option trading?

Question

anyone out there can give ma a explanation of option investing / trading . I buy stocks but no options . I had a Tiger Financial? broker call me today & wanted to sell me fuel oil options . I listened to him for about 10 minutes then hung up . Any explanations out there on options ?

Answer 1

Smart move. Always hang up on cold calls.

An option give the right to either buy--a call option--or sell--a put option--an asset at a given price for a given amount of time.

An example will help. QQQQ closed today at 38.79. If you think that QQQQ is likely to rise say 3 points in the next 4 months, you might want to buy a December call option with a strike price of 41 a share. If you look at the market for those options you will see that they are currently trading at 0.85 a share. Apparently, many people think that QQQQ might very well close at 42 or above by the 3rd Friday in December. That is when the option expires.

If on the other hand you think that QQQQ might very well be selling at a much lower price in December (after all it is down significnatly from it May high) then you might wish to buy a put. December 37.0 puts are currently trading at 0.85 a share 38.0 puts at 1.15.

Now here is the interesting part. In May QQQQ was trading at 42+. So in 3 months it has dropped to below 36.0. 8.0 point move in 3 months. From the low of 36 it has recovered to 38.79, actually a little higher than that.

So lets say that when QQQQ was trading at 42+ you had puchased July or August puts at 41 for a $1.00 a share and when the stock hit 36 you had exercised your puts you would have made $4.00 a share less commissions of about $30.00.
The high commissions come from having to buy the stock at market and then delivering it to the person that purchased the put.


A 350% roi in 3 months.

On the other hand if QQQQ does not move significantly you loose your investment in the put/call.

That is it in a nutshells.

Answer 2

Depends what you'd like to know on it.

In general, options are a leveraged instrument to buy stocks. However, you can also buy options on things like futures (fuel is a future/commodity).

Back to stock options. Two basic types of options, calls and puts. Calls give you the right, but not the obligation to buy a stock at a predetermined price by a predetermined time. Puts give you the right, but not the obligation to sell a stock at a predetermined price by a predetermined time.

So say you want to buy AAPL (apple) and don't want to spend $68 for it, or $34 for it on margin.

You might normally buy 100 shares for $6800. Or if on margin, $3400. You then might say, well, I'll give it a little breathing room and sell it if it goes below $60, so you're risking $800.

If you buy an option. Perhaps, you buy a Jan07 $50 option for $20. That option would give you right option to buy 100 shares of the stock @ $50 until roughly Jan '07. It's only worth $18 right now, so you're paying $2 for the time. So your cost is only $2000 ($20 x 100).

You can keep the same risk and sell if the stock goes below $60, but on the upside, you pretty much get close to $1 for $1 gain. But your investment is only $2000 in this case.

A free site that can help a lot (including quizes, etc) is 888options.com.

Let me know if you've got other questions.

Answer 3

Buy a stock and wait days, months or even years and you might see the value go up, down or to no worth at all. There is a cost and expiration date on options. If no profit by the expiration date, lose the cost of the option, which cost is a fraction of the stock price. If price of option goes up, sell the option at a profit. Most price action occurs the day of the earnings announcement, usually within one hour after the market opens. orangutantrader.com is the only service providing best picks the day before the earnings announcement.

Answer 4

Options are a great, powerful tool but the call you got was from a boiler room and Tiger Financial is unlikely to be legitimate.

There are TONS of books available on option trading. If it appeals to you then go to your library and get a book.

I'd start with options on stocks rather than options on commodities like fuel oil.

Good luck.

Answer 5

I had a similar call today about Exchange Trading Options. Topic was heating oil. Not the same company, but it's that strange.

Patty O

Answer 6

There are situations in which buying options is riskier than owning equities, but there are also times when options can be used to reduce risk. It really depends on how you use them. Options can be less risky for investors because they require less financial commitment than equities, and they can also be less risky due to their relative imperviousness to the potentially catastrophic effects of gap openings.

Answer 7

Visit this site http://netnew.tripod.com and search for Online Trading and finance page

Answer 8

read tips and articles on investing and stocks that might help you more on this site