Question

Suppose you are short 50 contracts on a 2-year 50-call option on TSLA and long 25 contracts on TSLA stock. How much will your option position increase in value if TSLA stock price goes down by $1 (use negative number if value decreases).  

Answer 1

Calculation of Net Increase in option position if Price goes down by $1-

Net Increase in position = (decrease in price * number of short positions held) - (decrease in price * number of long positions held)

Net increase = ($1 * 50 contracts ) - ($1 * 25 contracts)

Net Increase = $50 - $25

Net increase = $25

NOTE :- The above computation is made as on the expiry date of contract when TVM (Time Value of Money) is zero.

In case of any doubt, please comment below. I would be happy to help.

Please upvote the answer if it was of help to you.