I'm looking to start buying call options (actually already bought ALK 70 calls for January).
What tools can I use to help calculate my return?
For example- I want to quickly calculate what my profit will be if I buy $3 options at $75 vs $6 options at $70, and the stock rises to $85?
Is someone is bullish, is it better to buy the call options that are above or below the current stock price? Does it just depend on how bullish the investor is?
Any general advice or guides for basic call option buying strategies?
Profit at expiration is as follows:
With the stock at $85 - the $75 Call is worth $10 a share. Subtract $3, your cost and you profited $7 x 100 ( a contract is for 100 shares) = $700 - commisions.
the $70 Call is worth $15 a share. Subtract $6, your profit is is $900 per contract - commisions.
Your breakeven point for the $75 Call is $78 (not taking commisions in to account.) You will begin losing money below $78 with a max loss(stock at or below $70) of $300 per contract + commisions.
Your breakeven point for the $70 Call is $76. Max loss (stock at $70 or bellow) is $600 + commisions.
Generally speaking, you'd need to be more bullish to by a call above the current stock price as it currently has no intrinsic value, know as OTM - Out of the Money. If the stock does not advance to your strike price, you loose all of your investment. If you buy an ITM call (In the Money) the stock needs to fall for you to lose your entire investment.