Understanding how to calculate profits and losses in options trading is essential for informed decision-making. This guide covers both realized and unrealized P&L with practical examples.
Key Concepts in Option P&L
1. Realized Profit/Loss
This reflects closed positions between the last settlement time and current time. Realized P&L:
- Impacts account equity (usable as collateral but non-withdrawable until settlement)
- Calculates actual gains/losses from completed trades
Long Position Formula:
(Position closing price – Settlement reference price) × Contract multiplier × Number of contracts
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Example:
Buy 2 BTC contracts @ 0.02 BTC (multiplier: 0.01)
Sell 1 contract @ 0.04 BTC (reference: 0.03 BTC)
Realized P&L = (0.04 - 0.03) × 0.1 × 1 = 0.001 BTC
Short Position Formula:
(Settlement reference price – Position closing price) × Contract multiplier × Number of contracts
Example:
Sell 10 contracts @ 0.03 BTC
Buy back 8 contracts @ 0.01 BTC
Realized P&L = (0.03 - 0.01) × 0.1 × 8 = 0.016 BTC
2. Unrealized Profit/Loss
This measures floating P&L for open positions in real-time market value.
Long Position Formula:
(Mark price × Contract multiplier × Position size) - (Average entry/ settlement price × Contract multiplier × Position size)
Example:
Hold 2 contracts (entry: 0.03 BTC, mark price: 0.04 BTC)
Unrealized P&L = (0.04 × 0.1 × 2) - (0.03 × 0.1 × 2) = 0.002 BTC
Short Position Formula:
(Average entry/settlement price × Contract multiplier × Position size) - (Mark price × Contract multiplier × Position size)
Example:
Hold 5 contracts (entry: 0.03 BTC, mark price: 0.02 BTC)
Unrealized P&L = (0.03 × 0.1 × 5) - (0.02 × 0.1 × 5) = 0.005 BTC
Price Types in Options Trading
Understanding these three prices is critical:
| Price Type | Definition | Use Case |
|---|---|---|
| Latest Trade Price | Real-time execution price | Immediate transaction valuation |
| Index Price | Weighted average across exchanges | Settlement reference |
| Mark Price | Theoretical fair value | Unrealized P&L calculation |
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FAQs on Option P&L
Q1: When does realized P&L become withdrawable?
A: After settlement completes in the current period.
Q2: Why use mark price instead of last price for unrealized P&L?
A: Prevents market manipulation by using objectively calculated fair value.
Q3: How does contract multiplier affect calculations?
A: Scales the nominal position size to actual asset value (e.g., 0.01 multiplier = 1/100 contract size).
Q4: Can unrealized losses trigger margin calls?
A: Yes, they affect available margin and may require additional collateral.
Q5: What's the difference between settlement price and mark price?
A: Settlement price is periodic (e.g., hourly/daily), while mark price updates continuously.
Note: Trading involves risks. This content doesn't constitute financial advice. Always conduct independent research.