I'm hoping someone might be able to help a newbie here. When evaluating options it often appears that the cost of the option is eating the majority of potential profits.
For example:
Greg closed on XLE after it achieved a 13% increase over strike.
Great, but is this after the cost of the option is taken into account?
Example:
PYPL Jan. 15 2021 $180 calls
Option on 100 units will cost $2,523
Current PYPL price: $169.84
To reach $180 strike would be around a 6% increase in price (break even point)
So we would need a 16% increase in stock price to achieve a 10% profit?
i.e. option achieves $1800 profit after cost of option, direct stock buy would have yielded $4,300 profit (of course with holding stock risk).
Sorry for the basic query but I thought this group would be the best to chat to in case these numbers seem off or there is a better way to attack it!
Should I top up on some more today? It's lower now.
I'm hoping someone might be able to help a newbie here. When evaluating options it often appears that the cost of the option is eating the majority of potential profits.
For example:
Greg closed on XLE after it achieved a 13% increase over strike.
Great, but is this after the cost of the option is taken into account?
Example:
PYPL Jan. 15 2021 $180 calls
Option on 100 units will cost $2,523
Current PYPL price: $169.84
To reach $180 strike would be around a 6% increase in price (break even point)
So we would need a 16% increase in stock price to achieve a 10% profit?
i.e. option achieves $1800 profit after cost of option, direct stock buy would have yielded $4,300 profit (of course with holding stock risk).
Sorry for the basic query but I thought this group would be the best to chat to in case these numbers seem off or there is a better way to attack it!
Thanks