Theo's Poolside Discussion of Trading Delights and Disasters (BYOB)

[Theo]

"so i'm essentially getting 5.6 to 1 on my original 300 dollar bet ?"

In "casino" parlance, yes... although you'll pay X amount for the commission on the sell too. (That gets paid both in and out) but for illustrative purposes- yes.

Now, IF you were to have bought those same 20 contracts BUT instead of the OCT 15 $45.00 Strike you bought the OCT 15 $22.50 Strike yesterday, you would've paid $1.70 (instead of $0.15) per share for a total of $3400. BIG difference in cost right? You control the same number of shares (2000) However, the difference is that today, you're playing much closer to the money and the share price rose to 22.70ish which is 0.20 above the Strike price of $22.50 The contracts, however, are trading $030/share higher than yesterday @ $2.00 ish meaning you could sell those ITM (in the money) Calls today that you bought yesterday for a $1.70 and get $2+ for a $0.30 profit/share or $30 per contract for a total of $600 profit $0.30 X 2000 shares {20 contracts} = $600(minus vig/commission) without waiting for news or some other catalyst.

When you buy ITM (in the money) Calls, you play "safer" although you pay more to control the same number of shares and the prices tend to be much more aligned with the PPS movement whereas, you're relying on big price moves in OTM (out of the money) options but your cost risk is MUCH less.