If you buy a $855 Strike price call for that date and SPY increases 50% by then you get a 12x return.
I never traded options, but isn’t the return you get critically sensitive on the date before expiration by which the strike price is hit? If this happens just before expiration, my understanding is that the option is worthless: there is no value in exercising an option to buy now at some price if that happens to be the market price. More generally, it makes a big difference whether the strike price is hit one week, one month, or one year before expiration.
Are you making any implicit assumptions in this regard? It would be useful if you could make your calculations explicit.
The option to buy SPY at $855 in January 2027 is going for $1.80 today, because most people don’t expect the price to get that high. But if in fact SPY increases in the intervening time by 50% from its present value ($582), as stipulated by kairos, then the option will ultimately be worth 1.5*582 − 855 ~ $18. I think this is where the 12x figure is coming from.
I never traded options, but isn’t the return you get critically sensitive on the date before expiration by which the strike price is hit? If this happens just before expiration, my understanding is that the option is worthless: there is no value in exercising an option to buy now at some price if that happens to be the market price. More generally, it makes a big difference whether the strike price is hit one week, one month, or one year before expiration.
Are you making any implicit assumptions in this regard? It would be useful if you could make your calculations explicit.
The option to buy SPY at $855 in January 2027 is going for $1.80 today, because most people don’t expect the price to get that high. But if in fact SPY increases in the intervening time by 50% from its present value ($582), as stipulated by kairos, then the option will ultimately be worth 1.5*582 − 855 ~ $18. I think this is where the 12x figure is coming from.
Thanks—I understand now. I thought $855 was the price SPY would reach if the current price increased by 50%.