> and combined with #5, those options look like at-the-money call options that expire in 10 years.
Correct.
> But in this case it won't make any sense to set the option price (the amount of income to forfeit for each option) according to either strike price or stock price -- shouldn't it be set according to the difference between the two?
The difference is always $0. The option strike is the same as the current price. The option price is 40% of the current stock price/strike price.
Let's say you make $180K. You opt to put 50% into stock. So each month you will buy $7500 worth of options. On month one, the stock price is $750. The option discount is 60%, so you get your options at $300 each. You buy 25 options at a $750 strike.
So now you're down $7500. But if the stock goes up 40% to $1050, you've broken even. If you exercise your option you buy the shares at $750, sell it at $1050, and make $300 a share.
But the real advantage comes if the stock goes up say 50%. Now you can make a profit of $375 a share, so you just made a 25% gain on your initial investment. It takes a while to break even, but once you do, you have extreme leverage.
People who went stock heavy usually made more from the options than salary, at least in the 2010s.
Correct.
> But in this case it won't make any sense to set the option price (the amount of income to forfeit for each option) according to either strike price or stock price -- shouldn't it be set according to the difference between the two?
The difference is always $0. The option strike is the same as the current price. The option price is 40% of the current stock price/strike price.
Let's say you make $180K. You opt to put 50% into stock. So each month you will buy $7500 worth of options. On month one, the stock price is $750. The option discount is 60%, so you get your options at $300 each. You buy 25 options at a $750 strike.
So now you're down $7500. But if the stock goes up 40% to $1050, you've broken even. If you exercise your option you buy the shares at $750, sell it at $1050, and make $300 a share.
But the real advantage comes if the stock goes up say 50%. Now you can make a profit of $375 a share, so you just made a 25% gain on your initial investment. It takes a while to break even, but once you do, you have extreme leverage.
People who went stock heavy usually made more from the options than salary, at least in the 2010s.