Option clueless beginner question

M

Matt Houston

Hi, posted this on another forum but didn't get a reply

Trying to get my head around this.

I am looking at wynn.o. Looking on the Reuters website, the calls for this stock for a strike price of $90 for 09/2010 have a last price of $8.30.

So from what I understand, you buy options in lots of 100 shares, wynn is currently priced $87.17. So if wynn keeps going up, passes $90 and I am in the money, and when the option expires if the price is at $100.00, I get:

100 shares * $100.00 = $10,000.00
less 100 shares * $90.00 = ($9,000.00)
-------------------------------
Profit $1,000.00
Less premium ($8.30)
Less Commission ($100.00) (no idea)
-------------------------------
Net profit $891.70

I know I am missing something here. Does the cost of the option look right? Seems very cheap, all that money for $8.30 risk......assuming wynn reaches $100.

Any thoughts
 
Option prices are quoted on a per option basis. So the price you see is for 1 option NOT for 1 contract. The actual price you would pay if you buy 1 contract is 8.30*100 or $830.

So if the option expires 10 points ITM then it would be worth $1000 (10*100) and your profit would be $170 (excluding commissions).
 
Quote from Matt Houston:

I know I am missing something here. Does the cost of the option look right?

Any thoughts
More...

Please read any basic book on options before you ask questions on a forum. Not because you may get the wrong answer, (which is possible), but because you may not be able to put the answer in context if you don't have at least a basic knowledge of how options work.

Joe.
 
if you think of it, a way in the money option at expiration say stock trading $100 and you have the $90 calls, they should be worth $10.00 which is really $1000. Otherwise everybody would buy the $90 calls pick up essentially a free 100 shares at 10 bucks and sell it in the open market for a $990 profit...wouldn't that be nice lol

So yes, that is per share
 
Quote from u21c3f6:

Please read any basic book on options before you ask questions on a forum. Not because you may get the wrong answer, (which is possible), but because you may not be able to put the answer in context if you don't have at least a basic knowledge of how options work.

Joe.
More...

OK thanks
 
Quote from grg03002:

if you think of it, a way in the money option at expiration say stock trading $100 and you have the $90 calls, they should be worth $10.00 which is really $1000. Otherwise everybody would buy the $90 calls pick up essentially a free 100 shares at 10 bucks and sell it in the open market for a $990 profit...wouldn't that be nice lol

So yes, that is per share
More...

Yes I know I was not understanding it correctly. Thanks for the input, don't I feel silly.
 
MH,
Keep asking questions man, the only time your questions are beneath the dignity of this silly little forum is when their pride gets too high.
Options are a dynamic product and probably one of the more complicated listings frequented by retail traders. Fortunately there are lots of great people out there who are willing to show you the way - if you are a passionate market participant. I would find one of these mentor types and really dive in.

Best,
REF
 
Quote from RedEyeFly:

MH,
Keep asking questions man, the only time your questions are beneath the dignity of this silly little forum is when their pride gets too high.
Options are a dynamic product and probably one of the more complicated listings frequented by retail traders. Fortunately there are lots of great people out there who are willing to show you the way - if you are a passionate market participant. I would find one of these mentor types and really dive in.

Best,
REF
More...

Thanks, don't worry I won't be discouraged
 
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