This article comes from the official account: Option Understand

There are two main ways to obtain income in options trading: one is to obtain income through the exercise of options, and the other is to achieve profits by actively buying and selling option contracts in the market. #期权交易##上证50etf期权##期权日记#

How to calculate the income from the liquidation of individual stock options?

The calculation of the closing gain of individual stock options is relatively simple. Closing a position means that you want to close your options position, either by selling the option you previously bought or by buying the option you previously sold. The closing profit is usually determined by the following factors:

The buy (or ask) price of an option: This is the price you paid (or received) when you initially opened a position.

Option's closing price: This is the market price at which you close the position.

If you are a holder of a buy option, your closing gain is calculated as follows:

Call Closing Proceeds = Sell Price at Closing - Initial Bid Price

Put Closing Gain = Sell Price at Closing - Initial Bid Price

If you are a holder of a sell option, your closing gain is calculated as follows:

Call Closing Proceeds = Initial Sell Price - Bid Price at Closing Position

Put Closing Gain = Initial Sell Price - Bid Price at Closing Position

In all cases, if the calculation is positive, you have a gain, and if it is negative, you have a loss.

Is the premium refunded after the option is closed?

In options trading, the investor's return after closing the position depends on the change of market conditions, and part of the premium may be returned, or the premium may be increased. This is because the price of the premium fluctuates with the volatility of the market, and as a result, investors may make a profit or a loss.

The premium is actually the price of the option. For example, if an investor buys a 50 ETF option at $88, but the price is now only $50 due to market volatility, the investor will lose part of the premium when closing the position.

Therefore, it can be seen that the premium will not be refunded after the investor closes the position. However, because the price of an option (i.e., the premium) fluctuates with market fluctuations, investors may make a profit or a loss. However, if the option expires and is neither exercised nor closed, the option will lapse and the value of the premium will become zero, which means that the investor may lose all of his investment.

What happens if the option expires and the position is not closed?

Loss of Premium: For options contracts held (whether call or put), if they expire out-of-the-money (i.e., have no intrinsic value), those options will become worthless and the investor will lose the entire premium paid.

Exercise or Abandonment: If the option expires as in-the-money (i.e., has intrinsic value), the investor may choose to exercise the option to buy (for calls) or sell (for puts) the underlying asset at the strike price specified in the option contract. If the investor chooses not to exercise the option, the in-the-money option will also expire at expiration, resulting in a loss of premium.

Auto-Expire: For European-style options, if the investor does not choose to exercise the option on the expiration date, the option contract will automatically expire and the option value will be reduced to zero.