It is crucial for traders to understand how to calculate profit and loss before opening a trade. The following will help you better understand the relationship between different variables and the PnL calculation.
Average position price
The average position price is the average cost of the current position opened. When a new transaction increases the position amount, the average position price will change accordingly.
Average position price = (Original Position Amount * Original Average Position Price + Latest Trade Amount * Latest Trade average price) / (Original Position Amount + Latest Trade Amount )
A has a long position of 1 BTC in the options contract BTC-31MAR23-20000-C with an average entry price of $1,000. Later, a new 1 BTC call option contract is bought at an entry price of $2,000.
At this time, the average position price = (1 * 1,000 + 1 * 2,000) / (1 + 1) = $1,500.
Profit and Loss (PnL)
Profit and Loss (PnL) refers to the unrealized or realized gains and losses of current positions.
For open positions：
PnL = (Mark Price - Average Position Price) * Position Size * Position Direction
（displayed in the position information）
For closed positions：
PnL = (Mark Price - Average Closing Price) * Position Size * Position Direction
（displayed in the trade records）
The position direction for long positions is +1, and for short positions is -1.
A currently holds a long position of 1 BTC face value in the option contract BTC-31MAR23-20000-C, with an average entry price of $1,000.
B currently holds a short position of 1 BTC face value in the option contract BTC-31MAR23-20000-C, with an average entry price of $1,000.
The mark price of the contract is currently $1,500.
If A and B still hold their positions, A's unrealized PnL = (1,500 - 1,000) * 1 * (+1) = $500.
B's unrealized gain/loss = ($1,500 - 1,000) * 1 * (-1) = -$500.
If A closes all positions at $1,400, the profit/loss on the trade = (1,400 - 1,000) * 1 * (+1) = $400.
Return on Investment
Return on Investment (ROI) is the ratio of profit/loss to the cost of the current position.
ROI = (Mark Price - Average Position Price) / Average Position Price * Position Direction * Leverage * 100%
Options contract position leverage is 1x, A has a long position of 1 BTC in option contract BTC-31MAR23-20000-C with an average entry price of $1,000.
The contract is now marked to market at $1,500, at which point A's ROI = (1,500 - 1,000)/1,000 * (+1) * 100% = 50%.
Settlement Gains and Losses
Settlement gain or loss is the gain or loss from holding the option to maturity and settling the option.
Settlement PnL = Settlement income and expense - Opening income and expense
Settlement income and expense = MAX[(Settlement Price - Strike Price)*Strike Direction, 0] * Positions Amount * Position Direction.
Opening income and expense = Average Price of Position *Positions Amount * Buy and Sell Direction* (-1).
|long position direction||+1|
|short position direction||-1|
|call strike direction||+1|
|put strike direction||-1|
The settlement price is the average of the corresponding underlying price 30 minutes before expiration.
A starts buying an option contract BTC-31MAR23-10000-C for 1 BTC at $1,000 with a settlement price of $15,000 at expiration.
Opening PnL = 1,000 * 1 * (+1) * (-1) = $-1,000
Settlement PnL=MAX[(15,000-10,000)*(+1), 0]*1*(+1)=$ 5,000
Settlement gain/loss = $5,000 - $1,000 = $4,000