"Let's do a quick calculation. If you're looking for an option that expires by the end of May and you have a $500 budget, you'll need to find an option with a strike price and premium that fit within that budget. Assuming an option premium of $0.50 per share (hypothetical), you could afford approximately 1,000 shares ($500 / $0.50).
Given your expectation of the stock reaching $15.00, you might consider a strike price around $10.00 or slightly higher. This strike price provides a balance between affordability and potential profit if the stock reaches your target price.
However, it's crucial to check the actual option prices in the market, as they may vary based on factors such as volatility and demand. Also, keep in mind that options trading involves risks, including the potential loss of your entire investment if the stock price doesn't move as anticipated."
This seems to make sense. After spending some time trying to understand strike price and premiums and how it is all calculated this does seem good.
The formula to calculate the profit from buying a call option is:
Profit=($15.00−$8.00)−$0.50
Profit=$7.00−$0.50Profit=$7.00−$0.50
Profit=$6.50Profit=$6.50
"So, if the stock price at expiration is $15.00, and you bought a call option with a strike price of $8.00 for a premium of $0.50, your profit would be $6.50. This profit represents the difference between the stock price at expiration and the strike price, minus the premium paid for the option."
From a human point of view, is this correct? Would that mean picking a lower strike price and hitting a SPE of $15.00 would be the best outcome? At first, from my lack of understanding, I needed to pick a strike price of $15.00 because that's what I was hoping the stock price would be after a month. By chance, if I buy the option at a 0.50 Bid that would be my premium, right?
After everything is said and done, I would have a profit of $6.50 per contract. Which in this case I am buying 5. Which would net me $3250.00 total.
