Around 90% of options are never exercised.. Therefore, in my opinion, buy options that are in the money and the call date is at least 6months(leap).. Here is JAN 99 call 30.. for NCR
NCR Jan 30 CALL - N C R CORP (NCR)
BID ASK LAST
5 1/8 5 5/8 7 1/8
NCR is currently at 32 3/4...
Example of buying 5,000 dollars of NCR stock vs JAN 99 30 call
and stock hits 40
Buying stock
$5,000/32.75 = 153 shares 153shares x $40 = 6,120
net profit 1,120
Buying options
Options 5,000/ 5.625 = 889 shares.( approxiamtely 9 contracts)
Option allows you to buy at 30 sell at 40.. 10 profit per share
x 889 = 8,890 net profit 8,890 - 5,000= 3,890.
Example of buying 5,000 dollars of NCR stock vs JAN 99 30 call
and stock hits 50
Buying stock
153 x 50 = 7,650 net profit $2,650
Buying options
Options buy at 30 sell at 50 $20 per share x 888= 17,760
net profit 17760- 5000= 12,760..
OF course the only downside is if NCR isn't at 30 by JAN 99 you lose all your money invested..
If NCR is close to 35 dollars by JAN 99 you could sell your option
and lose minimal..
Options are risky but it is a good way to leverage your money...
j
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