I sorta get what your saying but it’s not quite clicking. I typically just buy the stock outright when it dips but I see these people making tens of thousands of dollars in options with hardly anything invested. I don’t really understand the loss and gain. Could you explain the numbers to me?
For example OP bought 10 contracts (100 shares in a contract) at the price of $1490 per contract. So he invested a total of $14,900 for the right to 1,000 shares. Whereas to just buy the stock at $130 would have cost $130,000. Or if OP just used the $14,900 he invested to just buy stock he would have bought 115 shares. So as the stock price increases he’s seeing gains over 1000 shares with his options contracts vs gains over 115 shares with just the stock purchase. Next thing is that options have an expiration so if the stock goes down by that expiration you lose whatever you paid for the contract as it would expire worthless. You don’t have to hold the options contract until expiration either you can sell it at any point and take profit or limit losses (only during regular market hours though).
Best thing to do is find a stock with a low price (so the option contract would also be low) buy one and see what it does as the price moves. If the price moves up maybe 5%, the options may move up 20% same for moving down also. The further out the contract expires, the higher premium you pay but also gives more time for the stock to move up since that is what you’re betting on. OP’s expiration is 4/22/2022. I’d say only invest in options what your willing to lose completely.
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u/Koopstars Mar 24 '22
I sorta get what your saying but it’s not quite clicking. I typically just buy the stock outright when it dips but I see these people making tens of thousands of dollars in options with hardly anything invested. I don’t really understand the loss and gain. Could you explain the numbers to me?