Option Trading : Basic Calculation |
Call Option example
XYZ June 60 Call Option
1 contract = 100 shares (assuming to have 3 months to expire in June)
Strike price = $60
Premium = $4.25 x 100 = $425 per contract (100 shares)
Maximum risk is $425 for 1 contract
BEP (Break even point) = Strike price + premium= $60 + $4.25 = $64.25
Note: commission not included. BEP should be a little more.
Many brokerage firms charge $9.95 + $1 per contract each way
________________
For Option Trading: (Assuming stock price is up as expected)
44 days later, XYZ at 70
Premium at 11.25 (Premium increases while stock price increases)
Profit = $1125 – 425 = $700 per contract
ROI (return on Investment) = 164%
_________________
For Stock Trading:
Investment = $60 x 100 = $6000
(2:1 leverage, capital required is $3000)
Price up to $70 with $10 gain
Profit is $1000
Maximum risk is $6000
ROI is $1000 / 3000 = 33% with 2:1 leverage
_________________
Stock Trading Vs Option Trading for long trading:
For above example:
Stock Trading :
Risk is $6000
ROI is 33% for 2:1 leverage
Option Trading:
Max Risk is $425
ROI is 164%
_________________
This simple call option trading works well with my 1-3 months sock picks
Back
| This site is best viewed with "smaller" font size |
Stock Pick Services
Online Training Center
Online Training Center
 |
| |
 |
| |
 |
| |
 |