3.7 Maximum profit/loss of call options - Deribit Options Course Basics

in this lecture we will cover the maximum profit or loss of a call option for both the buyer and the seller as with any trade it is important to be aware of the risk you're taking before placing the trade firstly this table shows how to calculate the profit or loss of a call option position for either the buyer or the seller for now to keep things simple we've left out the position size ie the contract multiplier and number of contracts what we are doing here to calculate the profit or loss is calculating the value of the call option at expiry then adjusting for the premium to give the final profit or loss the value of a call option that expires in the money is the underlying price at expiry minus the strike price so we could write this as call value equals price minus strike to calculate the buyer's profit or loss we then just need to subtract the premium they paid from the value of the this leads us to calculating the call buyer's p l as call value minus premium as we just discovered when the call expires in the money the call value is price minus strike so we can write this as price minus strike minus premium so you can see how the formula for the buyer's p and l in the table is derived the seller's p l is of course just the negative of this so the seller's p l can be calculated as premium minus call value which equals the premium minus the price minus the strike which equals premium plus strike minus price so you can see how the formula for the seller's p l in the table is also derived when the call option has no value because the price expires below the strike you can substitute in zero for the call value to give the call option buyer's pnl as call value minus premium which equals zero minus premium which equals minus premium and the call cell is p l equals premium minus call value which equals premium minus zero or just the premium as a quick example assume a trader buys a call option