I want to buy an option on NCLH. One option is June 2021, strike price=25 and the other one is Jan. 2022, strike price=27.5. Consider the speed of cruise recovery, which option is better?


The short answer is that it will depend on how much NCLH rises, when it occurs and how much implied volatility changes.

A more complex answer is that if you set this up as a diagonal spread in a pricing model (buy the 2022 call and sell the 2021 call), the graph will show you the performance.

Here's an expiration diagram of a call diagonal:

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Note that the position makes money initially. This is because the theta of the $27.50 call is lower and initially, it's delta is higher. At some point, the delta reverses and the $25 call becomes stronger and the profit line starts dropping. The inflection point would be around $25. IOW, the $27.50 call does better initially and the $25 call does better later.

Prior to expiration. it's never that simple because of option pricing behavior. I don't know of an online resource that provides pre-expiration with time slices but if you grasp the concept of using the diagonal spread as a proxy and since I'm not adept at uploading images, all I can offer is this somewhat cruder way of visualizing this. Set up the spread there and you'll see the appropriate numbers.

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