Would higher priced stocks produce higher leverage?

Discussion in 'Options' started by knuttybuddy, May 28, 2013.

  1. Please correct me if I am wrong, but wouldn't buying a option where the underlying stock price is higher possibly produce more profitable results if right?

    For example a stock that trades a $400/ share is more likely to go up or down by $5 than a $20 stock is.

    for example if you bought a call 400 on AAPL for $2.00 - and the delta was .5 the stock has a higher possobility of rising by $5 therefore bringing your option to roughly $4.50 for example.

    Where as the $20 stock only went up $.25 and you bought the same $2 call for $20.

    Your AAPL stock just made you a little over 100% gain while the other made you only a 12.5% gain.

    Does this make since to anyone?

    Please let me know what I did wrong if anything.

    Also the reason I wonder is because once a stock goes deep enough in the money the Delta raises to 1 so for every point the underlying stock goes up the option price go up the same.

    Therefore Higher priced stocks go up a higher dollar amount which would change the price of the option. On a dollar amount vs %

    Thanks for all your input!
  2. The option prices already reflect that information (underlying price, implied volatility, etc.). However, I think there are two ways in which trading options on higher-priced stocks can give you an advantage over those on lower-priced stocks, all other things being equal:

    1. Your commissions are proportionately lower, since the option commission is the same for an option on a $20 stock as for a $200 stock although your exposure is ten times as large for the latter.
    2. With higher-priced stocks, such as the AAPLs and GOOGs, you can have many more strikes to choose from in creating and implementing your option strategy. In any given week the stock may cross a number of strikes which gives you a lot of flexibility.