QUOTE(jenova @ Apr 19 2013, 10:35 AM)
So for example:
Your buy price of AAPL: USD400 x 100 unit. So total investment is USD40,000
AAPL current price: USD400
AAPL call option July 2013 450: USD3.00
In the beginning of the month, you write (sell) 100 unit of 450 call option, so you receive USD300 of premium.
Case 1) if AAPL goes USD460, your profit will be 450 - 400 = USD50. Is this correct?
How about the option losses? since you bought at USD3, if the AAPL price reached 460, the value of 450's option should be USD10, do we have to minus USD10-USD3= USD7 x 100 = USD700. The USD700 count as losses as well?
thx bro
I don't buy the options. I write them. Meaning I sell them.Your buy price of AAPL: USD400 x 100 unit. So total investment is USD40,000
AAPL current price: USD400
AAPL call option July 2013 450: USD3.00
In the beginning of the month, you write (sell) 100 unit of 450 call option, so you receive USD300 of premium.
Case 1) if AAPL goes USD460, your profit will be 450 - 400 = USD50. Is this correct?
How about the option losses? since you bought at USD3, if the AAPL price reached 460, the value of 450's option should be USD10, do we have to minus USD10-USD3= USD7 x 100 = USD700. The USD700 count as losses as well?
thx bro
If the underlying stock goes up to USD460, and if the options are exercised, my total loss per option is USD7.
However, my strategy is that blue chips do not have such volatile swings, and even if it does, fine, I'm happy to sell my USD400 stock at USD450.
Meaning my total gain is USD450-USD400-USD7=USD43
In short, this strategy is when I want to derive some income from slow moving stocks, where I don't mine selling at the strike price. I give up potentially higher gains of just holding the stock. I can of course limit my losses by covering my positions or buying the options back.