SPX Index is between 1410 and 1444 at expiration
Buy 1 SPX 1410 Call at $34
With the SPX exercise settlement value exactly at the strike price of $1410 at expiration, the 1410 call would be at-the-money and have no value.
With SPX at the break-even point of 1444 at expiration, the 1410 call would be in-the-money and exercised.
The cash settlement amount received upon exercise would be:
1444 (settlement value) – $1410 (call strike price) = $34 x $100 = $3,400
This amount of $3,400 is the total cost of the call.
If the SPX exercise settlement value is between 1410 and 1444 at expiration, the 1410 call will also be in-the-money and would be exercised. The cash settlement amount received, however, would be less than the total cost of the call, resulting in a partial loss for the position.
For example, say the exercise settlement value is 1425 at expiration. The cash settlement amount received upon exercise would be:
1425 (settlement value) – $1410 (call strike price) = $15 x $100 = $1,500
SPX did rise in value, but not as much as anticipated. The call that originally cost a total of $3,400 is now worth $1,500, so the investor can recoup some of its initial purchase price and realize a partial loss.
$3,400 total premium paid for call
–$1,500 cash settlement amount received at call’s exercise (or sale at intrinsic value)
$1,900 partial loss
However, the call buyer could have earned interest on the $136,600 not originally committed to this bullish position, which could offset some of the option loss.