Trade Findings and Adjustments 01-13-22
The 4 Option Instruments
- Long Call Option
- Contract
- Buy To Open
- Right to BUY the underlying stock at a certain stock price for a certain period of time
- Goes up in value or down in value WITH the movement of the stock
- Debit: premium for the contract
- Ex: AAPL trading at 175 per share will have call options that might cost $5 of premium
- Many different option choices: Strike prices and expiration time.
- AAPL 175 strike Feb 18th 2022 which costs $5.22
- 1 Option contract controls 100 shares of underlying stock
- So this option would be $522 in real cost, even though it’s listed as $5.22
Leap Long Call “stock replacement” strategy
- Go out 1 year or more in expiration date
- Look at nearest highs and all time highs
- Higher strikes are cheaper premium cost
- FB 350 strike out to Jan23 (1year)
- Leave room in cash holdings to “dollar cost average” and lower the breakeven cost
- Wait until our call option contract is half off of the original price before considering doubling down with more Call option(s).
- Want to avoid “doubling down” more than 3 times
