Options Trading Tutorial

Will i profit if my stock option exceeds its strike price?

I have 6 weeks left till my stock option expires. It is an ishares canadian index option. It flirted with the strike price this afternoon and the last 4 days I know time value is important but with only 6 weeks to go if my option exceeds the strike price (depending on how far) will i still profit because of the increase?

Public Comments

1. It all depends on what you paid for your options. If you paid $6 while it was out of the money and time decay has knocked it down to $4, but you're still out of the money, then you may or may not make a profit. Most brokers allow you to see the "greeks" of an option. Basically, you can get a rough estimate of what your option will be worth at a higher price by adding the delta impact to your current price (assuming time, volatility, etc remain constant). So for example, if the stock is at $38 and the strike price is $40, your option price is 2.40 and the delta is 0.6, then your option price if the stock to move to $41, would be approx 1.80 ($3 x 0.6 delta) more than the current price, or $4.20. It'll actually be a little different because of gamma, but for a rough guestimate, this should do. The things to keep in mind (esp if you trade options) is the interrelationship between the factors affecting your option prices such as: Delta moves with price Gamma affects delta Theta is your time decay Vega your volatility impact as lesser so Rho. Here's a link for a free tutorial to get you started. The site is great for education. http://www.888options.com/advanced/volatility_greeks.jsp Hope that helps!
2. Well, the real question is. Really. What are you doing trading options? If you don't know, what makes an option profitable.