Fortunately, this important calculation is also a simple calculation - a matter of addition or subtraction, depending on whether you are buying a call option or a put option. The only two factors involved are the cost of the option and the option's strike price.

Calls - To realize a profit on a call, the market price of the commodity must move above the option strike price by an amount greater than your costs (costs include the premium invested to buy the option, brokerage commission, and any other applicable transaction costs).

Example: With crude oil at $23/barrel, and in anticipation of rising prices, you invest $1000 (the equivalent of $1/barrel) to buy a 1000 gallon CL call option with a strike price of $25 per gallon. For the option to become profitable at expiration, the price of crude oil must climb above $26. For each $1/barrel it increases above that amount, your profit is $1000.

Puts - To realize a profit on a put, the market price of the commodity must decline below the option strike price by an amount greater than your costs.

Example: With crude oil at $27/barrel, and in anticipation of declining prices, you invest $1000 (the equivalent of $1/barrel) to buy a 1000 gallon CL put option with a strike price of $25 per barrel. For the option to become profitable at expiration, the price of crude oil must decline below $24.  For each $1/barrel it declines below that amount, your profit is $1000.