When will I profit from an option

[CodeBreaker528]

I'm confussed,
If I were to purchase a future option that's deep out of the money. Lets say the market was trading @ 8.00 and the premium for a 9.00 call was $200, and the commissions and fees totaled $75. When would I start making money?

Does the future have to pass through the strike price before I realize any profits or will I start to profit once the future price move enough to where the premium rises above $275?

 

[Rhody Trader]

Does the future have to pass through the strike price before I realize any profits or will I start to profit once the future price move enough to where the premium rises above $275?

You are trading the option, not the futures. Thus, it's the option price which determines when you are in the money. Of course the futures price will be the major influence on the option price, but that doesn't mean the futures have to go $275 through the strike price for you to start making money.

 

[rathcoole_exile]

"When will I profit from an option" ?

never, by the sounds of it ......

 

[mrsoul]

I'm confussed,
If I were to purchase a future option that's deep out of the money. Lets say the market was trading @ 8.00 and the premium for a 9.00 call was $200, and the commissions and fees totaled $75. When would I start making money?

Does the future have to pass through the strike price before I realize any profits or will I start to profit once the future price move enough to where the premium rises above $275?

Stay AWAY from options.
You are almost guaranteed to lose all your money in the long run.
Trade futures, stocks, spot forex, or anything where there is NO time element.

 

[gooseman]

Trade futures, .......there is NO time element.

you sure?

 

[rathcoole_exile]

he's obviously not had a truckload of pork bellies dumped in his driveway .........yet ....

 

[mrsoul]

you sure?

I mean no time PREMIUM.

 

[mrsoul]

I'm confussed,
If I were to purchase a future option that's deep out of the money. Lets say the market was trading @ 8.00 and the premium for a 9.00 call was $200, and the commissions and fees totaled $75. When would I start making money?

Does the future have to pass through the strike price before I realize any profits or will I start to profit once the future price move enough to where the premium rises above $275?

CodeBreaker,

You might want to consider trading Forex since there are no commissions and if you trade frequently intraday, the commission savings are enormous.

 

[CodeBreaker528]

Thanks for all the comments, even the smart a$$.

I see where I went wrong, I was reading a definition on breaking even when excercising an option, not offsetting.

So in order to profit from an option, the current premium has to be greater than the total amount paid (premium+commisions+fees)?

So, if I were dealing with a grain option where 1pt= $50 and I bought an out of the money option for $200 (4'0), commisions and fees = $75 (1'4). I would need the option premuim to pass 11'0 before I could offset with a profit?

 

[Rhody Trader]

Check your math again there. The option premium would have to pass 5'4.

 

[CodeBreaker528]

Check your math again there. The option premium would have to pass 5'4.

So as long as the premium stays above 5'4, I'm making money. So in the case of an 11'0 premium I'm up $275?

 

[Rhody Trader]

11 points at $50/pt = $550
Subtract the initial 4pt option price $200 = $350
Subtract the $75 transaction close = $275 net profit.

 

[CodeBreaker528]

Thanks for the clarification. I understand now.

 

[Technically Fundamental]

Does anyone on this site trade options outside of their hedging uses?

 

[Martinghoul]

Does anyone on this site trade options outside of their hedging uses?

Yes, but not equities...

 

[Technically Fundamental]

index?

 

[Martinghoul]

index?

Nooooooooooo, none of that sh1te... STIR and bond futures.

 

[gooseman]

yep

 

[Rhody Trader]

Does anyone on this site trade options outside of their hedging uses?

Absolutely. If they aren't too rich I prefer using them to outright positions for directional trades because they allow for better position management (at least the way I trade).

 

[GladiatorX]

I will write you these options you want! Please!