profiting off options question

[cashclay]

Hi im fairly new to this options trading and was just wondering if you when selling a call or put position do you profit off both the bid and the difference between the strike prices or just the bid itself? For ex: i buy a call option for 1$ with a strike price of 5$. When i go to sell the bid is at 1.50$ with the strike price now at 6$. would i be profiting .50 cents + 1$ or is it just the .50 cents??? thanks

 

[options-george]

Hi im fairly new to this options trading and was just wondering if you when selling a call or put position do you profit off both the bid and the difference between the strike prices or just the bid itself? For ex: i buy a call option for 1$ with a strike price of 5$. When i go to sell the bid is at 1.50$ with the strike price now at 6$. would i be profiting .50 cents + 1$ or is it just the .50 cents??? thanks

If I understood correctly, then you bought a call option for $1. The underlying instrument has rallied. The option is now worth $1.50, and you decide to sell it.

The profit will be the diff between the purchase price and the selling price, i.e. $0.50 in this case.

The option is worth $1.50 due to a mix of instrinsic value (the difference between the strike price and the market price of the underlying) and time value.

Hope that answers your question.

Good luck out there.