OTM options trade, and the profit per .01 cent move.... - Options on Futures | futures io social day trading
futures io futures trading


OTM options trade, and the profit per .01 cent move....
Updated: Views / Replies:844 / 3
Created: by mdsvtr Attachments:0

Welcome to futures io.

(If you already have an account, login at the top of the page)

futures io is the largest futures trading community on the planet, with over 90,000 members. At futures io, our goal has always been and always will be to create a friendly, positive, forward-thinking community where members can openly share and discuss everything the world of trading has to offer. The community is one of the friendliest you will find on any subject, with members going out of their way to help others. Some of the primary differences between futures io and other trading sites revolve around the standards of our community. Those standards include a code of conduct for our members, as well as extremely high standards that govern which partners we do business with, and which products or services we recommend to our members.

At futures io, our focus is on quality education. No hype, gimmicks, or secret sauce. The truth is: trading is hard. To succeed, you need to surround yourself with the right support system, educational content, and trading mentors Ė all of which you can find on futures io, utilizing our social trading environment.

With futures io, you can find honest trading reviews on brokers, trading rooms, indicator packages, trading strategies, and much more. Our trading review process is highly moderated to ensure that only genuine users are allowed, so you donít need to worry about fake reviews.

We are fundamentally different than most other trading sites:
  • We are here to help. Just let us know what you need.
  • We work extremely hard to keep things positive in our community.
  • We do not tolerate rude behavior, trolling, or vendors advertising in posts.
  • We firmly believe in and encourage sharing. The holy grail is within you, we can help you find it.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.

You'll need to register in order to view the content of the threads and start contributing to our community.  It's free and simple.

-- Big Mike, Site Administrator

Reply
 
Thread Tools Search this Thread
 

OTM options trade, and the profit per .01 cent move....

  #1 (permalink)
Membership Temporarily Revoked
Memphis,TN
 
Futures Experience: Advanced
Platform: ThinkorSwim,FXCM, Ensign Software
Broker/Data: ThinkorSwim, FXCM
Favorite Futures: Futures, Forex, Options
 
mdsvtr's Avatar
 
Posts: 232 since Sep 2010
Thanks: 853 given, 28 received

OTM options trade, and the profit per .01 cent move....

Need some help in understanding the amount gained based on trading OTM options......

From my understanding, this is how an OTM option works....... say MSFT is trading at $24.07 and we buy the 1 month out $25 Call for .57 cents , So.... for us to realize a profit, the underlying stock of MSFT , would have to move a $1.50 ( from $24.07 to $25 = .93 cents + the cost for the $25 call,which is .57 cents = a $1.50 move is needed in the Underlying stock of MSFT, before we'd begin making a profit. Which means, that MSFT would have to get above $25.57 ) ...... this would be a 6% move in the underlying stock ( that is quite a big move in the Stock, unlikely ? )

In the Example above......Ho do we know how to figure out, how much money we'd earn on the ATM or OTM option, once the price in the Stock, exceeds the price of $25.57 . Say it got to $25.58 , $25.59 , $25.60 , etc.... How much would we make as a Profit, per penny / per .10 cents/ per $1 that MSFT goes above $25.57 ? ( Hope my question isn't to confusing ) lol

Thank you for the help, much appreciated - Michael

Reply With Quote
 
  #2 (permalink)
Quick Summary
Quick Summary Post

Quick Summary is created and edited by users like you... Add FAQ's, Links and other Relevant Information by clicking the edit button in the lower right hand corner of this message.

 
  #3 (permalink)
Market Wizard
Houston, TX
 
Futures Experience: Advanced
Platform: XTrader
Broker/Data: Advantage Futures
Favorite Futures: Energy
 
Posts: 2,123 since Dec 2013
Thanks: 1,749 given, 3,359 received
Forum Reputation: Legendary



mdsvtr View Post
say MSFT is trading at $24.07 and we buy the 1 month out $25 Call for .57 cents , So.... for us to realize a profit, the underlying stock of MSFT , would have to move a $1.50 ( from $24.07 to $25 = .93 cents + the cost for the $25 call,which is .57 cents = a $1.50 move is needed in the Underlying stock of MSFT, before we'd begin making a profit. Which means, that MSFT would have to get above $25.57 ) ...... this would be a 6% move in the underlying stock ( that is quite a big move in the Stock, unlikely ? )

