Here we Go!
First of all, I would like to deal with what I consider to be the simplest and least risky form of derivatives, as they are relatively easy to trade and track without much effort.
In general, almost all forms of derivatives are available as calls (for rising prices) and puts (for falling prices).
So let's start today with the discount calls. I currently have 2 of them in my portfolio. More on this later.
Discount calls always relate to a specific underlying (here I am concentrating on shares).
There are always 2 fixed values. A lower limit (strike price) and a maximum limit (cap), so to speak.
Discount calls are suitable for those who expect a value to move sideways or, in the case of the call, only a moderate increase until the end of the term.
As there are many fans of $NOVO B (-1.85%) my first example is for this share.
The call below, which I bought today😉 , has a strike price of DKK 400 and a cap of DKK 450.
The term is until 19.12.25. That is also the crucial day. The value of the bill will be decided on this day. Anything that happens before then is of no interest. The maximum repayment would be DKK 50, i.e. around €0.67. This would be the case if $NOVO B (-1.85%) would be at least DKK 450 on the record date. That would be around 80% of the current purchase price of the certificate of €0.37.
This means that since the share is currently at exactly this level, you would make a profit of 80%, even if the share is no higher in December than it is now. This is paid for by the fact that even if the share doubles, you won't get any more
On the other hand, a total loss can occur if the share is below DKK 400 on December 19.
If it is between DKK 400 and DKK 450 on that day, you will receive the exact difference between the basis and the actual price. The breakeven for this position is therefore around DKK 430 at today's call price. The share should at least be at this level on 19.12. In my opinion, this is a very realistic opportunity. Of course, you can also sell the derivative in the meantime. The more the share rises above the cap, the closer the price of the call comes to the maximum amount.
I always trade discount calls when I'm not sure which way the share will go. I always have the premise that I expect a return of at least 10% per month, which is the case with a 7-month term.
It can also be much riskier. You can see this in the 2nd attached trade that I made yesterday.
This is a discount call on $PYPL (-3.22%) . This also has a term until 17.12. The base price here is 85$ and the cap is 90$. The maximum repayment here is 5$, i.e. around 4.25€. Calculated on the purchase price, this means a maximum possible return of 270%. To achieve this, however, the share price must rise by 25% by December. This would correspond to a leverage of 11 for other derivatives. However, without an interim KO.
Even if interim price losses do not mean the end, you should also work with SL here. However, I would not deposit these with the broker, as the risk of being stopped out if the issuer plays around is relatively high.
I always have a stop of 20% in my head, but I keep it flexible and look at how the share price has fallen.
So enough for now with part 1, I hope I was able to give you some information. You are welcome to ask questions, or those who notice something that is still important to mention are welcome to add to it.
I'm not a finfluencer and anything but omniscient 😉😂
