Hey
@vwman111 , let me reply in this more appropriate thread.
Let me try to simplify the concept even further:
Scenario
TSLA stock price is $800
TSLA $1,100 call options are $80 * 100 = $8,000 per contract
TSLA goes up to $1,200 when the $1,100 option contracts expire
Calculating ROI in dollars
Stock
Buying 10 shares at $800 per share costs $8,000
When the stock goes up to $1,200, these shares will be worth $12,000
Profit is therefore $12,000 - $8,000 = $4,000
ROI is $4,000 / $8,000 = 50%
$1,100 call option
Buying 1 option contract at $8,000 per contract costs $8,000
When the stock goes up to $1,200, this contract will be worth $10,000 (($1,200 - $1,100) * 100)
Profit is therefore $12,000 - $10,000 = $2,000
ROI is $2,000 / $8,000 = 25%
Calculating ROI in number of shares
Stock
Buying 10 shares costs 10 shares
When the stock goes up to $1,200, these 10 shares will still be worth exactly 10 shares
Profit is therefore 10 shares - 10 shares = 0 shares
ROI is 0 / 10 = 0%
$1,100 call option
Buying 1 option contract at $8,000 per contract costs $8,000. $8,000 is worth 10 shares at a stock price of $800, so buying the option contract costs 10 shares.
When the stock goes up to $1,200, this contract will be worth $10,000. $10,000 will be worth 8.25 shares at a stock price of $1,200, so the option contract will be worth 8.25 shares upon expiration.
Profit is therefore 8.25 shares - 10 shares = -1.75 shares. A loss of 1.75 shares.
ROI is -1.75 / 10 = -17.5%
Conclusion
In this scenario, you made money on your options trade, to the tune of $2,000, a 25% return on investment.
However, you made less money than if you had simply invested in TSLA stock, a much safer investment compared to the option.
So in this scenario, you took on more risk, and got a lower reward.
Let me know if anything is still unclear, and you'd like additional examples.
EDIT: And yes. In the example from the blog, the ~2x return on the options in number of shares is still decent, but not nearly as good as it might seem when calculating the return in dollars of >4x.