How can one return be greater than the other when both invested into Apple?

Many mooers have recently voiced their grievances, complaining that their underlying invested stocks earn them too little profits in the volatile market.

More distressingly, they often find other mooers showing off their outperforming P/L chart with returns as high as a few hundred percent.

Yearning to follow in the footsteps of great investors like Buffet, Soros, and Duan Yongping (hailed as Chinese Buffett)?

Only to be baffled by concepts like "exercising" and "closing" the option, let alone knowing how to "magnify profits and hedge losses" with options.

Fret not.

Today we are going to reveal an option secret!

— In an actual case, most investors may not hold their options to the expiration date.

Let's put it in another way. They will not exercise their options but close them in advance.

In this case, we don't bother to consider the option's execution.

Instead, we can regard options as a product with high volatility and profit from the difference between the stock price and the strike price.

For beginners, it's wise to be the buyer, as the loss is limited to the premium, but the profit is unlimited.

Supposedly you are bullish on the market outlook, buy a call option and sell it before expiration, which is called “closing a position”.

Then, the P&L is easy to calculate!

When the call option is closed, the P&L = the transaction amount of the premium when selling the contract – the transaction amount of the premium when buying the contract.

Isn't it simple to master?

Comparing to investing directly in stock, you will find that the rate of return for option is higher using the same amount of capital. (Of course, it may go the opposite direction where your losses are magnified)                                                                                                                                              

Let’s take the popular AAPL as an example:

On 1 March 2023,

it closed at $146.095.

On 6 March 2023,

which was $154.344.                                                                                                                                                      

Supposedly, you bought 100 shares of AAPL on 1 March and sold them on 6 March, your investment yield for investing in 100 shares will be (154.344 – 146.095) / 146.095 = 5.6%.

But, what happens if you buy AAPL call options instead of stocks?

Let's open moomoo to find the answer.

First, go to the option chain of AAPL.

Then select a call contract with a strike price of 155 that expires in 17 March 2023.

Tap the optionchain to view the contract details.

We can easily find out that:

On 1 March, the average price of the call contract was about $0.673;

On 6 March, it was around $3.056."

That means if you buy a contract on 1 March, the yield will reach a staggering 354% on 6 March!

It's much heftier than the 5.6% yield generated by investing in stock!

Isn't it mind-blowing?                                                                                                                

Some of you might begin to ask:

Despite its high return rate, only one contract still cannot measure up to what the underlying stocks can generate.

That's not the case!

Take the above stock, AAPL as an example again.

Buying 100 shares will cost you $14,609.5 which will bring you a profit of $824.9 (154.344 – 146.095)*100

But if you buy 4 call contracts that expire on 17 March and close them before the expiration date, you can end up getting a higher return of $953.2 with a much lower capital of $269.2! (0.673*4*100)

This is what we call using leverage to magnify profits in options trading.

Not forgetting that trading options also involve risks.

As previously mentioned, a beginner might find it more advantageous to act as a buyer.

Because, as an option buyer, your loss is limited to the premium you paid.

Let's take another example if you buy a call option contract for APPL.

If you make a wrong judgment of its movement, and it plummets to a level that is far below the strike price,

the value of this contract will return to zero, and your loss will be $269.2 (0.673*4*100).

Trading in the stock market can be risky, so it is wise to proceed with caution.

To safeguard your trading, Moomoo SG offers the Options Starter Kit for novices who are ready to get their hands dirty!

It includes detailed investment education courses, various options transaction news and a 30-day options commission-free* card.

Click on the below to receive!"                                                                                                                

In the above cases, no commissions or other fees are considered.