I think I understand the basics of option trading like calls and puts. What I need help is why an option May put has a strike price of 55 when it's underlying stock is at 52.03 in Feb? Isn't the put for buying it down?
2007-02-22 09:49:22 · 5 answers · asked by mimi 1 in Business & Finance ➔ Investing
When an option is issued, a range of strikes are issued around the the current stock price. ie a stock at 52.03 may have options for calls and puts at 40, 45, 50, 55, 60 which varies depending on market practice. The strike price is not the price you pay but the price at which you can buy (call) or sell (put) the stock.
If on the last moment of the expiry date you own a put with a strike of 55, you will make 2.97.
If you own a call 55 on the other hand, you would not excercise it, as it's 2.97 cheaper to buy the stock directly.
DONT trade options until you know a LOT more !!
2007-02-22 10:00:11 · answer #1 · answered by chris a 1 · 1⤊ 0⤋
I see that you are actually totally confused when it comes to option fundamentals even though you think you understood the basics.
A stock can have a whole range of option strike prices above, below and at the price of the stock. This is what we call "in the money", "out of the money" and "at the money".
This is way too big a topic to state everything here.
For how all these things work and much much more for free, please go to the free option trading education site that I authored at http://www.optiontradingpedia.com/ for the most comprehensive and most authoritative option trading education every found on the internet for free.
2007-02-22 15:25:44 · answer #2 · answered by Anonymous · 0⤊ 1⤋
When new option series are released strike prices are set above and below the current price. As the stock price moves new strike prices are added to meet market demand.
If the share price is below the strike price of a put it is "in-the-money". If the stock price continues to fall the put will be further in-the-money and become more valuable.
Reverse the above for a call option.
A put is an contract that will increase in value as share price falls. Owning a put that is in-the-money is a good thing.
For more option information visit my blog: http://coveredcall.wordpress.com
2007-02-22 10:00:40 · answer #3 · answered by Tim P 2 · 0⤊ 1⤋
Put options gives you the right, but not the obligation to sell stocks at the strike price, no matter the market price, for some time until expiration.
Don't buy puts now, the market isn't going down, at least for now, and investing against the main trend (even if temporary) is very, very risky.
2007-02-22 11:47:40 · answer #4 · answered by Carlos G 3 · 0⤊ 1⤋
No.
2007-02-22 09:53:44 · answer #5 · answered by Anonymous · 0⤊ 1⤋