Options Case Study Library

These invented examples isolate different decisions. Unless stated otherwise, each option has a 100 multiplier, transactions are fully filled, and fees, taxes and financing are excluded. They are teaching cases, not historical performance or trade recommendations.

1. A winning long call with a timely exit

Buy one $50 call for $2 and later sell it for $3.40 before expiration. Cash out is $200 and cash in is $340: profit is $140. The stock need not reach the $52 expiration breakeven for this early sale to be profitable because remaining option value also matters. Exercise is unnecessary to realize this sale result.

2. Right direction, losing straddle

Buy a $100 straddle for $6. At expiration the stock is $104. The call is worth $400 and the put zero, leaving a $200 loss against the $600 premium. The four-dollar move is smaller than the six-dollar cost. Before expiration, a lower IV can further complicate the exit; the stock move alone is not the P/L.

3. Assignment during a wheel sequence

Sell a $50 put for $2, take assignment at $5,000, then sell a $48 call for $1. If the call is assigned, shares are sold for $4,800. Total cash is $200 − $5,000 + $100 + $4,800 = $100 profit. If instead the call expires and shares remain at $42, cash plus stock value gives $200 − $5,000 + $100 + $4,200 = −$500. Receiving premium did not prevent the drawdown.

4. A roll credit with an old loss

A short put entered for $2 costs $3.50 to close, realizing −$150. A replacement put sells for $4, so the roll itself receives $50. If the replacement is later closed for $2.50, it earns $150 and the full sequence breaks even. A report calling the roll credit a $50 profit has omitted the old entry and future liability.

5. A correctly valued adjusted call

A hypothetical adjusted option delivers 25 shares plus $100 cash and requires $2,000 exercise cash. At an $80 share price, the deliverable is worth $2,100, giving $100 intrinsic value. A $140 purchase premium would therefore produce a $40 loss if that intrinsic amount is the final value. Using 100 shares in the deliverable would give a completely different, incorrect answer.

6. A planned spread with an unplanned stock position

A short $100 call / long $105 call spread reaches expiration with stock closing at $99.95. After-hours news moves the stock to $103. If the short is assigned and the long expires unused, the trader can be short 100 shares at $100. Repurchasing at $110 loses $1,000 on the stock before credit and costs. The original width did not protect a position held after the long option expired.

Questions to ask in every case

Which values are cash flows and which are still-open assets or liabilities? Is the calculation an expiration payoff or an early exit? What changes if the quote is wider, an instruction is missed or funding is unavailable? Recalculate each case with a stated fee and an adverse execution assumption before moving on to the quiz.