Hi everyone Lets say I happen to know that a stock that is currently at $50 is going to hit $55 over the next month. Now I want to chose which option strike would be the best. I'm looking for the biggest % return between today and the day it hits $55. What tools do I have available that can help me? I would prefer free tools but any help would be great. thanks
Gueco, If you really "know" that the stock is going to hit 55 in 30 days, you can. 1.- Buy 1000 or as many as you possibly can, $50 calls now. You are risking 100% of capital invested for an 400% return approx if you are paying $1.00 for the calls. or if you want to be even more aggresive and you have enough money for margin req... 2.- Sell 1000 55 puts and buy 5000 50 calls with the money received from the puts.
Firstly: you don't know that it will hit $55 over the next month. So be aware of your risk. Use money management. Secondly: plug several scenarios into an options analyzer and compare the outcomes. For front or back month horizon, usually you get the best reward / risk buying in the money options, or verticals with the long leg in the money. A four leg position analyzer: http://www.888optionsnet.com/investigator_2/wi_positionSimulator.asp An ok options calculator: http://www.888options.com/resources/options_calc.jsp An options sensitivities simulator: http://www.ftsweb.com/newfts/opsens.htm Another option calculator: http://www.ftsweb.com/options/opbarr.htm A 20 leg expiration calculator: http://www.optionstrategist.com/free/analysis/calcs/expiration/index.html