Improving the B/E of a Call

[earth_imperator]

I lately bought some long term Calls expiring Jan 2025 (ticker GOEV).
Unfortunately the B/E point is 46% away from the current spot, meaning the underlying stock has to rise more than 46% to make the Call option any profit.
Are there any clever methods to improve on this (ie. bringing down the B/E point), besides the usual doubling down?

The Call has these parameters:
UnderlyingSpot=0.58, DTE=666, Strike=0.50, Premium=0.35, (IV=117.3697)
Ie. it's by 8 cents (= 16%) ITM.

BreakEvenSpot = Strike + Premium = 0.50 + 0.35 = 0.85
BreakEvenSpot% = 0.85 / 0.58 * 100 - 100 = 46.55%

Update: the above view is maybe not that right, b/c the option already makes a profit when the Premium is > InitialPremium... Regarded one can sell it...
Beneficial factors are of course: when stock rises and/or IV rises.

 

[BeautifulStranger]

I lately bought some long term Calls expiring Jan 2025.
Unfortunately the B/E point is 46% away from the current spot, meaning the underlying stock has to rise more than 46% to make the Call option any profit.
Are there any clever methods to improve on this (ie. bringing down the B/E point), besides the usual doubling down?

The Call has these parameters:
UnderlyingSpot=0.58, DTE=666, Strike=0.50, Premium=0.35, (IV=117.3697)
Ie. it's by 8 cents (= 16%) ITM.

BreakEvenSpot = Strike + Premium = 0.50 + 0.35 = 0.85
BreakEvenSpot% = 0.85 / 0.58 * 100 - 100 = 46.55%

You are bearish and are buying calls? Are these calls on a inverse where you are effectively paying carrying charges potentially all the way to 2025?

Are you buying options on a low priced underlying? If so, it might be better to simply buy the underlying.

What does is the current implied volatility for this 1 3/4 year option look like versus historical? Are you expecting a volatility increase? Going into Summer?

What kind of return are you hoping for from this trade?

You can sell further out of the money calls to reduce your breakeven.

Another idea would be to close your position and consider selling an at the money put and buying an out of the money put for a theta earning bull spread. If price tests either the center point of the spread or tests the long side and you still are bullish, roll your position.

You can explore various volatility and price scenarios over time using an option payoff calculator. An example of one is below:

http://opcalc.com/RaE

I assumed an IV increase of 10% if the long put was tested, potentially cushioning a potential loss.

https://www.optionsprofitcalculator.com/calculator/put-spread.html

 

[earth_imperator]

You are bearish and are buying calls?

@BeautifulStranger, thx, but how come you think I'm bearish? I'm not.

Are these calls on a inverse where you are effectively paying carrying charges potentially all the way to 2025?

Aeeh.. dunno Explain please.

Are you buying options on a low priced underlying? If so, it might be better to simply buy the underlying.

Yes, low priced underlying. Does it really make a difference?

What does is the current implied volatility for this 1 3/4 year option look like versus historical? Are you expecting a volatility increase? Going into Summer?

Here's the historical min, max, and avg of IV and HV (from https://www.optionseducation.org/toolsoptionquotes/historical-and-implied-volatility ):

What kind of return are you hoping for from this trade?

Of course expecting a profit.

You can sell further out of the money calls to reduce your breakeven.

Another idea would be to close your position and consider selling an at the money put and buying an out of the money put for a theta earning bull spread. If price tests either the center point of the spread or tests the long side and you still are bullish, roll your position.

You can explore various volatility and price scenarios over time using an option payoff calculator. An example of one is below:

http://opcalc.com/RaE

I assumed an IV increase of 10% if the long put was tested, potentially cushioning a potential loss.

https://www.optionsprofitcalculator.com/calculator/put-spread.html

Thx, will need to play around with these ideas and tools for a while.

