Please answer this its about options trading?

Question

hello i just read that a 3% move in stock price could mean a move of 50 to 75% in option price?? can you buy a certain amount of options and sell them for big gains like this??? thank you

Answer 1

It very possible, and it does happen,

You have to pay attention to the Delta factors which indicate how the option will move versus the movement in the stock

Nothing in life is certain, yes you can have big gains but you also can have losses.

Making money is not the only concern one has for trading/investing, you also have to be concerned about protecting what you have.

Just like trading any other product, you have to learn the rules, have your own rules to follow and have a good idea of what you are doing.

I started trading options when the were traded over the counter, this was the hard way to learn, today with the systems and the regulations, trading is more interesting and profitable

Here's some websites you should visit, educating yourself can not hurt, and it will improve your trading/investing.

http://www.schaeffer.com/

http://www.options-trading-advice.info/

http://www.optionseducation.org/

Good luck, I hope I've helped

Answer 2

<<<hello i just read that a 3% move in stock price could mean a move of 50 to 75% in option price??>>>

That is true for a few options. Most options would not have that much leverage.

<<<can you buy a certain amount of options and sell them for big gains like this???>>>

Yes, but you need to understand high leverage is a two way street. A 3% move in the stock price can cause you to lose 50% to 75% instead of making 50% to 75%.

You also need to know that if you buy an option and the stock price does not move (or moves very little) the option will almost certianly lose money.

Most people who buy options lose money on most of the options they buy, but they may have exceptional gains on a few of the options to offset those loses.

IMHO trading options without having first learned about the risk factors assoiciated with options, and how to control those risks, is essentially giving money away.

Answer 3

the actual metric for this is called the delta.  if a call option's delta is 1.   then if the stock moves up 5%, the call option will also go up by 5%.

the hedge ratio is also a factor here, and investors typically use the delta as a component in calculating the appropriate hedge ratio

and yes, you can buy option and sell them for gains w/out ever excercising or owning the underlying stock.