Options Questions

[Anonymous No.361508]

1. I know specifics matter, but as part of an average buy price and average numbers, if someone buys $3,000 worth of call options on a $6 stock at a strike price of $12 for six months, and it reaches $12.10, about how much money will the investor take home?

2. Person 1 and Person 2 buy call options on the same $6 stock, however, Person 1 buys with a strike price of $10 and Person 2 buys with a strike price of $15. The stock reaches $17. Which person made more money?

[Anonymous No.361512]

>>361508
1. This depends on entirely too much. I started learning how options contracts were actually priced to do this sort of thing, but the math is too involved for what I wanted to do.

$3,000 worth of call options tells me absolutely nothing. But assuming you got 10 contracts for the sake of this exercise, you stand to make $0.10 per share. You have 1,000 shares underlying, so $100.

2. Person 1 makes substantially more money.

[Anonymous No.361522]

>>361512
Thanks, Anon. Where/how did you learn about options?

Also, for question one, I'm just trying to gauge what level of return is provided. There are some people who say you can make 50 times your money with options while there are others who say you'd be good to double or triple your money most often.

>Person 1 makes substantially more money.
So if you expect a stock to, say, quadruple within the option time, you should buy the options with the smallest strike price for that time?

[Anonymous No.361529]

Also, I know the details of this are missing, but in general, if a person suspects a stock price is going from $5 to $50 over two years, would they make more money with buying options and having it go from $5 to $20, or by putting that same money in the regular stock (non-option) at $5 and having it go to $50? Fuck I realize this is so vague without specifics and specific numbers, but I'm just trying to get an idea of how much someone stands to gain via options compared to regular stock (even though options are extremely risky).

[Anonymous No.361795]

>>361508

1. Depends when you sell it, if you take too much time theta will eat away the premium, if early rise you can sell before the 2 months some intrisic value and time value, but its too relative.

2. Depends on the premium of the call at the moment of purchase. Intrinsic for expiration is $5 and $2. How many contracts did Person 1 bought and How many did Person 2.

[Anonymous No.361798]

>>361522

Easiest explanation would be PRAN, May14 Put option strike 8 at $0,05 on Feb

On a $1,000 you get 200 contracts

PRAN crashes to 2,5

The $0,05 Put is now worth 5,5 intrinsic
The 200 contract are valued on $110,000 given the 100 multiplier.

>>361529

The more time it takes the more expensive an option is, if you plan to buy otm leaps for long term purposes you will have to be putting in a lot of money for the premium so you will have to calculate your (target price - premium paid) for the option.

[Anonymous No.361814]

>>361522
>So if you expect a stock to, say, quadruple within the option time, you should buy the options with the smallest strike price for that time?

Yes.

I learned by reading on Investopedia. The anon who mentioned theta in this thread has a more thorough understanding of them than me. That's about where I left off. And as I don't fuck with options, most of my knowledge has waned.

[Anonymous No.362154]

>>361512
>>361795
>>361798
>>361814
Thank you all, Anons. If anyone else feels they can add anything, please do.

[Anonymous No.362165]

>>361814

This is untrue. Assume that for some reason you "know" (but not in an insider trade-y way) that a stock at $10 will head to $40 in a month. You'd probably want to purchase calls struck at around $25-30 or so, because those would be dirt cheap relative to ones struck at $5 (you could probability pick them up for ten cents a contract vs.$5+ for the ones struck at 5), while still capturing the gains.

Essentially, make a plot of the return assuming you held the calls to expiry vs. price and pick the point with the largest slope. If you plan on selling to close the position, then the math gets more complicated, but you want to maximize the leverage of your position, and that's best done with OTM options.

[Anonymous No.362188]

>>362165
>You'd probably want to purchase calls struck at around $25-30 or so, because those would be dirt cheap relative to ones struck at $5
But would the other options at $5 make more money if the stock goes to $40? I understand that the cost is absolutely a huge factor, but will the person buying at a strike price of $25-30 make just as much money as the guy buying at a $5 strike price (or, say, a $15 strike price)?

[Anonymous No.362194]

>>362188

No, think about it in terms of the amount of contracts you can buy. If I have $500 to invest, I could buy 1 contract struck at $5 for $5, I would make (40-5)*100 = $3,500. But if I could buy 50 contracts struck at $30 for $0.10, then I would make (40-30)*5000 = $50,000, more than ten times the money.

[Anonymous No.362196]

>>362194
>then I would make (40-30)*5000 = $50,000, more than ten times the money.

[Anonymous No.362267]

>>362194
>>362196
How common is it that you can make 10x you money in options? Also, an investing friend of mine with moderate knowledge says you could never find $40 strike price options for a $5 stock (even if the stock has been at $40 in the recent past)? True or false?