I am new to options trading as my question will soon make very clear. If I see the market price of a put at .25, lets say I buy 100 contracts at $25. Now when I reach the "strike period" am I obligated to purchase those shares like I would any other stock? Or is my total investment cost just the commission on the trade and $25 (100 contracts @ .25) ? Let's say the company I am buying a put on is trading at $10 a share, after buying the 100 contracts at .25 do I have to pay for anything else? Question really simplified: Do I spend $25 on the 100 contracts and then never have to invest more money for this particular investment? I just wait for the "strike month" and I could only lose my original $25, and I don't have to replace the stock (like a short position)? Sorry it's so long but I really wanted to address my question clearly.
2007-06-19 14:47:32 · 5 answers · asked by dellptn 2 in Business & Finance ➔ Investing
Sounds like you're pretty new to options. The best book I've come across for learning options is "Getting started in Options" by Michael C Thomsett. I got a copy on eBay for about $5.
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2007-06-19 15:58:32 · answer #1 · answered by SWH 6 · 0⤊ 0⤋
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Option contracts are quoted on a per share basis. Each contract normally covers 100 shares. Therefore one contract at $0.25 would cost $25 and 100 contracts at $0.25 would cost $2,500.
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No. Only the seller (writer) of the options has any obligations. The buyer (holder) of the options has the right but not the obligation to exercise the options.
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Your total investment is the cost of the contract(s) and the comission. As already noted the cost of the contracts would be 100 times greater than you specified.
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No.
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If you buy contracts you never have to invest more money. You should, however, be aware that if you still own conracts at expiration AND the contracts are in-the-money by $0.05 or more, they will automatically be exercised unless you explicitly specify they are not to be exercised.
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Correct.
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It is far better to ask if you are not sure.
I suggest you go through the material at
http://www.cboe.com/LearnCenter/default.aspx
to learn a little more about options. If still interested after going through that material, I suggest you read a good book about option trading before risking real money on options.
2007-06-20 00:46:29 · answer #2 · answered by zman492 7 · 2⤊ 0⤋
The reason why you are having all these questions is that you are totally unfamilar with options. With these questions answered, more questions will surface and that is an endless dead end as long as you do not polish up on what option trading is in the first place.
I have prepared for you a hand written site teaching you everything you need to know about option trading for FREE at http://www.optiontradingpedia.com .
I hope you find it useful.
2007-06-19 14:59:24 · answer #3 · answered by Anonymous · 2⤊ 0⤋
i'll answer your question but you should really do more homeowrk on options before you start. but to answer your question as simply as possible, you are right, if you bot the put and the stock goes up you will lose your $25 if you do nothing.
2007-06-19 19:11:04 · answer #4 · answered by gus 1 · 0⤊ 0⤋
you should be gambler otherwise option tading is very risky.
good luck.
Unless you want to put some thousands of dollars and lose or win thats it. Otherwise I suggest the best you should try to stay out of it.
2007-06-19 14:58:56 · answer #5 · answered by Ray_Sacramento 1 · 0⤊ 0⤋