Options strategy question?

Question

I don't have enough money to buy the number of shares I want of a stock at this time. Therefore, I want to buy options contracts. I don't want to hedge bets, I am certain that the stock will go up. What should I buy?

Answer 1

If you are certain the stock will go up, buy as many options as you can afford. However, there's no way to know for sure that the stock will go up unless you're an insider (and trading on such information would be illegal). What you're doing is speculating, which is a valid investment strategy, but very risky. (I do it too!)


By the way, just so you know, every "contract" represents 100 shares. You can use a broker such as OptionsXpress.com or another broker to buy your options (OptionsXpress doesn't have a minimum). I'm not sure if that's what you meant by your question.

Hope you make lots of money! :)

Answer 2

Unless you understand options, my recommendation would be to simply buy the stock instead of options.

If you buy call options and the stock price does go up it is quite possible you will lose money. Option prices depend on multiple factors, not just the stock price.

If you do not have permission to sell options in your account, the closest you can come to a long stock position is to buy the call options with the longest time until expiration and the lowest strike price.

If you do have permission to sell options in your account, you can create a "synthetic long stock" position by buying calls and selling puts with the same strike price and expiration. This requires the use of margin, so you need to understand the margin requirements involved to make sure you avoid a margin call is the price of the stock dips temporarily.

There are other option strategies that have the potential for much higher profits if you want to predict how much the price of the stock will rise, but those strategies also tend to be riskier.

Answer 3

Options are an expiring asset. You can never be 100% certain that a stock will go up and that it's options values will go up. However, technical indicators/analyses help you make better and/or educated decisions to improve your certainty.

With short-term investments like options trading, it does not matter what you by, as long as your technical indicators and certain market fundamentals give you more certain that the price of your option could increase.

Answer 4

If you are certain that a stock will go up, you can do some of the following bullish option trading strategies :

1. Buy call option
2. Sell Naked Put option
3. Bull Call Spread
4. Bull Put Spread
5. Calendar Call Spread
6. Ratio Bull Spread

For how to execute these option strategies, please refer to http://www.optiontradingpedia.com/free_option_strategies.htm where you get all the details on how to calculate their breakeven points, maximum profit of each of these strategies and more...


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