Your Option Needs to Clear the Premium to Turn a Real Profit
An option buyer's payoff at expiration depends entirely on how much intrinsic value the contract has. A call gains value once the underlying price rises above the strike, while a put gains value once it falls below the strike. But since you already paid a premium to buy the option, that intrinsic value has to exceed the premium before you're actually ahead. If the option expires worthless, the buyer's loss is capped at the premium paid, no matter how far the market moved against the position.
How It's Calculated
| Type | Intrinsic Value | Breakeven |
|---|---|---|
| Long call | max(0, spot - strike) | strike + premium |
| Long put | max(0, strike - spot) | strike - premium |
Net profit is (intrinsic value - premium) x number of shares (contracts x 100). For example, buying a $50 call for a $2 premium, with the underlying at $55 at expiration, gives $5 of intrinsic value minus the $2 premium, or $3 profit per share. Real trades also involve commissions and fees, so treat this as an estimate. Note that before expiration, options also carry time value on top of intrinsic value, but at expiration that time value disappears entirely and only the intrinsic value shown here remains.
Frequently Asked Questions
Call: (spot - strike), Put: (strike - spot), floored at zero, minus the premium, times shares. Negative intrinsic value is treated as zero.
Call: strike + premium. Put: strike - premium. The underlying must move past this price at expiration for a profit.
No, a buyer's maximum loss is the premium paid. Sellers face different, potentially much larger risk. This tool covers the buyer's side only.
* Estimate only, before commissions, fees, and contract-size adjustments; assumes a long option position.