by Das Brain
I recently sold or closed my position on some Yahoo options that I purchased.
Let’s examine and learn from this option trade. I purchased on November 16th of 2006 two contracts of the YHOO Jan. 2008 $25 Call options, so basically I bought this option call contract in anticipation that Yahoo stock will hit the strike price of $25 by January 2008.
Well, the stock price of Yahoo stock was already at around $26.50. So this means that we are already “In The Money” or ITM as it is called in options trading terminology. “In The Money” means that the stock price ($26.50) at the time of purchase of the option contracts has already exceeded the strike price on the CALL option contracts, in this case $25. When you are ITM the premium or price of the option contracts or LEAP will be a little more expensive.
On November 16th, 2006 the purchase of each contract of YHOO Jan. 2008 $25 Call option cost me $5.50 or $550 USD (1 option contract represents 100 shares) so I purchased 2 contracts so therefore the total cost was $1100 USD. The closing transaction happened on February 1st, 2007 where I sold the 2 option contracts at $6.30 each, so for both that was $1260 USD. The underlying stock price of YHOO on February 1st was around $28.
To calculate the profit we would do it as follows:
$1260 – $1100 = $160 minus buy/sell commissions ($30.3 X 2 = $60.60) = $99.40 USD.
So, I made a profit of $99.40 USD. Not superb, but in trading the saying goes “A profitable trade is always a good trade.” At least I didn’t lose, and there will always be a next opportunity, with every profitable trade big or small I hone my trading skills and that is the important thing.
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