Posted in
Options Trading
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
Market Insight articles may show images of lists of stocks meeting a variety of options parameters like Unusual Call and or Put activity or Expensive IV found on my app Toms Option Tools.
Other times I will have other charts may work to amplify my educational points.
Those options data lists, however, can be found on my app Tom’s Option Tools. Use your device to search up and download this app and get free access to the Morning Reports section of the app.
Other parts of the app are available at a premium subscription rate, but the Morning Reports Lists are yours free.
Disclaimers
Stock and options trading has large potential rewards, but also large potential risk.
You must be aware of the risks and be willing to accept them in order to invest in the stock and options market. Do not trade with money you cannot afford to lose.
This is neither an offer to buy/sell/ or recommend a particular stock or option.
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