I'm reading my first book on Options. It's called "Getting Started in Options. by Michael Thomsett"
However, i'm a little confused by a paragraph he wrote and was wondering if it was simply a mistake or not. hopefully someone can clarify this for me.
in this example:
"you buy an 80 call for 2 ($200), which provides you with the right to buy 100 shares of stock for $80 per share. If the stock's value rises above $80, your call will rise in value dollar-for-dollar along with the stock. So if the stock goes up $4 per share to $84, the option will also rise four points, or $400 in value. You would earn a profit of $200 if you were to sell the call at that point (four points of value minus the purchase price of 2). That would be the same amunt of profit you would realize by purchasing 100 shares of stock at $8,000 and selling those shares for $8,200."
my question is:
if the stock went from $80 to $84... and it says that the options value will rise along dollar for dollar with the stock price... an increase of $4 in stocks, wouldn't that be an increase in the option's premium... from 2 to 6? since 2+4 = 6 ($600)
so you end up making 400 bucks since you subtract the initial 200 dollars you spent on purchasing the call?
and the end of that paragraph also seemed kinda strange...because if the stock went up $4 from 80 to 84 bucks... and you have 100 shares of this stock, you would make 400 dollars.....but in this case it says this example is the equivalent of making $200 only?
so we make less money in options if the stock moves up 4 points than if we just buy the equities? 'cuz if the paragraph is correct, we only made 200 bucks from this options trade, but if we were in equities, we would've made 400 dollars?
However, i'm a little confused by a paragraph he wrote and was wondering if it was simply a mistake or not. hopefully someone can clarify this for me.
in this example:
"you buy an 80 call for 2 ($200), which provides you with the right to buy 100 shares of stock for $80 per share. If the stock's value rises above $80, your call will rise in value dollar-for-dollar along with the stock. So if the stock goes up $4 per share to $84, the option will also rise four points, or $400 in value. You would earn a profit of $200 if you were to sell the call at that point (four points of value minus the purchase price of 2). That would be the same amunt of profit you would realize by purchasing 100 shares of stock at $8,000 and selling those shares for $8,200."
my question is:
if the stock went from $80 to $84... and it says that the options value will rise along dollar for dollar with the stock price... an increase of $4 in stocks, wouldn't that be an increase in the option's premium... from 2 to 6? since 2+4 = 6 ($600)
so you end up making 400 bucks since you subtract the initial 200 dollars you spent on purchasing the call?
and the end of that paragraph also seemed kinda strange...because if the stock went up $4 from 80 to 84 bucks... and you have 100 shares of this stock, you would make 400 dollars.....but in this case it says this example is the equivalent of making $200 only?
so we make less money in options if the stock moves up 4 points than if we just buy the equities? 'cuz if the paragraph is correct, we only made 200 bucks from this options trade, but if we were in equities, we would've made 400 dollars?
