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As the following chart shows, the price of shares in Rogers Communications Inc. cl. B (RCI.B) has just broken through $63, which has been a major resistance level since April. While there can be no guarantees, this bullish trend could take the stock to another resistance level over the next few months, at around $70.

 

Daily Chart for RCI.B ($64.08, Friday, July 6, 2018)

 

An investor interested in profiting from this scenario could buy call options expiring on October 19, 2018, choosing the strike that would yield the best return if the stock price reaches $70 on expiration of the options.

We will choose from among the following call options:

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  • RCI 181019 C 62 at $3.15
  • RCI 181019 C 64 at $1.90
  • RCI 181019 C 66 at $1.05
  • RCI 181019 C 68 at $0.50

 

Position

Comparative Table of Call Options

 

As the above table shows, given these four call options, it is RCI 181019 C 68 at $0.50 that has the optimal combination of risk and return, offering a potential return of 300.00% if RCI.B reaches the target price of $70.00 on October 19, 2018. We will therefore carry out the following transaction:

 

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  • Purchase of 10 call options, RCI 181019 C 68 at $0.50
    • Debit of $500 

 

Profit and Loss Profile

Target price on the call options, RCI 181019 C 68 at $0.50 = $2.00 ($70 – $68)

Potential profit = $1.50 per share ($2.00 – $0.50), for a total of $1,500 

Potential loss = $0.50 per share (the premium paid), or $500

Intervention

Even though the target price for RCI.B is $70.00, our potential profit is tied to the $2.00 target price on the call options. Therefore, as soon as the price of the calls reaches $2.00 we will liquidate the position, even if RCI.B has not yet reached the target price of $70.00.

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Good luck with your trading, and have a good week!

 

 

The strategies presented in this blog are for information and training purposes only, and should not be interpreted as recommendations to buy or sell any security. As always, you should ensure that you are comfortable with the proposed scenarios and ready to assume all the risks before implementing an option strategy.

The post Selecting the Optimal Call Options appeared first on Option Matters.

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