It is June and Wall Street is at 10980. You think the market is due for a sharp correction and check the quote for our July 10500 Put option. It is 81/95 so you decide to buy 5 contracts at 95. (One contract is the equivalent of $10 per point.)
To open the position you supply a deposit of 95 points (the opening price) x 5 contracts x $10 per point = $4750. The commission for this transaction is $11.88 (i.e. $4750x 0.25%). This is the most that you could lose on the position if the option expires at zero.
The following week, the index falls to 10700, and you decide to close your position. Our quote for the July 10500 Put is now 136/150, so you close out by selling 5 contracts at 136. Your profit on the trade is calculated as follows: |
To calculate the overall result you also have to include the commission.