Strategies

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Buying OEX Calls

 

OEX Index is above break-even point of 619 at expiration
 

Buy 1 OEX 605 Call at $14


If the OEX level, or its exercise settlement value, is above the break-even point of 619 at expiration, the OEX 605 call will be in-the-money and would be exercised.

For instance, say the OEX settles at 625. The cash settlement amount received upon exercise would be:

625 (settlement value) – $605 (call strike price) = $20 x $100 = $2,000

The net profit for the OEX 605 call in this case would be:

  $2,000   cash settlement amount received at call’s exercise
- $1,400   total premium initially paid for call
     $600   profit

On the other hand, if the OEX 605 call is sold for its intrinsic value as the market settles at 625 on the option’s last trading day, the premium received would be:

    625   OEX index level
  -$605   call strike price
    $20    intrinsic value received x $100 multiplier = $2,000

The total profit would be the same as after exercise of the call contract:

  $2,000   intrinsic value received at call’s sale
- $1,400   total premium initially paid for call
     $600   profit

This net profit of $600 represents a return on an initial investment of $1,400 total premium paid for the call of approximately 42.9% over the 3-month life of the call contract.

 
 

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