Hi John,
<$36 is your breakeven point only if you hold and exercise but what if you trade them after JBL moves up a few points say $33 - $34, surely you will make a nice profit before JBL hits $36, right?>
Right on. As you know, in most cases the point of buying an option,
whether a put or a call is not to exercise the option but to
participate in the move of the stock and to leverage one's
ability to do so. To my way of seeing it, options leverage
one in two ways.
First you can hold a large(r) dollar position in the stock with a
smaller outlay of money. Second you leverage the actual percentage
move of the stock. For example, on Tuesday July 28 (all of one
week ago!), while the DJIA fell -93 points and the Nasdaq fell -37
points, Jabil actually gained +2 1/8 on the day. Monday's close
was 31 13/16, and Tuesday close was 33 15/16. So gain for the day
was 6.7%. However the March 30 calls went from 6 5/8 (only 2
contracts however) the 8 7/8 (10 contracts) for a gain of 2 1/4.
This percentage gain amounted to +33.9% gain on the day.
So the options actually gained more than the stock both on an
absolute basis (2 1/4 vs 2 1/8) and on a percentage basis,
+33.9% vs +6.7%.
So you are right on. I will only need a few points move upward
to reap nice gain on my option position :-) And I have about
8 months for this event to occur - once. What do you think the
probability of that might be? And if I screw it up and miss
that window, what do you think the probability of Jabil making
a "cycle" move to it's upper trading channel occurring twice?
Pretty high in my book.
Good luck to all. Peter. |