Btw, it's this trade: https://optioncreator.com/stvkkhx

 

[BeautifulStranger]

Reply is inline, below:

QUOTE="earth_imperator, post: 5785159, member: 533479"]@BeautifulStranger, thx, but how come you think I'm bearish? I'm not.

Sorry, I conflated you with Innervoice.



Aeeh.. dunno Explain please.

It looks like the underlying is Canoo, Inc. They are a EV maker whose losses are the equivalent of their current market value every three months. This does not seem healthy performance to me, to say the least. Are you confident they can raise capital to keep the doors open?


Yes, low priced underlying. Does it really make difference?

Low priced "Flyers" price dynamics are similar to a long option, except you are not paying a large relative amount as premium.

Current IV for short term options are currently over 100%, according to your information. How about buying the underlying and writing a call or simply selling a put?

Here is the payoff diagram for a long term covered call idea:

http://opcalc.com/RaF

Perhaps better, unless you have specialized industry savvy, consider more solid speculations in other industries. It seems everybody and their mother is coming out with a new EV idea, with some manufacturers likely subsidized by their economically powerful home countries. Even TSLA can be expected to face increasing competitive pressure.


Here's the historical min, max, and avg of IV and HV (source):
View attachment 310044[/QUOTE

How did you hear of this company and what do you like about it?

 

[earth_imperator]

It looks like the underlying is Canoo, Inc. They are a EV maker whose losses are the equivalent of their current market value every three months. This does not seem healthy performance to me, to say the least. Are you confident they can raise capital to keep the doors open?

I must admit I did not check their financial situation.

Current IV for short term options are currently over 100%, according to your information. How about buying the underlying and writing a call or simply selling a put?

A CoveredCall binds (or eats up) too much capital, as one has to buy in advance also the stock.
So, CC is a no go here. Selling a Put is good too, but what difference does it make to the already done LongCall, since both are bearish, much like LongStock...?

Perhaps better, unless you have specialized industry savvy, consider more solid speculations in other industries. It seems everybody and their mother is coming out with a new EV idea, with some manufacturers likely subsidized by their economically powerful home countries. Even TSLA can be expected to face increasing competitive pressure.

I deliberately wanted to do such a risky long-term trade as written in other thread. Ie. just for fun

How did you hear of this company and what do you like about it?

GOEV (Canoo Inc.) was among the top10 or so of the ranked results of an option scanner output.
I only briefly had checked what the company does: yes, EV maker based in California, with 805 full time employees... --> https://finance.yahoo.com/quote/GOEV/profile?p=GOEV

 

[BKR88]

I lately bought some long term Calls expiring Jan 2025 (ticker GOEV).
Unfortunately the B/E point is 46% away from the current spot, meaning the underlying stock has to rise more than 46% to make the Call option any profit.
Are there any clever methods to improve on this (ie. bringing down the B/E point), besides the usual doubling down?

The Call has these parameters:
UnderlyingSpot=0.58, DTE=666, Strike=0.50, Premium=0.35, (IV=117.3697)
Ie. it's by 8 cents (= 16%) ITM.

BreakEvenSpot = Strike + Premium = 0.50 + 0.35 = 0.85
BreakEvenSpot% = 0.85 / 0.58 * 100 - 100 = 46.55%

Update: the above view is maybe not that right, b/c the option already makes a profit when the Premium is > InitialPremium... Regarded one can sell it...
Beneficial factors are of course: when stock rises and/or IV rises.

Traders usually buy calls to limit the loss or increase leverage but that doesn't make sense in your situation IMO.
You're not removing enough risk to justify the premium.
I'd sell your calls & buy the stock.
Buy 60 shares for each call you own.
10 Calls x .35 ($35) = $350
$350/.58 = 603 shares
Dollars at risk is the same.
Results : (10 Calls vs. 603 Shares)
Stock goes to .40: Options = $350 loss ..... Stock = $108.54 loss
Stock stays at .58: Options = $350 loss ..... Stock = $0.00 loss/profit
Stock goes to 1.00: Options = $150 profit ..... Stock = $253.26 profit
Stock goes to 1.50: Options = $650 profit ..... Stock = $554.76 profit
***Spread/commission not included.

