CHECK THIS OUT!!!
This is the buying side of the game, and the maximum loss is the purchase cost of the contract ( $95.00 in this case ).
An SPY ( S and P 500 Index ) put option was purchased. Each contract is worth $0.95, but options contracts are sold in groups of 100; therefore, the contract costs a total of $95.00.
SPY was trading at $388.00 at the time of the purchase. The contract was bought ” at the money “, which means that a strike price of $388.00 was chosen. The price of SPY dipped below the strike price, and therefore, the put option contract gained in value.
We must keep in mind that $95.00 was paid for the contract, so the stock price must fall $0.95 below the strike price before actual profit is being made. The breakeven price for this contract is as follows:
$388.00 – $0.95 = $387.05
The SPY price moved downward from $387.05 to a $385.12 market value. This is a downward price move of…
$387.05 – $385.12 = $1.93 per contract.
$1.93/contract x 100 contracts = $193.00 ( I’m off by $1.00 ), which is a +100% return!!!
Another way of looking at things is as follows:
Current Price: $2.86 per contract
Purchase Price: $0.95 per contract
The difference between these two prices is:
$2.86/contract – $0.95/contract = $1.91/contract
Since we have 100 contracts, the profit is:
$1.91/contract x 100 contracts = $191.00 ( Off by $2.00, but I’m close )
RENAISSANCE PHYSICS 