Hi everyone, been reading the investors' round table and the threads before it for some time, rarely post just read. Have a question about options:
Been thinking about buying some LEAPs calls Jan 2022 ~520 Strike. Was thinking about buying before Q1 Earnings release as there is a chance it could skyrocket the stock price very quickly. If that doesn't happen I'd still have ~2 years for stock price to grow. I'm very new to options and only know what I've read briefly on the internet (I do understand the massive risk and possibility it could make my position worth $0). So was wondering if the price were to rocket quickly would the lower strike options grow by a larger % or would all options grow equally? Would I rather have a 520 or 650 Strike price if the price goes flying upwards after earnings?
Also any thoughts on the specific 1/2022 520 Strike call would be appreciated as well. Picked up some literature on options hoping to read more next couple of days (happy to take recommendations for literature), but appreciate your thoughts.
(I've read risk disclaimers time and time again and I am very risk tolerant.)
Thanks in advance.
Short-term is more leveraged than long-term, higher strikes are more leveraged than lower strikes. The more leverage, the larger percentage increase or decrease. So the 650s will increase more than the 520s on a percentage basis if the share price jumps.
Re: the 1/22 520 call, you can see from the option chain below that the bid-ask spread is $7.90 (74.30-66.40), whereas for the 500 strike, it's $3.15 (76.70-73.55) and for the 600 strike, it's only $0.50. You're likely to get taxed (slippage) more by the market makers with the 520s since you will be buying closer to the asking price and farther from the "true" midpoint price - both when buying and again later when selling.
Generally, strikes with higher open interest (OI = 837 for the 500s; 86 for the 520s; 1054 for the 600s ) will have narrower bid-ask spreads, and round numbers tend to have the highest open interest. So my advice would be to consider the 500 or 600 strikes instead of the 520s.