Yesterday I read an article about how someone was able to turn $ 200 into $ 113,000 in just one day by buying call options on a particular stock. The article also showed a screenshot which appears to have been shared by one individual who claims to have made quite some money with this trade.
I have never traded with options before so I was wondering and curios how this is even possible and so I tried to figure out how this particular example worked out. I'd just like to verify my train of thought and whether or not I understood options as such. Be it on a rather.. unlikely example.
It says that the user purchased 98 contracts. I have no real reason to believe that each contract stands for 100 shares but dividing the market value by 98 * 100 gives $ 11.95 - the "Current Value".
So, what this means, at this time he held 98 contracts, representing 9800 shares where the price of a contract for one share is $ 11.95, is that correct?
$ 11.95 / $ 0.0577 = 207.10
gives us 20,710.57% of increase in value. Hence I have to assume that the price of a contract for one share was $ 0.0577 which should mean that the user invested $ 565.46 here. Is this correct as well?
Assuming my reasoning here is correct, I still wonder how this money can be realized at this point. It states that the market value is $ 117,110 - but this refers to the contracts themselves and not to the shares.
One last qantity I'm missing here is the strike price.. I think we can get it by computing:
$ 69.78 - $ 117,110 / 9800 = $ 57,83
However, how can this position be sold? Assuming the above is correct to far, I can think of two ways:
A) Buy shares at strike price and sell them on at market price
We could buy the shares at a strike price of $ 57,83. This would mean we could buy 9800 shares at $ 57,83 giving us another position worth $ 566,734 which we could try to sell for $ 683,844 (current share value $ 69,78). This gives us
$ 683,844 - $ 566,734 = $ 117,110
B) Simply sell our options
Since we have 98 options, each representing 100 shares, we could simply sell our options
$ 11.95 * 9800 = $ 117,110.
So this should mean that A) and B) are equivalent (as it should be imo).
Is my reasoning correct or am I missing something? I do realize that this kind of trade is very, very unlikely and that there is a fair share of risk involved. After all this bet was probably set on just one day so he could have easily lost $ 565 on one day just like that. Any further information on why the contract value might go up by such an amount would be interesting to know as well.
Thank you for any feedback on this example.