By: Tom Gentile
on November 8th, 2022
Let’s Look at an Option Case Study from November 07, 2022, on Pfizer, Inc. (NYSE: PFE)
Yesterday we provided images of the Morning Reports Lists found in www.tomsoptiontools.com (Tom’s Tools). This is my options analysis software that folks can subscribe to for some of the best scanning and option analytics tools around.
We mentioned one can check the closing price of an option from the lists they would be interested in and track it to see how options with the most activity fare going forward so that one can gain an experience with options that make these lists that may help them feel mor confident in using the lists going forward.
Below is a Risk Graph and the option data on the close for Pfizer, Inc. (NYSE: PFE) June 16 of the year 2023 expiration at the $45 Strike Price closing out at a cost of $5.50 or $550 per contact.
The Entry Debit or Cost per contract is boxed in with the color red. It is %5.50 or $550 per contract to ‘Buy to Open’ this option.
Options are deemed less risky than a stock as the most one can lose on an option contract is the cost of the contract (vs. the cost of 100 shares of PFE).
Shares of PFE are $47 let’s say. $47 multiplied by 100 shares (which is the number of shares 1 options contract controls) is $4,700. That is how much one would have at risk if they did pure stock play.
That is much less than the $550 for the one option contract.
The risk in the option is that it is a fixed time investment, and it has an expiration date. This means the option expires and one can lose 100% of the cost of the trade.
Therefor the cost of the trade is also deemed the max risk one could lose on the option trade.
The four lines shown on the risk graph emphasize the theoretical per contract value pf the option based on stock price and time until expiration.
We will break down and educate everyone in future educational article the Risk Graph.
Right now, paper trade or track this and see how it plays out over the net week or tow or months from now.
Note, in order for a ‘CALL’ option to increase in values the underlying stock the option is on, in this case PFE, has to go higher.
The option value to Buy to Open on the close of market 2022/11/07was $5.50. Today, 2022/11/08 the option closed at a price of $5.50. This has the profit or loss of this option after one full day of trade is breakeven: if one bought to open at $5.50 and can now Sell to Close at $5.50, that is a break even less commissions.
We may revisit this case study in the near future, but you can paper trade this and or as many as you like.
App: Toms Option Tools
Toms Option Tools scan the markets for bullish and bearish trade opportunities using our proprietary scans and strategy algorithms. TTR Darknet finds bullish entries based on triple stack channel collisions. Money Calendar identifies seasonal patterns with at least 90% accuracy looking back 10 years. Weekly Cash Clock finds short term opportunities that last a week on average. Microcurrency Trader applies Darknet technology and moving averages to cryptocurrencies. Velocity Trader utilizes volume spike and Velocity indicators on custom stock lists. Quantum Scripts scans the markets for momentum acceleration signals and employs Quantum noise filters. Optimal Trader finds directional pre-earnings opportunities that are optimized for entry date, stock movement, and volatility surge. My Trades tracks the profit/loss of your trades, displays stock charts and risk graphs, creates new trades, and edits existing trades. Morning Report provides top 10 option rankings in 6 categories each day.
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