Stock has to more than double to make the Options strategy more profitable than owning the stock.

 

[earth_imperator]

Fixing a typo:

A CoveredCall binds (or eats up) too much capital, as one has to buy in advance also the stock.
So, CC is a no go here. Selling a Put is good too, but what difference does it make to the already done LongCall, since both are bearish bullish, much like LongStock...?

 

[earth_imperator]

Traders usually buy calls to limit the loss or increase leverage but that doesn't make sense in your situation IMO.
You're not removing enough risk to justify the premium.
I'd sell your calls & buy the stock.
Buy 60 shares for each call you own.
10 Calls x .35 ($35) = $350
$350/.58 = 603 shares
Dollars at risk is the same.
Results : (10 Calls vs. 603 Shares)
Stock goes to .40: Options = $350 loss ..... Stock = $108.54 loss
Stock stays at .58: Options = $350 loss ..... Stock = $0.00 loss/profit
Stock goes to 1.00: Options = $150 profit ..... Stock = $253.26 profit
Stock goes to 1.50: Options = $650 profit ..... Stock = $554.76 profit
***Spread/commission not included.

Stock has to more than double to make the Options strategy more profitable than owning the stock.

Thanks for your analysis. It gives some fresh ideas.
But you did the calculation for the expiration date, ie. for 2025-01-17. If you do the calculations for say it happening month-wise, ie. if the stock price changes to {0.40, 0.58, 1.00, 1.50} much earlier, like just after {1, 2,,3, 6, 12, ...} months, then the results differ much, IMO, favoring the options, regarded IV stays >= InitialIV.

 

[smallfil]

I lately bought some long term Calls expiring Jan 2025 (ticker GOEV).
Unfortunately the B/E point is 46% away from the current spot, meaning the underlying stock has to rise more than 46% to make the Call option any profit.
Are there any clever methods to improve on this (ie. bringing down the B/E point), besides the usual doubling down?

The Call has these parameters:
UnderlyingSpot=0.58, DTE=666, Strike=0.50, Premium=0.35, (IV=117.3697)
Ie. it's by 8 cents (= 16%) ITM.

BreakEvenSpot = Strike + Premium = 0.50 + 0.35 = 0.85
BreakEvenSpot% = 0.85 / 0.58 * 100 - 100 = 46.55%

Update: the above view is maybe not that right, b/c the option already makes a profit when the Premium is > InitialPremium... Regarded one can sell it...
Beneficial factors are of course: when stock rises and/or IV rises.

The only way to bring down the breakeven is to buy more at lower prices. This is stock is at the bottom. It can go lower or breakout higher. Personally, if I had this position, I would just hang on to it and wait. If it breaks out at around $0.71 on heavy volume, this stock could go much higher. Volatility would increase, increasing the value of the call option. Then, manage the trade by trailing stop losses (mental stop losses only). This is not a totally bad trade as you are risking only a small amount. Downside risk is how much? $0.56 assuming it goes bankrupt? Since, you bought calls, your risk on a worst case scenario is losing the value of the premiums you paid. Upside is multiples higher. Would have waited for the breakout higher to take a position though. I do not mind paying up if I know the stock is moving higher.

 

[earth_imperator]

Just learned that this company will report its 2022 results next Thursday (March 30):
"
Canoo to Announce Fourth Quarter and Fiscal Year 2022 Financial Results
JUSTIN, Texas, March 16, 2023 /PRNewswire/ -- Canoo (Nasdaq: GOEV), a high-tech advanced mobility company, today announced that it will report its financial results for the quarter and full year ended December 31, 2022 after market close on Thursday, March 30, 2023. The Company will host a conference call and live webcast at 5:00 pm ET to discuss the results, followed by a question-and-answer period.
[...}
"