Noob question: unrealized P&L

M

marino1000

Hi,

I have a noob question. A while ago I have bought a call, strike price 22.5, premium 5.35. Stockprice at the moment is 24.75. I have an account with Interactive Brokers. However, in my porfolio I see that the 'unrealized P&L' is 23 USD. But as I haven't reached the breakeven point yet, shouldn't the unrealized P&L show a loss of 335 USD. Am I correct? Or does my account/P&L has a bug? Hope someone can help me with this issue. I have already sent an email to CS but they told me that should I sell it now, indeed I would receive a profit of 23 USD.
 
marino1000 said:
Hi,

I have a noob question. A while ago I have bought a call, strike price 22.5, premium 5.35. Stockprice at the moment is 24.75. I have an account with Interactive Brokers. However, in my porfolio I see that the 'unrealized P&L' is 23 USD. But as I haven't reached the breakeven point yet, shouldn't the unrealized P&L show a loss of 335 USD. Am I correct? Or does my account/P&L has a bug? Hope someone can help me with this issue. I have already sent an email to CS but they told me that should I sell it now, indeed I would receive a profit of 23 USD.
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Option price is based on intrinsic value and time value.
The time value only goes down to 0 a the expiration.
Intrinsic value has increased faster that the time value decreased because I understand from your message that the stock price increased. So overall the option price increased.
Even though your option is not yet in the money the chance that it finishes in the money before or at expiry is higher than when you initially bought it. Hence your option is more valuable.
P&L will become realised once you sell your option or exercise it.
 
Hi,

But if
strike price = 22.5
premium = 5.35

This means breakeven point 27.85. So, as the stock price is now 24.75, when I sell the option, this would mean a loss. Right? Of 310 USD in total. And not a profit of 23 USD which the P&L in my dashboard shows.

Please correct me if I am wrong.
 
The break even point is in the future and has nothing to do with this.

Your profit is the option's current price less what you paid for it. If you paid $5.35 for it and IB indicates that you have a $23 profit then their midpoint valuation should be $5.58, ignoring about $1 paid for the call.

Plan B? Get a current quote.
 
marino1000 said:
Hi,

But if
strike price = 22.5
premium = 5.35

This means breakeven point 27.85. So, as the stock price is now 24.75, when I sell the option, this would mean a loss. Right? Of 310 USD in total. And not a profit of 23 USD which the P&L in my dashboard shows.

Please correct me if I am wrong.
More...

You assume that all your premium is lost meaning your option already has no value. But it's not expired yet right?
So if not expired, as I mentioned previously, your option price actually increased not decreased due to the IV increasing faster than time decay
 
I have a rather recent screenshot, somewhere, of Liz and Jenny at TastyWorks selling an SPX spread and then buying it back just a few minutes later; the spot price was within a penny of where they entered, but they made (if I recall correctly) a couple of hundred bucks on the change in volatility.

Your assumption - that only the change in the price of the underlying affects your P&L - is indeed wrong.
 
cvds16 said:
get yourself a few good books about options ar you will lose all your money trading them. That's a fact, no kidding and no exaguration.
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That seems both over-emphatic and oddly specific. Are you saying that this any different for trading any other asset class?
 
GregorySG9 said:
... as I mentioned previously, your option price actually increased not decreased due to the IV increasing faster than time decay
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There's nothing in the details that the OP provided that suggests that there has been any change in implied volatility. Maybe it has, maybe it hasn't, but it's unknown.

You had it right in your previous answer:

"Intrinsic value has increased faster that the time value decreased because I understand from your message that the stock price increased. So overall the option price increased."
 
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