Trading stock options: price, volume, expiration... etc?

Question

I am new to trading options and have a few basic questions.

1. If an option is selling for .15, that means it is 15 cents for the contract to put/call 100 shares right?

2. If I buy 10 contracts of .15, how much will that order cost?

3. I know options can be traded before expiration, however, what is the volume like? On a small cap, that sees significant movement [3%+] in favor of my option, will I be able to unload it that day should I see fit?

4. I'm looking at an options chain for SNDK today. The $52.5 Nov-06 call last trade was .50 cents, with a volume today of 619. Does that mean that only $309.5 was traded in this option today?

thanks all!

Answer 1

1. If an option is selling for .15, you have to multiply that by 100 because each contract represents 100 shares. So in this scenario, it would cost $15 to buy one contract.

2. 10 contracts = 1,000 shares. Multiply 1,000 by .15 and you get $150.

3. The volume will depend on many things, like if the option is in or near the money, how popular the underlying stock is, how close to expiration, how many contracts are outstanding, to name a few. In the scenario you mention above, you should be able to sell the option, but you have to keep in mind that there is a bid and an ask, and sometimes the bid doesn't move high enough to represent that whole gain.

4. That means that 619 calls were traded that day, it has nothing to do with the dollar amount (although if the all the volume was at the last trade price of .50 the total dollar volume would be $30,950).

Hope that helps!!

Answer 2

1. .15 means you pay .15x100 = 15 dollars for it
(.15 means permium per share, and one contract represents 100 shares)

2. 150 dollars + commission
3. depends on what you trade. some are liquid some are not, some may not even trade for a whole day. If you mean exercise the option then, you got to check if you buying european style or american style. American style can be exercised any time. european style only expiration date.

4. multiply that number by 100.

Answer 3

1

Answer 4

The Options Industry Council has a great free CD available that I suggest you get and learn from before you do anything else.

http://www.888options.com/resources/dvd/default.jsp

or call 1-888-OPTIONS.