I understand, the trade is closed automatically and I don't make or lose anything, I get to keep the investment I made which was $100 and my pnl was $0.

Now, I get 100 shares of MSFT at 400 and can sell it at any time.

Is that how it works? How would my pnl differ when being assigned? I get to keep my $100 too right? Thanks for all everyone's time.
More...
 
Hi Robert,

Thank you for your reply. I understand better now.

So by "minus the cost of the options", you mean the $100 invested or the transaction fees?

If I sell my stock at 401, I'll gross profit $100 total then. $0 from my options trade and $100 from the stock trade.

I used to be a vendor. I'll pm my business shortly.
 
I find it easier to understand to look at the price’s vs the $$$. If you buy the 400 call for $1, the breakeven is $401. If you sell that stock at, say 410, that is a 9 point profit. The dollar amount is 9*100, as each option is for 100 shares.

tradethetrade said:
Hi Robert,

Thank you for your reply. I understand better now.

So by "minus the cost of the options", you mean the $100 invested or the transaction fees?

If I sell my stock at 401, I'll gross profit $100 total then. $0 from my options trade and $100 from the stock trade.

I used to be a vendor. I'll pm my business shortly.
More...
 
i see. I am almost getting it. I'd like to know how the pnl stands. so if i bot 1 call at 400 at $1, got exercised 1 call at 400 at $0, i lose $100, but get stock at $400. if I sell it at 401, my pnl would be flat in this case correct. how would the blotter of a trade look like? options pnl = -100 and equity pnl +100? or options pnl = 0 and equity pnl = 0?
 
Correct. If you sell the stock for $400, you lose the $1 or $100. If you sell the stock for $401, you breakeven.

tradethetrade said:
i see. I am almost getting it. I'd like to know how the pnl stands. so if i bot 1 call at 400 at $1, got exercised 1 call at 400 at $0, i lose $100, but get stock at $400. if I sell it at 401, my pnl would be flat in this case correct. how would the blotter of a trade look like? options pnl = -100 and equity pnl +100? or options pnl = 0 and equity pnl = 0?
More...
 
tradethetrade said:
Hi everyone!

I have a question related to exercising options and I hope someone can help me here.

Let's say I long 1 contract of MSFT paying $1 for the contract with a strike of $400. My cost is $100.

Let's say I get exercised.

How much money did I make on my options trade? From what I understand, the trade is closed automatically and I don't make or lose anything, I get to keep the investment I made which was $100 and my pnl was $0.

Now, I get 100 shares of MSFT at 400 and can sell it at any time.

Is that how it works? How would my pnl differ when being assigned? I get to keep my $100 too right? Thanks for all everyone's time.
More...

1-If you bought a call, YOU decide if you want to exercise the call. If you let it go to expiration and it's ITM (in the money) then your broker may exercise it for you so you're buying 100 shares of MSFT at 400 but only if the price of MSFT is 400 or higher and you bought the 400 Call. If you paid $1 for the call and MSFT is at 408 at expiration, you have a profit of $7 ($700). You can sell the call before expiration & take the profit without buying the MSFT stock.

2-Example #2:
MSFT stock price is 375. You buy the 400 Call at 1 ($100).
Price of the call goes to 1.30 ($130).
Sell the call at 1.30 and you profit $30 (minus commissions ~$1.30).
 
tradethetrade said:
Hi everyone!

I have a question related to exercising options and I hope someone can help me here.

Let's say I long 1 contract of MSFT paying $1 for the contract with a strike of $400. My cost is $100.

Let's say I get exercised.

How much money did I make on my options trade? From what I understand, the trade is closed automatically and I don't make or lose anything, I get to keep the investment I made which was $100 and my pnl was $0.

Now, I get 100 shares of MSFT at 400 and can sell it at any time.

Is that how it works? How would my pnl differ when being assigned? I get to keep my $100 too right? Thanks for all everyone's time.
More...

If you are long in option contracts, you don't "get" exercised. You choose to exercise. And second, you didn't specify what type of option contract did you long in? Was it a long in call option contract or put option contract? Depending on the type of the option contract, different things happen when you exercise the option contract.

From what you specified further, it looks like you longed in a call option contract. How much money you can make would depend on what's the selling price of the stock MSFT that you can get from selling it minus the cost of the option + strike price of the option that you paid upon exercising the option. You don't get to keep $100. You paid that already when long in that call option.

I think you are confusing it with selling a put and getting assigned to receive the stock which is the underlying for the option.

I am just curious. How are you a vendor on ET? What are you promoting here?
 
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