The entire stock market is pure gambling. In my opinion, buying these calls is WAY LESS RISK than buying this stock right now.
If I were to buy $7200 worth of NOK stock, if it reached $10 bucks, I'm looking at under $1k profit. At the same time I am risking an unknown % for that potential 1k profit.
I personally think the probability of NOK climbing back to $10 or higher by July (worst case) is fairly decent - maybe 30%(?). It is oversold and pays a handsome dividend (ex-div date of May with 6% yield will probably send it to $10 or close).
You tell me, bad investment? I don't see it that way at all. Obviously, I have no intention of holding onto the call all of the way through to July.
I like you strategy, I have never bought calls before but was thinking about a long term investment in NOK. My question is what happens if the stock stays in the 6-7 dollar range. and do you recieve dividend on call (20,000) shares. This is a learning experience for me. I have always want to play calls but never really understood the strategy. Your ex. is very clear.
Also, the longer you hold the call significantly impacts the price the call can be sold for.
A $20k profit in calls in May, can become a loss in the same call in June. This can happen, for example, if NOK stock hits $10 in May and then falls back to say $9 in June.
This is because it is now only 1 month from the strike date, and is much less likely to hit the strike price.
Conclusion, TAKE THE PROFIT when you have it - greed will ALMOST always eat your $$ here. Although, if all signs are bullish, letting it ride (just a bit longer) can pay immensely as pointed out in my previous post (share price hitting $15).
No, you do not receive dividends for owning the calls. The shareholder would receive the calls.
Yes, you can sell the calls at ANYTIME (assuming you buy it on a US exchange). As you asked, if the share price went down to say $6.50 like say March-April, the July 10 calls would probably be trading somewhere near .10 which would be a substantial loss.
HOWEVER, this would represent only a 5k loss for controlling 20,000 shares of the stock.
If you did in fact actually BUY 20,000 shares of the stock, and it went down to $6.50, you would be down about $50,000!
Smaller risk, with a MUCH higher potential for profit. The key is the strike price. The closer it gets to, or above, the strike price, the higher the Call can be sold for.