NexusFi: Find Your Edge


Home Menu

 





Starting with the basics


Discussion in Options

Updated
    1. trending_up 1,395 views
    2. thumb_up 2 thanks given
    3. group 2 followers
    1. forum 2 posts
    2. attach_file 0 attachments




 
Search this Thread

Starting with the basics

  #1 (permalink)
 mcteague 
New York NY USA
 
Experience: Intermediate
Platform: esignal, thinkorswim,
Trading: Stocks
Posts: 122 since Oct 2012
Thanks Given: 63
Thanks Received: 35

I know there are a lot more complicated things but here. is a basic beginner question about options.

Thanks for any replies.

AMZN is trading at about 310.
If I were buying the stock I would place my stop around 290 which seems to be about where support is.
Thats $20 per share risk. 20 X 100 is $2000. $2000 is my risk for buying 100 shares excluding comissions.

The January 2 310 call is $11
$11 x 100 is $ 1100 This is my total risk in buying 1 call contract.

So it would appear that buying the call is 1/2 the risk of buying the stock. Of course we understand that we could hold the stock and options expire. I am assuming the stock buyer would just exit a losing position at around the same time as experaton.

Is that basically correct? I know it is pretty basic. But one step at a time. I'll get to straddles and other jazz in time.

Thanks for replies

Started this thread Reply With Quote

Can you help answer these questions
from other members on NexusFi?
Deepmoney LLM
Elite Quantitative GenAI/LLM
Better Renko Gaps
The Elite Circle
Online prop firm The Funded Trader (TFT) going under?
Traders Hideout
NT7 Indicator Script Troubleshooting - Camarilla Pivots
NinjaTrader
ZombieSqueeze
Platforms and Indicators
 
Best Threads (Most Thanked)
in the last 7 days on NexusFi
Get funded firms 2023/2024 - Any recommendations or word …
60 thanks
Funded Trader platforms
37 thanks
NexusFi site changelog and issues/problem reporting
24 thanks
GFIs1 1 DAX trade per day journal
22 thanks
The Program
19 thanks
  #3 (permalink)
ACstudio
Nashville TN/USA
 
Posts: 35 since Nov 2014
Thanks Given: 0
Thanks Received: 32



mcteague View Post
I know there are a lot more complicated things but here. is a basic beginner question about options.

Thanks for any replies.

AMZN is trading at about 310.
If I were buying the stock I would place my stop around 290 which seems to be about where support is.
Thats $20 per share risk. 20 X 100 is $2000. $2000 is my risk for buying 100 shares excluding comissions.

The January 2 310 call is $11
$11 x 100 is $ 1100 This is my total risk in buying 1 call contract.

So it would appear that buying the call is 1/2 the risk of buying the stock. Of course we understand that we could hold the stock and options expire. I am assuming the stock buyer would just exit a losing position at around the same time as experaton.

Is that basically correct? I know it is pretty basic. But one step at a time. I'll get to straddles and other jazz in time.

Thanks for replies

That's pretty much it. The difference is in the break even. If you buy the stock your break even is the price you paid. If you buy the option your break even is the strike price + the amount paid. And your time value (theta) reduces its value daily...all working against you to reduce your probability of profit.

The solution for me would be to sell a vertical put spread where I risk the 1100$ that I am willing to lose...which would have a higher probability of profit. Maybe wherever I can sell a 5$ wide put spread where I collect at least 1.50$ and do 3 of those. About the same risk with a higher probability of profit.

Remember that stops don't help you much on overnight gaps....If you define your risk at entry you won't need them.

Reply With Quote
Thanked by:




Last Updated on December 11, 2014


© 2024 NexusFi™, s.a., All Rights Reserved.
Av Ricardo J. Alfaro, Century Tower, Panama City, Panama, Ph: +507 833-9432 (Panama and Intl), +1 888-312-3001 (USA and Canada)
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.
About Us - Contact Us - Site Rules, Acceptable Use, and Terms and Conditions - Privacy Policy - Downloads - Top
no new posts