April 25, 2006
Options trading - II
Here is a real life example of how to make money with options. The leverage you get with options compared to the underlying stock is just amazing.
Feb 16, 2006:
1 options contract for Kohls (OSSAJ.X strike price $50, expiring in Jan 2007) bought, priced at $4.50. Cost: $450. Kohls stock (KSS) closed that day at $46.85
Apr 25, 2006:
1 options contract for Kohls (OSSAJ.X strike price $50, expiring in Jan 2007) sold, priced at $9.00. Proceeds: $900. Kohls stock (KSS) closed today around $55.
For the options trade, profit was $450 (100%). For the same $450, 9.6 shares of KSS could have benn bought. In the same time period, profit on selling these 9.6 shares would have been $78.24 (17%).
After taking out $30 in commision profit for options trade was $420 (93%). Profit for stock trade would have been $48.24 (11%).
There it is. The power of options trading.
Posted by Parag at April 25, 2006 04:14 PM
dont want to dampen your spirit, but a word of caution. there is huge volatility in options market, that especially goes on behind the scene. i have found futures as a much safer derivative.
Posted by: vinayak at April 26, 2006 12:21 AMWow that was cool rocket science :)
Posted by: deven at April 26, 2006 01:44 PM
