I bought an options contract on 08/26/2021 for about $12,000. It's now three (300C 01/20/23 exp) options currently worth about $555 total. My thinking was if the TSLA share price was at $300 a share, by expiration, that I would break even. When I do the Long Call Calculator on
Options profit calculator it looks like I need the TSLA share price to get up to about $336 to $343 per share to break even. Am I interpreting it correctly?
Probably.
I'm just trying to figure out at what point I lose everything, versus possibly breaking even, or getting most of my money back. Any help would be appreciated. Thank you.
You lose everything if the stock price closes below $300 on Jan 20 2023- because the option expires worthless.
So what you did was you paid $12000 for a 1/20/23 call with a strike price of $900-- this means you paid $120 per share (options contracts are generally for 100 shares) for the right (but not the obligation) to buy 100 shares of Tesla for $900 per share (which would cost you another $90,000).
Break even on that is $900 plus $120= $1020 a share.
With the 3:1 split this became 3 options, and the strike became $300, and effectively "paid" $40 per share for the option ($120/3)... break even then became $340 a share.
If the stock closed on Jan 20 2023 at say $301, you would (assuming you had $90,000 in your account) have these options exercise (rather than expire worthless) because the stock is above the strike price so they are considered "in the money". And you'd pay $90,000 and own 300 shares of Tesla.
Which you could sell (if the price didn't move again) for $90,300. Meaning you lost $11,700.
The reason you're getting that answer from the calculator should be clear now. If the stock closes at $340 and your $300 option exercises, immediately selling the stock would net you $40 per share.
Which is exactly what you originally paid to have the option.
At anything over $340 you have a net profit- anything above is a net loss.
(there's potentially other relevant factors like fees, and any tax impact, but that's the basic idea).
The other thing you can always do is re-sell those options contracts before expiration. As you note, right now they're not worth much-- because the stock is so far away from $300 a share people are unwilling to pay much for the right to buy it at $300 just a little over 2 months in the future...so all that you can get is the little bit of time value left (intrinsic is 0 since it's far from the money). But if the share price surged to say $350 by December 1, you could actually resell those options for more than $50 a share because they'd still have a little bit of time value left.
But as you should have seen with the calculator, time value is going to decay quickly if the stock price does not surge in the near future. You're already near max loss, so up to you if you want to hold out and hope, or just recover the little bit you can now.