Your assuming you have to hold the option to expiry. If MSFT rallies 50c today, the option will probably rally 15c-20c today as well. Hence if you then sell the option you have an approx 30% profit before commissions. Theres a big difference between the value of an option at time t+1 and at expiry. I would suggest you look into "option greeks".
For example
- Delta is the amount you would expect an option price would change due to a change in the underlying
- Vega is the amount you would expect an option price would change due to a change in Volatility
- Theta is the amount you would expect an option price would change due to a period of time passing (ie a year/250 = a day)


mdsvtr View Post
In the Example above......Ho do we know how to figure out, how much money we'd earn on the ATM or OTM option, once the price in the Stock, exceeds the price of $25.57 . Say it got to $25.58 , $25.59 , $25.60 , etc.... How much would we make as a Profit, per penny / per .10 cents/ per $1 that MSFT goes above $25.57 ? ( Hope my question isn't to confusing ) lol

Again this goes back to the option greeks. Theres lots of software out there (or not difficult to create it yourself in excel) where you can see a 3D surface/chart which shows option value based upon underlying price and time to expiry or other combinations of metrics. Price can easily be substituted for Profit & Loss, ROI or something similar.

For example from a quick Google Images Search

Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).

Reply With Quote
 
  #4 (permalink)
Hyde Park,
Chicago, Illinois
 
Futures Experience: Intermediate
Platform: Tradingview.com
Broker/Data: Optionhouse
Favorite Futures: Options
 
Bermudan Option's Avatar
 
Posts: 468 since May 2011
Thanks: 395 given, 252 received


mdsvtr View Post
Need some help in understanding the amount gained based on trading OTM options......

From my understanding, this is how an OTM option works....... say MSFT is trading at $24.07 and we buy the 1 month out $25 Call for .57 cents , So.... for us to realize a profit, the underlying stock of MSFT , would have to move a $1.50 ( from $24.07 to $25 = .93 cents + the cost for the $25 call,which is .57 cents = a $1.50 move is needed in the Underlying stock of MSFT, before we'd begin making a profit. Which means, that MSFT would have to get above $25.57 ) ...... this would be a 6% move in the underlying stock ( that is quite a big move in the Stock, unlikely ? )

In the Example above......Ho do we know how to figure out, how much money we'd earn on the ATM or OTM option, once the price in the Stock, exceeds the price of $25.57 . Say it got to $25.58 , $25.59 , $25.60 , etc.... How much would we make as a Profit, per penny / per .10 cents/ per $1 that MSFT goes above $25.57 ? ( Hope my question isn't to confusing ) lol

Thank you for the help, much appreciated - Michael

The delta is the greek that relates to your question the most. You can use it to make a rough guess on how much profit you stand to make or lose per $1.00

For example using the February $36 Calls for MSFT in real life, the current B x A is $0.94 x 0.95, and the delta is 0.44. That means for every dollar that price moves, you gain 0.44. So if MSFT went from $35.53 -> $35.63, your calls would be worth approximately $0.94 + 0.44 = $1.38

That answers the basic portion of your question, but as SMCJB illustrated, delta is just one part of many that make up the price of the option. Gamma and Theta are the two other greeks that I think would be ideal for you to research next

Reply With Quote

Reply



futures io > > > > OTM options trade, and the profit per .01 cent move....

Thread Tools Search this Thread
Search this Thread:

Advanced Search



Upcoming Webinars and Events (4:30PM ET unless noted)

Jigsaw Trading: TBA

Elite only

FuturesTrader71: TBA

Elite only

NinjaTrader: TBA

Jan 18

RandBots: TBA

Jan 23

GFF Brokers & CME Group: Futures & Bitcoin

Elite only

Adam Grimes: TBA

Elite only

Ran Aroussi: TBA

Elite only
     

Similar Threads
Thread Thread Starter Forum Replies Last Post
2 Cent Psychology mattz Psychology and Money Management 2 January 25th, 2013 01:30 AM
Trading Index Options OTM Vertical Credit Spreads HowardCohodas The Elite Circle 62 August 17th, 2011 10:10 AM
Interactive Brokers / NT7 / profit and move to BE gracepips IB Trader Workstation 2 January 26th, 2011 03:04 PM
Qualcomm Profit, Sales Top Forecasts; Shares Move Higher Quick Summary News and Current Events 0 July 21st, 2010 05:30 PM
How to trade Options Delta_Panther Traders Hideout 4 December 13th, 2009 04:34 PM


All times are GMT -4. The time now is 03:55 AM.

Copyright © 2017 by futures io, s.a., Av Ricardo J. Alfaro, Century Tower, Panama, +507 833-9432, info@futures.io
All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts
Page generated 2017-12-17 in 0.11 seconds with 19 queries on phoenix via your IP 54.227.51.103