Understanding Options...

[Soootylad]

Hi guys,

I'm currently using an IG Index account with tiny amounts of money to play around and learn as much as I can before putting proper money in play...

I'd like to show you a screenshot of a situation recently:

I'm a bit confused. I read here click me that to get into profit you need the market to move past your strike value + the premium, which if i'm not mistaken in my example should be 5350 + 24 = 5374. However what I see here is that at a buy price of 5355.3, I had somehow broken even?

I'm well aware I have a lot to learn, but when IG Index's own help documentation says something different to what I see on the platform itself it makes things a bit tricky...

Could someone explain to me why my iPad screenshot does not match up with the IG Index help information?

 

[TheBramble]

Don’t use IG (or any spreaders) and I can’t get a great deal of detail on your chart, but you appear to have bought a FTSE 5350 Call (or part thereof) for 24. At the time you bought, IGs Offer for this instrument was 24 - the ‘latest’ column would have I am sure held a lower value (the Bid) such that if you immediately sold, you’d have done so at a loss.

The price IG are now bidding at 24 so your instrument has increased in value to the extent if you closed out you’d break even. The ‘premium’ (in quotes as it’s just IG’s flavour of premium) is really all you need to worry about. Sure as the FTSE moves up beyond your strike you can expect a greater profit, below, less, as with all options.

This of course doesn’t address the issue of why anyone would want to buy vanilla options (and especially through a spreader), but perhaps that’s a subject for another thread. LOL

 

[Martinghoul]

You need to read more and also read more carefully. The breakeven you're referring to applies at expiry and may or may not be useful before you get there.