So if you want to invest in Google in the same conditions as an institutional investor you should commit $88,818.00 on one single position for an investment in a something that does not pay out cash in dividends or interest payments. This is something that most private investor will simply never do! But at the same time Google remains a fantastic company with a huge growth potential. Actually the Google stock price went up +25% since the beginning of the year 2013 and when you look at their annual report you see so great figures that you think that this stock has a lot more to give.
So it is temping to buy 100 shares of Google but you probably do not want to put $88,818.00 on the table. What if we told you that you can get exactly the same position as holding 100 Google shares but with committing only $30.00 dollars instead of $88,810.00 ? That you can do with options! And here is how : you should buy a 890CALL option and sell a 890PUT option on Google.
A synthetic option position to replicate the payoff of the Google stock in December
The cost of entering this position is extremely low
1- buy one 890 Call Option for $38.40/share, as option contracts are traded in lots of 100s you would need to cash out $3,840.00 for this single Call
2- sell one 890 PUT Option for $38.10/share, again as option contracts are traded in lots of 100s you will receive $3,810.00 for this single Put
To wrap it up: leverage is the magic of options
So using option you can invest only $30 and still get a market position which is 3000 times bigger than your initial investment. This is the magic of options and it is called leverage: with a very little investment you can generate a very large return.