So that if a stock goes above a certain value then it would exceed a call strike and if it goes below a certain value it would exceed a put strike? And so depending on how much money you bet on it, you get a return for being right and the right to purchase stock at that strike price?
2007-03-03 15:09:10 · 5 answers · asked by Anonymous in Business & Finance ➔ Investing
When you go long this is correct. The opposite is true if you short to open. If you short a call to open you make money if it goes down, and if your short a put to open you make money if it goes up. The difference is you get the money up front and the risk of loss is unlimited when you short to open. When you go long to open, the risk is the amount that you paid for the option.
2007-03-04 11:47:34 · answer #1 · answered by planningresult 4 · 0⤊ 0⤋
You are right and wrong. See this example. Suppose if you bouth Sept. IBM 180 for 4 and todays market price is 176 and on September if the IBM market price is only 182 you wind up with $2 loss. See it is above the strike price but you still is behind by 2. If the market price is 184 your break even, if it is 185 then you make a profit of 1 dollar. If you know how to make use the Spreadsheet, you write out all the possibilities and the outcomes at different price levels of your trade when you are in loss, when you break even and when you profit and see whether it happens and then trade. I will tell you one thing. If the price is above the stricke price it is called the 'in the money option' and if it is below the strike price it is called 'out of the money option'. When you gain experience in options terminologies you can convey the states of the options using these words instead of calling them above strike price or below strike price states. Don't try to learn Christ the way you learn the options. Try the foundations before jumping into conclsions.
2007-03-04 00:38:17 · answer #2 · answered by Mathew C 5 · 0⤊ 0⤋
Options can be complicated. I will try to give an example. It is March. You buy an option contract for stock xxx which is trading at $20. You buy a July 30 call option for .50 cents per contract. The July 30 meants the option expires in July and the strike price is $30 dollars per share. At the end of March xxx is trading at $25 dollars per share and the option you hold is now trading $1.(just a hypothetical price..the option contract price is based on demand just like the stock itself.) Even though the price of xxx is not yet at the $30 strike of your option(it is at $25), you have still made money on it because it is trading at $1(you paid .50) You could sell it now for a 100% profit or hold it and wait for it to go higher.
Just because the option you have has a July expiriation does not mean you have to hold it until July. You can sell it at anytime for a profit or loss. You can even exercise if it is in the money.
Remember Puts are just the inverse of calls.
2007-03-03 16:44:35 · answer #3 · answered by Chris W. 3 · 0⤊ 0⤋
No. It depends on what the option is for. If it is a sell option you exercise when the stock price drops, because you buy at the lower price and sell at the higher option price. You can have options on anything though. You can have an option linked to whether it rains today or not.
2007-03-03 16:38:10 · answer #4 · answered by Anonymous · 0⤊ 0⤋
All free info on options www.888options.com. I'd tell you the answer if I knew. I'm studying options myself.
2007-03-03 15:24:39 · answer #5 · answered by Diver 2 · 0⤊ 0⤋