Malsi, trading options can very profitable, but it is very risky as well. Usually,
- You willl pay more in commisions for options
- The spread is too high between bid and ask. ( more money for market makers)
- 85 % of all options expire worthless !!!!
- Options loses value over time, time is your enemy
As in your example,
20 ( NOVL 7.5) contracts @ 3 = $6000 + ~ $ 130 ( commission)= 6130
If NOVL goes to 15, the options may be worth ~ $ 8.5 for a profit of ~ (8.5 - 3) * 20 = 11,000 less commision
Now, your base cost will be 7.5 ( strike price ) + 3 ( option ) = 10.5
NOVL should get higher than 10.5 for you to make any money
If NOVL stayed at 7.5.......( for the sake of argument), then you will LOSE all of 6130.
@ 9, you will lose ~ 3000
NOW, if you take the 6000, and go long, you will get ~ 900 shares
if NOVL goes to 15, you profit ~ 6500
if NOVL stayed at 7.5, your profit ~ 0 ( but you still own the stock)
If NOVL goes to 9 you will profit ~ 1300 ( and you still have the stock)
I did get in NOVL, ( short term that is), looking for a quick bounce. As far as buying the options vs stock, well you know your risk tolerance level more than any one else. However, I thought you should know the darkside of options since only the good side was mentioned. What should you do ?, it is your money, you make the call
Nadim |
