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In my Investments class we are trading options. I bought a TSLA call option for 8.80. I know that options come bundled in groups of 100. So did I actually invest $880 or did I only invest 8.80? I sold it at 9.45. Did I make less than a dollar or $85? I also see that I got charged commission twice. What would happen if I actually held on to the option until April 1st(Expiry Date)? How much would I lose?

Any help would be great thanks.

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You would have paid $880.00 plus commission in this case, and made $85 before commissions. How much you would have made on expiration depends on the price that TSLA has on April 1, which hasn't come yet. If it expires worthless, you typically don't pay a commission but you will have lost the full $880. If it expires in the money and you want to exercise it, then you would pay a commission (often different than the commission to buy/sell the option itself) and you would have 100 shares of TSLA. You won't know how much you make or lose in this case until you ultimately sell the shares of TSLA.

  • so if tsla stock price is 227 at expiry and its ITM then I would have to pay $227,000 to exercise? – aeipownu Mar 24 '16 at 20:01
  • You're off by a factor of 10 in the first place since ($227 x 100 = $22,700). But no, this is wrong. You pay 100x the strike price of your option, which you never stated. – user32479 Mar 24 '16 at 20:13
  • strike price was 225. so 22,500? What if you don't have 22,500 and don't have the margin for it either? – aeipownu Mar 24 '16 at 20:23
  • Yes, if the strike price is $225 and you bought one call contract, then you need $22,500 (plus commission) to exercise. If you don't have that (in cash or in margin), then you really should sell the call back to the market before expiration and take a profit on the option. If you try to exercise, your broker will either deny your request to exercise and you'll have a complete loss or you'll get a margin call forcing you to deposit funds forthwith or allowing the broker to liquidate your positions to cover it. (You don't want the margin call.) – user32479 Mar 24 '16 at 20:29
  • That is incorrect, even after expiring, options typically allow to execute only the difference. You never have to pay the 22500 (and you never own the shares). I have done such trading for many years. – Aganju Mar 25 '16 at 11:41

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