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options
- Thread starter kcnewtrader
- Start date
Even tho it sounds like im being insulted at the same time as having it explained to me thanks for trying to help me.
Quote from kcnewtrader:
Even tho it sounds like im being insulted at the same time as having it explained to me thanks for trying to help me.
It wasn't my intention to insult you. I'm just pointing out that you need to read a few books/visit educational sites to a get basic understanding of options. Once you have it you will be in a position to understand my explanations.
As to my remark regarding the options course. What I meant is that a course that teaches about deltas before teaching the basic principles of options is not a very good course and it is definitely not worth the money (assuming it's not a free course).
I do know that an at the money call has about 50 delta meaning it goes about 50 cents on the dollar with the stock and in the money ones can have 75 or more so they trade pretty closely to the dollar I just never know how the profit is when it comes to what you pay the option compared to the value changing I didnt know if the money you paid for the option is then lost completely and the option has to go up enough in value to get it back and profit or if that premium goes to paying for the value of the stock at the time you bought it and you just gain profit as the option trades closely with the stock basically i just needed to know if i had to minus the value of the premium from the total to know if i made any money or if it was part of the value
Quote from kcnewtrader:
I do know that an at the money call has about 50 delta meaning it goes about 50 cents on the dollar with the stock and in the money ones can have 75 or more so they trade pretty closely to the dollar I just never know how the profit is when it comes to what you pay the option compared to the value changing I didnt know if the money you paid for the option is then lost completely and the option has to go up enough in value to get it back and profit or if that premium goes to paying for the value of the stock at the time you bought it and you just gain profit as the option trades closely with the stock basically i just needed to know if i had to minus the value of the premium from the total to know if i made any money or if it was part of the value
It's the same as any instrument. When you buy/sell something you pay the market price. If the price you sell at is higher than the price you bought it for then you have a profit otherwise you have a loss.
Think of the premium as the market price of an option.
Quote from kcnewtrader:
I know that at the money and out of the money options have more time value which decays over time. But if im understanding what your saying i have to make atleast the amount of the premium to make any profit at all and even more then that to make up for any time decay.
No, that assumes you hold the option until expiration. Suppose a stock is at $30, you buy an OTM call at $31 for $0.80, and it has a delta of 0.30 and a theta of -0.01. The next day the stock pops up to 30.50. Your call is now worth 0.80 + 0.15 - 0.01 = 0.94. You can sell it immediately for a 17% gain and make a profit. You don't have to wait for the underlying to get to $31.80 before you can make a profit. OTOH, if you wait, hoping for the stock to go up more, but it stays in the $30 - $30.99 range, eventually your call will become worthless. So there's a fine art to knowing when to take profits with options.
Are you saying it doesnt matter if I buy in the money or out of the money or the amount of the premium . That as long as the stock went in the direction I wanted it to go I made a profit as long as it goes up faster then the theta. Hmmm everything i seem to of read stated that you cant exercise a option while its out of the money . Hmm I wonder if thats why it seems that its hard to make a profit from what I read because they are talking about exercising an option instead of just selling it back to the market.
Quote from kcnewtrader:
Even tho it sounds like im being insulted at the same time as having it explained to me thanks for trying to help me.
they're not insulting you they're trying to help. Anyone that spends that much time typing out an explanation like that is definitely trying to help you.
This site has been a great tool for myself, and the members that are posting to help you have helped me both directly and indirectly on this forum.
At the same time you have to help yourself.
If you learn better in class, there are free onlne courses at cboe.com
interactivebrokers.com also has flash courses.
I learn better by reading. Lots of basic options books out there will definitely help.
Good luck
Alright maybe a example will solve the issues. lets say we have an out of the money call 50 a at the money at 45 and a in the money at 35. From what ive read if i bought an in the money call at 35 and even tho the option trades closely with the stock i would still have to make up the amount of the premium and the time decay in order to make a profit.Now from what was said on this forum I dont have to make the price of the premium because it goes into the value of the option. So i will assume i dont need that so then if I buy an in the money at 35 then I should profit from anything over 35 as long as it equals more then the time decay and any change in volitility is that correct ?