To all experienced traders, i need some help to understand how options on futures profits (P/L) are being calculated. I specifically refer to ES (S&P E-mini) futures options. For futures the price is simple, meaning if i had 1 ES short position, and the price decreased by 0.25 point, i would earn $12.50. (Just an example) The problem with options is that the way profit is calculated is very unclear, and all questions directed at brokers ends up giving me more questions then answers. Can someone please give me a clear and simple way to understand how the profits for options are being calculated. If i had a put option on ES futures with the strike price of 1625.00 which I bought when ES futures' price was 1621.00 (this would make it an in the money option), I paid premium of $30. Ignoring all slippage and other unfortunate details. If the futures price went to 1619.00 from 1621.00 in 8 hours (so it's a short term trade) and I'd like to exercise my option , what would be the realized profit? I know for futures it would have been ((1621 - 1619) / 0.25) * 12.5 = $100. But when exercising options, I only get like around 20 dollars P/L. Please assume that we have around 1 month and a half till the option expires and I'm trading American style options
Option profits are much like insurance profits; except many insurance co give 30 days grace [gift]period.LOL but true
You don't need to exercise. Just close the position at the current premium. And calc your profit from the premiums, of course.
You need to look at your greeks to determine what your profit or loss would be if the underlying moves x points.