Options vs stocks

Discussion in 'Trading' started by innovest_11, Apr 27, 2007.

  1. opt789

    opt789

    Innovest_11,
    The numbers in your question are incorrect. If the stock is $22 and you buy the 17.5 Calls (per your post) then they will have to be at least $4.5 not $2.5. You are correct that a far in-the-money Call with fall or rise the same number of points as the stock, i.e. a 1.00 Delta option. INTC also has a dividend which you get by owning the stock but not with the Calls. Your basic logic is correct but the question would be why are you entering the position?

    I will assume you mean to use far in-the-money Calls where there is no issue with time decay, or delta. If you want to invest in the stock then your idea of using Calls may be valid because it is nothing more than buying the stock and the Put with the same strike as your Call. It then becomes a question of money management, interest, and dividends. However, if you plan to trade the stock at all then the Calls do not make sense.

    Currently INTC closed at 21.87 and the May 17.5 Calls are 4.35 at 4.45, and not 1 traded all day so you may be forced to pay the offer and hit the bid. You can trade INTC stock with usually a 1 penny wide market so the spread is .01/21.87=.05% while the Calls are 10 cents wide so the spread for the option is .10/4.45=2.2%. So you can trade the stock and have a 21.87 at 21.88 market or trade the option and have an equivalent market of 21.62 at 22.12. Pretty clear choice.

    If you meant to say the 20 calls not the 17.5 then this becomes much more complicated because you have to deal with time decay, delta, etc. After trading options for a long time the best advice I can give to you is not to trade options unless you spend a considerable amount of time learning everything about them.
     
    #11     Apr 28, 2007
  2. Thanks for all the advises, I don't know there's such things as time decay, and option value drops as time moves on... Mainly trading on stocks and heard about options but never play them so far...
     
    #12     Apr 29, 2007
  3. If you don't know about time decay then in effect you know nothing and should stay away from options until you do. Time decay is the core and essence of options.

    Ursa..
     
    #13     Apr 29, 2007