Quote from sonoma:
Since you're new at this, I'd slow down and read to excess before you burn 10 large. There will be plenty of trades you can make in your young life with that money. Options without study are a siren song. Strap yourself to a nearby mast.
The better play is to give himself a $55,000 position for a $7,700 call option, than a $10,500 option for a $225,000 position.
But, hey! Thank god securities are logarithmic!
For him to profit on the first Apple would have to hit ($225k+$10.5k)/300=$785 per share, and I don't see that happening to go in the money by then.
The earlier post was a rough estimate from the per share target for the trade to be profitable at, say, around $800, but this play is too aggressive for newbie options traders.
I doubt making $4,500 at $800 per share isn't just harder to do but you'd make the same return on the $55k position approximately that same time period, so the money's easier atm, and if he wants to go out I think $600 has a lot of open interest, but to make 45% on 10k after 2 years basically is really not worth the risk.
Hear that OP?
It sounds like you want to be right more than you want to make money. Even if Apple goes to $785 only then would you even start to make money. And if it goes to $800, you'd only net $15 on the option, making it a net gain of $4,500 after 300 get called at $800 that is the value of the options at $50. It's better to make the ATM play by far in this scenario. The option strike is way too far otm, and even if you're right the payoff doesn't seem to be high enough to warrant losing all $10k.
