# Calculation formula option, The Options Industry Council (OIC) - Optionscalculator

In this part we will learn how to calculate single option call or put profit or loss for a given underlying price.

### Excel calculations: automatic, manual, iterative

This is the basic building block that will allow us to calculate profit or loss for positions composed of multiple optionsdraw payoff diagrams in Exceland calculate risk-reward ratios and break-even points. It is a function that calculates how much money we make or lose at a particular underlying price.

Preparing the Cells In an Excel spreadsheet, we first need to set up three cells where we will enter the inputs, and another cell which will show the output. I have decided to enter the strike, initial price and underlying price inputs calculation formula option cells C4, C5, C6, respectively. The result will be shown in cell C8.

Precision of Excel calculations Excel automatic calculation vs. When you first open or edit a workbook, Excel automatically recalculates those formulas whose dependent values cells, values, or names referenced in a formula have changed.

While not necessary for a simple calculation like this one, it is a good idea to somehow graphically differentiate input and output cells, especially when building a more complex spreadsheet. It will make the sheet much easier to use and reduce the risk of you or someone else accidentally overwriting formulas in the future.

As a result, time value is often referred to as an option's extrinsic value since time value is the amount by which the price of an option exceeds the intrinsic value. Time value is essentially the risk premium the option seller requires to provide the option buyer the right to buy or sell the stock up to the date the option expires. Typically, stocks with high volatility have a higher probability for the option to be profitable or in-the-money by expiry.

It is best to do this consistently across all your spreadsheets. Personally, I always make the background of input cells where user is expected to enter values yellow and the output cells which typically contain formulas and should not be overwritten green — just my habit; you can of course use different colors, fonts, borders, or other formatting.

Call Option Value Formula Now we have the cells ready and we can build the formula in cell C8, which will use the inputs in the other cells to calculate profit or loss.

Now we need to implement this formula in Excel. It is very easy, because Excel has the MAX function, which takes a set of values separated with commas and returns the greatest of them.

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With the inputs in our example how to make money quickly on vacation and 49cell C8 should now be showing 4.

You can test different values for the underlying price input and see how the formula works. For any underlying price smaller than or equal to 45 it should return zero; for values greater than 45 it should return the difference between cells C6 and C4.

But we are not finished yet. This is again very simple to do — we will just subtract cell C5 from the result in cell C8. You can again test different input values.

The result with the inputs shown above 45, 2. Now we have created simple payoff calculators for call and put options. However, there are still some things we can improve or add to make our spreadsheet more useful.

Furthermore, our calculator only shows profit or loss per share, while many people are actually more interested in total dollar profit or loss, especially when working with positions of multiple option contracts. Therefore, we should improve our calculations to also consider direction long or shortposition size number of contracts and contract size number calculation formula option shares represented by one option contract.