Friday, July 25, 2014 6:38:07 PM
Buying stock options is straight forward, especially since-- I assume -- you sold options to hedge your contracts (i.e. covered calls)? The biggest issue is time, given the other issues of direction and target are assessed by every Technical Trader regardless.
Even with time (options expiration)-- if you aren't buying too far Out-of-The-Money (OTM) -- you can roll-over options before expiry. You can gain time (roll out) or change your target (roll up or down).
I like options because it reduces my capital requirement to benefit from the same anticipated movement.
e.g. MCD @ $95.70 w/ tgt @ $97.00
$ at Risk/Outlay:
Shares: 100 x $95.70 = $9,570.00
Options: 3 x $3.65 (price of Sep 92.50 call option) = $1,095.00
Target: $97
Gross Profit Potential:
Shares: 100 x $1.30 = $130.00
Options: 3 x $4.50 (intrinsic value @ 97 - 92.50) = $255.00
In the MCD example, you could get almost 2x the profit @ roughly 1/10th the risk (exposure)/outlay ...
Have a great weekend NewView
Even with time (options expiration)-- if you aren't buying too far Out-of-The-Money (OTM) -- you can roll-over options before expiry. You can gain time (roll out) or change your target (roll up or down).
I like options because it reduces my capital requirement to benefit from the same anticipated movement.
e.g. MCD @ $95.70 w/ tgt @ $97.00
$ at Risk/Outlay:
Shares: 100 x $95.70 = $9,570.00
Options: 3 x $3.65 (price of Sep 92.50 call option) = $1,095.00
Target: $97
Gross Profit Potential:
Shares: 100 x $1.30 = $130.00
Options: 3 x $4.50 (intrinsic value @ 97 - 92.50) = $255.00
In the MCD example, you could get almost 2x the profit @ roughly 1/10th the risk (exposure)/outlay ...
Have a great weekend NewView
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