I've never invested in options, so doing the math for the first time. I know I am missing something, which is what I need help figuring out.
I was seeing this call option for SPY (last one in the screenshot) This was my math:
https://preview.redd.it/ji5cucjg7hje1.png?width=2010&format=png&auto=webp&s=fd544f7ee67ebcaf21ccf8602cc65bd8be76c0ac
Q. when does buying the call option make sense?
A. it makes sense when option_return_% > stock_return_%
option_return_% = (final_price - strike_price - option_cost) / option_cost
stock_return_% = (final_price - curr_price) / curr_price
i.e. => (final_price - strike_price - option_cost) * curr_price > (final_price - curr_price) * option_cost
i.e. => final_price > curr_price * strike_price / (curr_price - option_cost)
i.e. => final_price > 609.78 * 210 / (609.78 - 406.06)
i.e. => final_price > 628.58
so as long as SPY grows to $628.58 (3% increase in one year), buying the call option makes more sense
Sorry again for the long and boring math, appreciate advice!