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# Options Profit And Loss - How to Calculate Profit, Loss and Break Even For Option Traders

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Industry:
Finance

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Nov. 12, 2010 - PRLog -- Options Profit And Loss

As an options trader, calculating profits and establishing break-even points are an important part of managing your all your trades. You need to have a basic knowledge of the key concepts, so that you not only know when you are actually making a profit, but also so that you can be sure that newsletter providers are not leading you up the garden path.

It is important to know that the different option trading strategies have different calculations. You need to consider two steps: what is your break even point (so that you know where your profit starts to kick in); and what your profit will be as the trade progresses. Hopefully, you won't make any losses, but if you do, you need to have a realistic idea of how much you have lost!

To start at the simplest level, consider how you would calculate your break even and profit for a simple stock trade. Initially, you would simply calculate the amount of value by which the stock has grown, and record it as a percentage. So, if you purchased 100 shares of a stock worth \$25, your total trade is \$2,500. If your stock climbs to \$28, you have made \$3 profit per share, which is 12% profit. Or, your total trade is worth \$2,800, which is \$300 profit, and is still 12%.

Your TRUE profit however, must include broker's fees and commissions. So, for a stock trade, you may pay \$0.015 per share, when you buy and when you sell. The above trade would therefore work out that your break even point for the entire trade is \$2503, and your ultimate profit if the stock went up to \$28 would be 11.88%.

So, what's the big deal? Your trade cost \$3, or you dropped 0.12%. Small change! Well, when trading options, it is a big deal, because options are expensive to trade in the first place, and as soon as you start working with combination's like spreads and butterflies and so on, the commissions rack up pretty quickly. This is offset by the huge profit potential of options, but you still need to calculate it so that you know what your true profit is. Get your Options Profit And Loss @ http://slackers-trading3.blogspot.com/?tid=prlog061110 and be Successful forever!

How do you calculate break even and profit when option trading?