Formula to calculate cost of closing a call?
- Thread starter wxytrader
- Start date
There is no discrepancy. You are just bad at basic math. And it would not be difficult to explain this to someone with a basic foundational level of options comprehension, but given your post history, it seems likely it would take a half dozen replies and a 1.5 days to explain something to you that you ultimately won't comprehend. So why bother.
In addition to math, reading comprehension is also below grade level.
Ok numbskull.
You bought MARA for $16.90
You sold MARA 8/30/24 16.5C for $0.69
If MARA is above $16.5 at expiration and you allow your position to be called away, your PnL is:
[$16.50 + $0.69 - $16.90] * 1500 = $435.
Tada! If your shares are called away, your PnL is actually $435, not $300.
If you close your call early, then sell your shares in the market, your PnL may end up being something different, because you probably have to pay some time value to close out your short call.
Did I just discover an arbitrage????
Ok numbskull.
You bought MARA for $16.90
You sold MARA 8/30/24 16.5C for $0.69
If MARA is above $16.5 at expiration and you allow your position to be called away, your PnL is:
[$16.50 + $0.69 - $16.90] * 1500 = $435.
Tada! If your shares are called away, your PnL is actually $435, not $300.
If you close your call early, then sell your shares in the market, your PnL may end up being something different, because you probably have to pay some time value to close out your short call.
Did I just discover an arbitrage????
No,
Premium received selling the short call: $1035
Cost to close the short call: $735
Net: $300
Plus the increase in stock price from 16.90-16.99=.09*1500=$135
Total: $435
So you pnl $435 only if you close the position and keep the shares, not if you let it expire itm.
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If you let the position expire itm and get called away:
Market value: $25,485
Contract value: $24,750
Total: -$735 + $1035 = $300.
So it is better to close out the position and keep the shares than let them get called away.
Like I said before, you are demonstrating a complete absence of basic math and options concepts.
The price of the stock on expiration date (your $25485) is irrelevant in determining your PnL in event the shares are called away. All that is relevant are (1) the price you paid for the stock, (2) the premium collected on the call, (3) the strike price on the call.
You bought the stock for $16.90 and received $0.69 in premium, so your net price on the buy-write is $16.21. If your shares are called away, you receive $16.50 in return for your shares. The difference is $0.29. Multiply by 1,500 and you get $435 profit.
But I fully expect that you are incapable of understanding even that basic math. And because of that, this will be my last response.