If you buy a 1-year call and the stock rises 5%, what you earn depends mostly on how quickly the stock gets there. Buying 1%, 2% or 3% out of the money changes the result much less.
+23–25%
Return if the 5% gain happens immediately, for strikes from at the money to 5% out of the money (about 5× leverage)
~4 months
The 5% gain has to happen within about 4 months for these calls to make any money at all
+14–16.5%
How much the stock must be up at expiration to break even, for strikes from at the money to 5% out of the money
The same 5% gain, reached at different times
Your LEAP's return if the stock reaches +5% after the number of months shown
Comparing strikes, one timing at a time
Drag the slider to change when the stock reaches +5%
What you need at expiration to break even
How much the stock must rise by expiration to cover the strike plus what you paid. The dashed line is a 5% gain.
If the stock doesn't move, you still lose. After 6 months with the stock flat, these calls are down 32–38% (strikes from at the money to 5% out of the money) and down 44% for a 10% out-of-the-money strike. That loss is time value wearing off.
Rules of thumb
Leverage on a fast movedelta × stock price ÷ option price For 1-year calls near the money, that's about 4–5×.
Strike barely changes itGoing further out of the money makes the call cheaper but also lowers its delta, so the two mostly cancel. From at the money to 5% out of the money, leverage only goes from 23% to 25%.
You're paying for timeAn at-the-money 1-year call costs about 0.4 × IV × √years, plus a bit for interest rates. That's ~14% of the stock price here, and you lose it if the stock goes nowhere.
Volatility sets the priceAt 60% IV the calls cost about twice as much and a 5% move barely registers. At 20% IV they're cheaper and the leverage is higher. Changes in IV after you buy also move the price.
All the numbers
Priced with Black-Scholes: stock at $100, 1-year expiration, 30% implied volatility, 4% interest rate, no dividends. Assumes IV stays the same. Real prices will differ because of volatility skew, dividends and changes in IV. This is an illustration, not investment advice.