# Options profit and loss formula

The entire formula in C8 becomes:. Maximum possible loss is equal to initial cost of the option and applies for underlying price below than or equal to the strike price. In our example, the formula in cell C8 will be:. Same as scenario 1 in fact.

The second component of a call option payoff, cash flow at expiration, varies depending on underlying price. If underlying price is above the strike price, you exercise the option and you can immediately sell it on the market at the current underlying price. Cash flow at expiration The second component of a call option payoff, cash flow at expiration, varies depending on underlying options profit and loss formula. With underlying price above the strike, the payoff rises in proportion with underlying price.

You can test different values for the underlying price input and see how the formula works. The entire formula in C8 becomes:. Now we have created simple payoff calculators for call and put options. This options profit and loss formula the basic building block that will allow us to calculate profit or loss for positions composed of multiple optionsdraw payoff diagrams in Exceland calculate risk-reward ratios and break-even points.

Options profit and loss formula will merge our call and put calculations in the next part of the tutorial. The put option profit or loss formula in cell G8 is: Call Option Value Formula Now we have the cells ready and we can build the formula in cell C8, which will use the inputs in the other cells to calculate profit or loss.

Payoff Formula Inputs options profit and loss formula Outputs In the above example you can identify several inputs that our payoff formula will take — they are the numbers we already know: Options profit and loss formula, we should improve our calculations to also consider direction long or shortposition size number of contracts and contract size number of shares represented by one option contract. Macroption is not liable for any damages resulting from using the content. Furthermore, our calculator only shows profit or loss per share, while many people are actually more interested in total dollar profit or loss, especially when working with positions of multiple option contracts. All information is for educational purposes only and may be inaccurate, incomplete, outdated or plain wrong.