# Some use-cases with Options.

#### JForex78

##### Newbie
1 0
Hi,

I am new to this forum. And to Options trading.

I have read a lot before posting here. And based on that, have come up with some use cases I can execute.

But I am looking for confirmation of my understanding.

Can you help me with these below?

Thank you.

PS - I use only Buy side for discussion, I understand it applies to Sell also.

1. Is it correct that out-of-the-money Options are always cheaper?
I always see them under \$2 - like \$1.5 to cents.

Because anyone can buy at the market for lower price.
Can this be taken as a general statement?

2. Is it correct that after the option becomes in-the-money, its price goes up by almost same price as stock?

For a stock is trading at \$50, I buy a Call@\$50 for \$1.
If the stock goes up by +\$10 to \$60 - the Call price will also go up by almost +\$10 to \$11?

Minus some difference.

3. If 1 & 2 are true, I made a Use Case of how I can use a Call to Leverage my Buy.

Assume a Stock is trading at \$50. I buy a Call Option at \$55.

Because it is \$5 out of the money - I can hope to buy the Call@55 for \$1.

If stock does not go up, or only goes up to \$55, I just let it expire at its new lower value. And lose a max of \$100.

If stock does goes up by +\$15 to \$65, the option will also go up by +\$15, making it \$1+\$15 = \$16.

So I have \$10 gain on \$1. That's 1,000% Gain?

Is this correct?
In what cases can this go wrong?

4. If I hedge a Dividend stock with a Put option, I can keep all Dividend(-premium) with no to minimal risk?

I am going to make up some numbers to make the point.

Stock trading at \$250 pays a dividend of \$5 in the coming week.

First, I buy Put@250 at \$2
Then, I buy the stock at \$250.

Stock pays \$5 dividend.

I sell the stock at \$250 at \$0 loss.

Basically, the dividend is only reduced by the premium.

Is this correct in theory?
Where and how can it go wrong?

5. If 4 is correct, it will work with high price stocks only.

Because at a given yield, we need the dividend/ share as much higher than the premium as possible - to keep most dividend.

\$1 Dividend - \$1 Premium = \$0
But
\$5 Dividend - \$1 Premium - \$4.

Thats keeping 80% of the dividend.

Thank you.