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Print caller calculated

in this video we are going to price some options this is example for question number seven so we're going to price some option gains and losses figure out the gain or loss on option transactions in this example Microsoft stock is the stock we are using it is currently trading at thirty eight thirty six let's assume you buy a call option on Microsoft that has a strike price of forty very very important its expires in April of 2014 calculate your gain or loss in dollars not in percents we're going to do it in dollars if Microsoft is trading at forty six twelve well that sounds pretty good when Microsoft was trading at 36 38 36 you bought a call option which is bullish which means you're betting that their stock price will rise you bought it with a strike price of 40 and yet the stock went up to 46 twelve so it sounds like a good deal so what we're going to do is we're going to calculate the gain on this call option at the expiration of the option assuming that Microsoft stock price goes to forty six twelve now I realize option trades and 100 share blocks but just ignore that just do all of this on just one option just to keep it simple so for number one you remember the formula for the call gain or loss well equal the max of the stock price I'm going to use s here for stock price I know it's confusing because sometimes I was using s for strike price but stock price minus the strike price and zero because you can't lose on the option you just won't exercise it what you do lose on the option is the premium in this case the premium we have a bid and ask remember when you're buying options always go with the higher number the ask price if you're selling an option you would go with the bid price the lower price right here we're buying option so that's minus a dollar forty eight so in this case we have a max of forty six twelve what the stock is trading for minus our strike price forty bucks and the max of that in zero the max of that in zero and then subtract a dollar 48 so that's six dollars and twelve cents - a dollar forty-eight and that she gets you four dollars and 64 cents that's our gain so the max of 46 12 - 40 and 0 versus zero since six twelve is greater than zero we have a gain of six twelve on the option - our option premium a dollar forty-eight that gives you four dollars and 64 cents now let's look at the put in this case we bought a put option on Microsoft with the strike price of thirty five expired in April it's starting at 38 36 calculate your gain or loss on the foot if it's trading at 39 16 well in this case you bought a put option which is very bearish assuming that Microsoft stock price is going to fall and it didn't follow it actually rose a little bit so here a put gain will equal the max and we just switch the strike and the stock price instead of s minus X is X minus s and 0 - and again we use the ask price the Howard power price because we're buying the options so - a dollar 10 so that is going to be the max our strike price our strike price is 35 the current price is 39 16 and 0 - a dollar 10 well 35 - 39 16 is less than zero so our max here is zero so zero minus a dollar 10 we have a loss of a dollar 10 which means we bought a put option which makes money if the stock price falls below a strike price but in this case it didn't actually rose so we don't execute the option there's no reason to execute the put option at this in this situation and so we end up with a loss which our loss is simply whatever we paid for the option thanks