Stocks

[hachover]

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.

When you say buy i assume you mean buy to open. If so, why would you buy an ITM option? If the stock goes up the option will go up by the same amount (or less, if there was significant time value in its price). Why not buy the stock itself? Are you thinking for dowside protection, leverage, or some other reason?

[Boruch999]

When you say buy i assume you mean buy to open. If so, why would you buy an ITM option? If the stock goes up the option will go up by the same amount (or less, if there was significant time value in its price). Why not buy the stock itself? Are you thinking for dowside protection, leverage, or some other reason?

I was answering yuneeqs Qs.  I rarely buy calls and when I do it to close or as part on a complex position.  But the two reasons you mentioned seem rational to me.  If you are short the funds to buy the stock out right ( that's related to leverage which you mentioned,) or downside protection which can otherwised be achieved with a stoploss.  Stoplosses can fail on a gap down or in a steep crash.

[Sport]

90 support held, EFX up $15 in 10 days .

Let's see what happens today, if they remove the halt on trading.

[ludmila]

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.

Excellent summary on options.

[hachover]

I was answering yuneeqs Qs.  I rarely buy calls and when I do it to close or as part on a complex position.  But the two reasons you mentioned seem rational to me.  If you are short the funds to buy the stock out right ( that's related to leverage which you mentioned,) or downside protection which can otherwised be achieved with a stoploss.  Stoplosses can fail on a gap down or in a steep crash.

That is what I wanted to point out - if you want leverage, a more effective method may be to buy on margin, and if you want downside protection there are other ways to obtain it. As you mention, stop loss is not a sure thing, but pairing a put option with your stock buy is a sure thing. Buying a stock on margin + put option might not be more cost effective than buying a call outright (though it can be, e.g. if you're taking a contrarian position), but it can have a better return profile for the cost.

My purpose in commenting is to stimulate some thought and discussion for the self-proclaimed investment novices.

I personally share your view in that I only buy call options as part of a larger strategy, and not merely to take a bullish position on a stock.

[yuneeq]

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.

Thanks, I actually knew how to do that calculation but you definitely made it in clear and easy to understand. The problem is that when I calculate it, it's tedious and prone to me making mistakes, hence a calculator where I can input the variables to see potential profit or loss at diff price target would be very useful.

[ckmk47]

Thabks, I actually knew how to do that calculation but you definitely made it in clear and easy to understand. The problem is that when I calculate it, it's tedious and prone to me making mistakes, hence a calculator where I can input the variables to see potential profit or loss at diff price target would be very useful.

I do the calculations on an excell spreadsheet. I make a small chart with different end price scenarios before I buy.  Then I can gauge if the premium (commission) and price is right for me.

[yuneeq]

That is what I wanted to point out - if you want leverage, a more effective method may be to buy on margin, and if you want downside protection there are other ways to obtain it. As you mention, stop loss is not a sure thing, but pairing a put option with your stock buy is a sure thing. Buying a stock on margin + put option might not be more cost effective than buying a call outright (though it can be, e.g. if you're taking a contrarian position), but it can have a better return profile for the cost.

My purpose in commenting is to stimulate some thought and discussion for the self-proclaimed investment novices.

I personally share your view in that I only buy call options as part of a larger strategy, and not merely to take a bullish position on a stock.

I have owned ALK stock for a while and have seen it take downswings for no reason many times and it always rebounds. Sometimes I bought more stock but usually I don't have cash on hand. I finally mustered the courage to cash in on the rebounds that I felt were easy for me to predict time and again. My goal is to use leverage to buy options to hold for a few months with a target of about $85. So I bought 3 and 6 month 70 call options at $6.40 and $7.70 each. Using margin I would be paying about 12% interest and only be able to buy less than half the shares that I can buy with options. I don't know how to sell put options either. The truth is I'm very bullish and didn't invest more than I'm willing to lose. Not sure how stupid I sound but that's what I did. After thinking it over, maybe it would've been better to buy on margin because I like to hold for long term and the downside risk for me is basically just the interest until the stock recovers, which is still much less downside risk than losing the entire investment.

