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FFO Options 7: Stock Vs. Options. Dr. Scott Brown Stock Options. Stocks vs Options. Relationship between the strike price and the underlying stock. Advantages of buying options instead of stocks. Options purchasing scenarios. Options purchasing scenarios(Cont ).
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FFO Options 7: Stock Vs. Options Dr. Scott Brown Stock Options
Relationship between the strike price and the underlying stock.
Options purchasing scenarios(Cont) • Delta describes the option's price movement in conjunction with the price movement of the stock therefore a wise decision is to buy options with a 90% or greater delta. • You want to predict how much the option's price will move in relation to the stock's price movement.
Example Scenario #1: buy the $30 call option: • Our option cost is: $.05 X 100 shares = $5.00 VS with stocks our cost is: $27.22 X 100 shares = $2,722.00 • To make money the stock has to go up above $30.05 in the next 31 days it has to go up $3.00 in the next 31 days
Example (Cont) • Our delta for the $30 call is 4% • This means: if the stock goes up $1 the option goes up about 4% or about $.04 • The stock investor will make $100 ($27.22 X 100 - $28.22 X 100)
Example • Scenario #2: buy the $25 call option: • Our option cost is: $2.35 X 100 shares = $235.00 vswith stocks our cost is: $27.22 X 100 shares = $2,722.00 • To make money the stock has to go up above $27.35 in the next 31 days it has to go up $0.13 in the next 31 days.
Disclaimer • DISCLAIMER: THE DATA CONTAINED HEREIN IS BELIEVED TO BE RELIABLE BUT CANNOT BE GUARANTEED AS TO RELIABILITY, ACCURACY, OR COMPLETENESS; AND, AS SUCH ARE SUBJECT TO CHANGE WITHOUT NOTICE. WE WILL NOT BE RESPONSIBLE FOR ANYTHING, WHICH MAY RESULT FROM RELIANCE ON THIS DATA OR THE OPINIONS EXPRESSED HERE IN. DISCLOSURE OF RISK: THE RISK OF LOSS IN TRADING FUTURES, FOREX AND OPTIONS CAN BE SUBSTANTIAL; THEREFORE, ONLY GENUINE RISK FUNDS SHOULD BE USED. FUTURES, FOREX AND OPTIONS MAY NOT BE SUITABLE INVESTMENTS FOR ALL INDIVIDUALS, AND INDIVIDUALS SHOULD CAREFULLY CONSIDER THEIR FINANCIAL CONDITION IN DECIDING WHETHER TO TRADE. OPTION TRADERS SHOULD BE AWARE THAT THE EXERCISE OF A LONG OPTION WOULD RESULT IN A FUTURES OR FOREX POSITION.HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL, OR IS LIKELY TO, ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM, IN SPITE OF TRADING LOSSES, ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS, IN GENERAL, OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS. PS. In our opinion, we believe, it may be possible, that heavy smoking and drinking may be hazardous to your health. If you choose to smoke and drink while trading, The Delano Max Wealth Institute nor Dr. Scott Brown is liable for any damage it may cause. If you slip and fall on the ice, we're not liable for that either.
