Lets say i know, legally, that a companys stock is going to tank and drop at least 10 points in value. Ive got $5000 to invest and i want to know how to capitalize on this as much as i possibly can... a put option seems like the way to go since i could only borrow a few thousand more dollars on margin.
How do put options work? ive been looking on E*trade and a few other sites for some info and its all giberish to me. (in-the-money, strike price, etc)
Can i cash out whenever i want during the life of the contract or is it just the 3rd friday of the month?
How do i figure out how much a contract will cost? its currently around $60 a share and i expect it to be at $45 in the next 2 months. please take into account that i am bad at math.
Is there a limit to how many contracts i can buy? Could i buy 1000 contracts @ $5 each? If/when the stock drops i have someone to spot me the money to buy the necissary shares to fulfill the contracts, so the sky is the limit
2007-03-06 09:42:20 · 5 answers · asked by Chris M 2 in Business & Finance ➔ Investing
You either short the stock or buy put options on it.
2007-03-06 09:49:18 · answer #1 · answered by NC 7 · 0⤊ 1⤋
You have a fundamental flaw in your logic. If you "know" that the price is going to drop, you're wasting your money on options. Take the short position on some forwards. You're guaranteed to win. Options cost more than forwards... So if you're sure about the fall, why pay more when you know you will exercise the option?
2007-03-06 13:53:04 · answer #2 · answered by Modus Operandi 6 · 0⤊ 0⤋
I guess you would want to definitely buy put options on the stock. European style option means it can only be exercised on the last Friday before its expiration date. An American style option can be exercised anytime.
From my rudimentary option knowledge, I beleive to figure out the amount that you would stand to make you would compute #of contracts x strike price x 100
Example: 100 contracts of XYZ 5 put
100*5*100= 50,000 (upon exercising, you would make $50,000) less what you paid to buy the put is your profit.
2007-03-06 12:04:21 · answer #3 · answered by Steven Andro 2 · 0⤊ 1⤋
the money evaporates. it truly is in reality like procuring a clean vehicle. flow and attempt to promote it an identical day, and also you lose thousands or thousands of greenbacks. Poof. yet resembling the vehicle you only bought, you are able to sit down and wait. you do not lose until eventually you promote. The inventory market has only entered the 12th month of a undergo, or declining market. traditionally, they very last from 4 months to 16 months then opposite. in case you have not bought your stocks, they ought to start up going up with the different inventory. Likewise, in case you save your vehicle for fifty years, you do not stress it, you presently have an vintage, and also you are able to promote it for what you paid for it, or a lot more suitable searching on make variety and mileage. maximum folk like you aspect out, commerce on emotion. They purchase severe, confusing cases come and they panic and promote....poof.
2016-12-05 08:24:18 · answer #4 · answered by crabtree 3 · 0⤊ 0⤋
you do what martha did, pull out. and fast.
2007-03-06 09:49:27 · answer #5 · answered by Anonymous · 0⤊ 1⤋