Options Trading Tutorial

For options trading, how do I calculate what the premium price of the call option will be for each point the s?

For options trading, how do I calculate what the premium price of the call option will be for each point the stock rises?

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1. <<<For options trading, how do I calculate what the premium price of the call option will be for each point the stock rises?>>> First, I want to make sure you understand that the price of the option depends upon more than the price of the underlying stock. It is perfectly possible for the price of a stock to go up and the price of a call option on that stock to go down. This frequently occurs when earnings come out. Let me give an example. A stock is selling for $30, earnings are due after the market closes, and you expect earnings to increase the stock price a lot. You buy a call option with a $35 strike price that expires in four days for $0.40. The next day the stock price goes up to $32 but the price of the $35 call option you bought goes down to $0.20. The reason is simply that few people think any new information will be released in the next three days that will increase the stock price that much, so demand for the option drops which drives the price down. Now I will try to give you a more direct answer to your question. The rate at which the price of an option price changes when the stock price changes is called "delta" but it is only accurate for small percentage moves in the stock price. So, for example, if a stock is trading at $98 and a $110 call option has a delta of 0.18, you would expect an increase in the price of the stock to $99.50 to increase the price of the option by roughly $1.50 x 0.18 = $0.27. However, if a stock is trading at $3.00 and a $5.00 call has a delta of 0.18, you should not expect a $1.50 increase in the stock price to increase the option price by $0.27. The reason is that $1.50 is a large percentage of $3.00 and delta will change substantially as the price of the stock goes up. The easiest way to estimate what a large percentage change in the stock price will do to an option price is to use an options calculator, such as the one at http://www.cboe.com/framed/IVolframed.aspx?content=http%3a%2f%2fcboe.ivolatility.com%2fcalc%2findex.j%3fcontract%3d953E62D5-D7E6-47C8-91E7-F485A6B8968D&sectionName=SEC_TRADING_TOOLS&title=CBOE%20-%20IVolatility%20Services