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#1 |
ICQ: 175171926
Join Date: Oct 2002
Location: New York, NY
Posts: 11,046
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Question about options contracts
One options contract is equal to 100 shares, right?
so if i want to buy a single contract at the asking price of lets say $4.00 do i pay a total of $4.00 or a total of $400 ? Another question, if i feel confident a stock is going to go up in value ... for short term profits am i better off on the stock or the options? from the little bit that i can peice together it looks like the options is a more rewarding buy for the short term, assuming it goes in your favor. thanks for any help.
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#2 | |
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Join Date: Dec 2002
Location: Sweden/Spain you sum bitch!
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Quote:
you pay 400 Depends on many things, the aim price, the expected time to reach that price, volatility etc etc. |
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#3 | |
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#4 |
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Join Date: Mar 2004
Posts: 798
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before you drop a cent into options, read this book:
Options as a Strategic Investment by Lawrence G. McMillan. i can't get onto amazon right now. but get this book. options are REALLY tricky. it's great leverage to make a lot of money, but it's really easy to lose everything.
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#5 | |
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#6 | |
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#7 | |
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#8 |
Entrepreneur
Join Date: Oct 2002
Location: USA
Posts: 31,429
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Be very careful.
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#9 | |
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#10 | |
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#11 | |
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#12 | |
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#13 |
ICQ: 175171926
Join Date: Oct 2002
Location: New York, NY
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im reading through THIS and it seams well written, im understanding it as i go.
lots to learn but it looks very interesting! as stated above, i also got the feeling like it is deceptively simple ... scary!
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#14 | |
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#15 |
ICQ: 175171926
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can you not buy/sell your contracts as needed? Or are you limited somehow by date?
if i buy 20 contracts today and take a .10 gain on them, can i dump them tomorrow and collect? or must i wait?
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#16 | |
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#17 |
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You can dump them anytime you have a buyer before they expire.
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#18 | |
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#19 | |
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you dont even notice the supply/demand factor when dumping stocks, do you feel it with options?
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#20 | |
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#21 | |
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#22 |
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Options are pretty volitale. There really best used as hedging tools, rather than dabbling as a small investor.
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#23 | |
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why do they say im left with my initial cost? Dont you lose everything if the options are worthless? this is from HERE
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#24 | |
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just asking
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#25 | |
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#26 | |
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#27 | |
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They go on to say that the option being below the strike price at expiration renders it worthless, so you are out you initial investment (cost). |
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#28 | |
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As for your question, the 315 is lost., it is the premium you paid for the contract. Always remember, the amount you pay is not for the stock itself, it is for the premium for the stock at the strike price. The premium will get less and less with all things equal closer to the strike date. One of the premiums factors is time. So, to break even you always have to have the premium + strike price = current instrument (in this case stock) price. |
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#29 | |
ICQ: 175171926
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Quote:
you guys are being super helpful, i appreciate it!
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#30 | |
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(Additionally) Options are also sometimes used to hedge postitions while estates are being divided or in similar situations (i.e. legal disputes) where ownership of the stock is in question and cannot therefore be immediately sold. |
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#31 |
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looks like everything has been answered here..
but just to add my comments - think of options as a form of leverage - they can magnify your gains, but if the option expires out of the money, you end up losing the premium, so while your losses are limited, there is a real possability you'll lose your premium. Bottom line: If you don't have the money to cover the premium, don't trade options. If you know for sure a stock will go up (usually insider information gives you this edge) then buying options rather than the stock is the way to go ![]()
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#32 | |
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#33 |
ICQ: 175171926
Join Date: Oct 2002
Location: New York, NY
Posts: 11,046
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understood
I think i am going to buy a contract i have been watching and study it for a day or so, see how it acts. the article i just read was very well written and i understood a lot, the last chapter about pricing the option was very confusing, but i will work on it a bit. im in one of those "trust me this will be a $20 stock before you know it" situations, and id rather buy a few cheap contracts than dump lots into the stock hoping for the best. the only problem i see is, i just read in that article that the price increase or decrease expectancy could have been forcasted and written into the contract premium, hence illiminating my profit if it moves as expected. ill take a shot, im all about hands on and big risk lol thanks so much for the info guys, really helped out!
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#34 | |
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if the market expects the stock price to be a certain price at expiry, then this would have already been factored into the option premium. Try checking the historical volatility & implied volatility figures - these can provide information on market expectation
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#35 | |
ICQ: 175171926
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Quote:
tyhanks
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