[yuneeq]

I do the calculations on an excell spreadsheet. I make a small chart with different end price scenarios before I buy.  Then I can gauge if the premium (commission) and price is right for me.

Good idea, I will do that.
Wish there was an app though.

[yuneeq]

You have a good trade here with ALK, it is a buy here ,if it takes 78 next target is 83, ill use 70.70 as a stop, ill buy the $75 options.

So now its at 82. Would you still say to cash out at 83?

Is there the "best" way to cash out if I don't plan on keeping the stock?
Meaning - does it make a difference if I sell the options vs converting the options and selling the stock right away?

[ChaimMoskowitz]

For forex XAU/USD what is the margin requirement? Is it 100%?

[ludmila]

You have a good trade here with ALK, it is a buy here ,if it takes 78 next target is 83, ill use 70.70 as a stop, ill buy the $75 options.

It made it to my target, high today was $82.50, hit resistance. I am a short term trader, i'll take the profit and move to the next trade. With EFX I caught the exact bottom at 90 and made a nice profit, it moved much higher , actually 22 points in a couple of weeks since then.

[ludmila]

90 support held, EFX up $15 in 10 days .

Closed at $112 today, from the $90 support.

[Mordyk]

I had a $957.50 AMZN call that i sold before yom tov since it was expiring friday and i would be able to trade thu friday
...

[Boruch999]

I had a $957.50 AMZN call that i sold before yom tov since it was expiring friday and i would be able to trade thu friday
...

In the long run we don't lose out for keeping Shabbos and Yomtov.

[Mordyk]

In the long run we don't lose out for keeping Shabbos and Yomtov.

i agree. Im sure hashem has plans

[Boruch999]

I had a $957.50 AMZN call that i sold before yom tov since it was expiring friday and i would be able to trade thu friday
...

Let's use this

to explore this

That is what I wanted to point out - if you want leverage, a more effective method may be to buy on margin, and if you want downside protection there are other ways to obtain it. As you mention, stop loss is not a sure thing, but pairing a put option with your stock buy is a sure thing. Buying a stock on margin + put option might not be more cost effective than buying a call outright (though it can be, e.g. if you're taking a contrarian position), but it can have a better return profile for the cost.

My purpose in commenting is to stimulate some thought and discussion for the self-proclaimed investment novices.

I personally share your view in that I only buy call options as part of a larger strategy, and not merely to take a bullish position on a stock.

@Mordyk why did you by a call?

If I had to guess, buying the call was far less margin than buying stock on margin, and the downside protection is built in and easy.

I actually can't see how leverage (in a long position) can ever be as easily and cheaply obtained as with a Call.

[hachover]

Let's use this

to explore this
@Mordyk why did you by a call?

If I had to guess, buying the call was far less margin than buying stock on margin, and the downside protection is built in and easy.

I actually can't see how leverage (in a long position) can ever be as easily and cheaply obtained as with a Call.

My magin interest rate is 5% and tax deductible. The dollar amount is tiny for quick plays and far far less than commissions on option contracts

[Boruch999]

My magin interest rate is 5% and tax deductible. The dollar amount is tiny for quick plays and far far less than commissions on option contracts

I believe my margin rate is 2.66%. 

I think we are talking about different things. I'm talking about margin requirement.  You are talking about margin loan costs.  To buy 100 shares of AMZN, Mordyk would have needed 50% of the cost of the shares of excess liquidity under Reg T rules, or about $47,500.  To buy the Call all he needed was the cost of the call, probably a few thousand dollars depending on when he bought it.

[ludmila]

I believe my margin rate is 2.66%. 

I think we are talking about different things. I'm talking about margin requirement.  You are talking about margin loan costs.  To buy 100 shares of AMZN, Mordyk would have needed 50% of the cost of the shares of excess liquidity under Reg T rules, or about $47,500.  To buy the Call all he needed was the cost of the call, probably a few thousand dollars depending on when he bought it.

Correct, also in options you have to be right in your timing, to work in your favor before expiration.