how to calculate profit of call option

Question

I am trying to calculate the point at which exercising a call option would be profitable.

I am looking at a call option for AAPL. The strike price is $320 and expires March 18th 2020. The price for this contract is $1025. Is the profit = $75 if the stock price moves up to $331?

I arrived at this number by:

future value if exercised ($33,100)  = 

possible future stock price ($331) * shares amount (100)

value at strike price ($32,000) = 

strike price ($320) * shares amount (100)

profit before cost ($1,100) = 

future value if exercised ($33,100) - value at strike price ($32,000)

final profit after accounting for cost ($75) = 

profit before cost ($1,100) - call option cost ($1025)

Answer 1

Your calculation is correct. An easier way to visualize this is to add the cost of the option to the strike price. That is $330.25 ($320.00+ $10.25). You will profit if AAPL is higher than that. At $331.00, your profit is the difference or $0.75 ($331.00- $330.25). Since the option multiplier is 100, your profit is $75.

In most cases, it makes sense to sell an option rather than exercise it, especially prior to expiration because it is likely to have time premium remaining. Exercising throws away that time premium. In addition, if you are still paying commissions, it will cost more to exercise the call and sell the stock than to just sell the call to close. And, you'll incur B/A slippage.

The only time that it makes sense to exercise an option rather than sell it is if it is close to expiration and the bid is below intrinsic value.