# Option profit/loss

if i YES BANK strick price 1400CE BUY @ 50 LOT SIZE 700 (MIS / NORMAL )

``````        so         THE PREMIUM  700*50 =35000
``````

IF spot price 1390 after 1 hour rice to 1395 and Primium price 50 to 60 then i SALE the YES BANK Contract

1. What would happen ?
I lose all premium because SPOT PRICE(1395) is less then STRICK PRICE (1400CE) ?
i mean - I only get profit when SPOT PRICE MORE THEN STRICK PRICE WHEN STOP PRICE CROSS BRACKEVEN POINT 1400+50=1450 ? THEN I GET BOOK PROFIT WHEN SPOT PRICE MORE THEN 1450 LIKE 1451 ,1452 ,1453 .

Hello,

There are two values which add to determine an Option’s value, namely Time value and Intrinsic value.

Options value = Intrinsic value + Time value.

The Time value of the option keeps reducing as the option moves towards expiry and at expiry, the Time value becomes zero. Only the Intrinsic value of the option will remain at expiry if the option is In-The-Money.

Lets take 2 cases for Yesbank 1400CE at expiry -

1. Yesbank Spot closes at 1395

Your option is Out-Of-The-Money(OTM) and it will expire worthless. It’s time value as well as Intrinsic value will become zero.

1. Yesbank Spot closes at 1405

Your option is In-The-Money(ITM) and since the time value of the option is at 0, your Intrinsic value will be 5 which is equal to the Option value.

Now lets consider your case -

Your option has both intrinsic value as well as time value.

If Yesbank spot goes from 1390 to 1395 and the Premium of 1400CE moves from 50 to 60, then you will make a Rs.10 profit. If you multiply this with your quantity, then your Total Profit =700 * 10 = Rs.7000.

You make money in options on the changes in the Option Premium values. If you buy an option and the option premium value moves up from you buying price, then you are in a profit.