Call options, or "calls." give the owner the right (but not the obligation) to purchase 100 shares of stock per contract--at a specific price at a future date for a price agreed upon today. As the value of the underlying stock changes, the value of the options also change. Options are more volatile than stock; therefore, price swings are more dramatic. It is possible to assess the value of a portfolio of options by determining the value of each option.
Valuing a Portfolio of Calls
Find the strike price and expiration date for each call. The strike price is the price the underlying stock must reach in order for the option to become profitable. Options are usually offered for each month and expire on the third Friday of the respective month. Each call contains nomenclature that designates the strike price and month of expiration.
For example, 10 calls with a strike price of $15 for stock in Company XYZ that expire in November would be listed as "10 November $15s." Take note of the strike price, expiration date, and amount of calls owned in the portfolio.
Find the market price for each call. The market price can be found by entering the ticker symbol for the underlying stock in your broker's search function. This quotation page enables you to select to view the "option chain" or "options." Calls are listed in ascending order by strike price for the current month. Later months always are listed as links at the top of the page. Select the appropriate month of expiration for each call. This page also will have a grid format listing the strike price, "bid" and "ask." The value for the bid of your call represents the price that call is currently trading for on the market, also known as the market price.
Multiply the market price by the total number of shares controlled by the calls. Each call controls 100 shares.
For example, if your portfolio consisted of: 10 November $15s with a bid at $4 8 October $20s with a bid at $2 4 September $25s with a bid at $1
The calculation would be as follows: 10 x 100 x $4 = $4000 8 x 100 x $2 = $1600 4 x 100 x $1 = $400 Total value of portfolio = $6000
Summing the values of each call option will yield the total value of the portfolio.
Options are considered very risky and usually are traded by professionals who have robust information sources and large amounts of capital. It is important to consider the riskiness of these securities.
- Options are considered very risky and usually are traded by professionals who have robust information sources and large amounts of capital. It is important to consider the riskiness of these securities.
Steve began writing professionally in 2006, and was published in Financial Markets and Institutions, for his alma mater. He has held positions at wealth management firms, startup companies, a major movie studio, and is CEO of his investment firm. Steve graduated with a Bachelor of Science in business administration from the University of Colorado at Boulder.