Newbie Question regarding option pricing

Discussion in 'Options' started by Neyo, Jun 8, 2013.

  1. Neyo

    Neyo

    Hi guys,

    I just have a question regarding option pricing.

    i recently sold(on my demo account):
    Short SPY weekly OTM put option, expiration 7th of June, at strike 160.00, premium received 0.18, and quantity 10 contracts.

    by equation this should amount to : 10contracts * 100 shares per contract * premium 0.18 = 180$ profit if price is above 160.00

    on the day of the expiration the Bid/Ask of the option was 0.00/0.01, yet the profit i could take if i close the option immediately was only 17$, instead of the 180$ calculated if i waited for the option to expire.

    i know this is a completely newbie question but i can't seem to figure it out or find online why the pricing is this way. i don't understand why, if i close 10contracts by the difference of 0.17(0.18 - Ask0.01=0.17), i only receive 17$ instead of 170$.

    if someone could explain this to me i would be very grateful because i can't seem to find an answer online.

    thank you for the answers in advance!
     
  2. DTB2

    DTB2

    If you would just let it expire, you would retain the $180 premium and not incur another commission cost.
     
  3. Neyo

    Neyo

    thank you for the answer, but the commission per contract trade is 0.95$(in this case, since it is 10 contracts, it would be 9.5$), wich is still a long way from 170$. :confused:
     
  4. Jgills

    Jgills

    is it showing you the pnl per contract? in which case you would make 17 ten times, or 170.
     
  5. Neyo

    Neyo

    i tried closing only one contract and the profit was 1.7$, with the commission of 0.95$...so it is was meant for the whole 10 contracts, and this is why i can't figure it out.
    it is a demo account, is it possible that that has something to do with it?