Buying Calls

ZYX is above break-even point of $48.25 at expiration

If ZYX closes above the break-even point of $48.25 at expiration, at $51 per share for instance, the option will be in-the-money and worth its intrinsic value (difference between the strike price and stock price):

 $51.00   ZYX stock price
-$45.00  call strike price
   $6.00   intrinsic value

If you sell the ZYX 45 call for its intrinsic value of $6 then you would see a profit:

$6.00  intrinsic value received at call's sale
$3.25  premium initially paid for call
$2.75  profit

This profit of $2.75 ($275 total) represents a return on an initial investment of $3.25 premium paid for the call ($325 total) of approximately 84.6% over the 6-month life of the call contract.

The call could also be exercised, and 100 shares of ZYX purchased at the contract's strike price of $45 per share plus the $3.25 call premium paid, or a net price of $48.25. The stock could either be sold in the marketplace or held in anticipation of continued profits on the upside.

Instead of purchasing the call, had the stock been purchased outright at $44.25 per share and increased in price to $51 at option expiration, it would then be worth a total of $5,100. The result is a 15.25% return over the initial stock investment of $4,425 versus an 84.6% return for the option investor.