 |
|
|
|
|
|
|
|
|
|
Now |
Home |
Business |
Economy |
In |
Center |
New |
Us |
|
|
|
|
|
|
|
|
|
|
Now |
Home |
Business |
Economy |
In |
Center |
New |
Us |
|
|
 |
 |
|
 ------------------------------------------------------- Option Basics ------------------------------------------------------- We will not spend much time on understanding the basics of options. There are several excellent books that are available to you either through your local library or through the Chicago Board Options Exchange (CBOE – Book Store). If you have ever purchased or sold a home you are familiar with the concept of options! When you buy a home you sign a real estate contract (option), which is a right to buy that house at a specified price (strike price) usually good for thirty days (expiration date). With any real estate transaction one exception should be obtaining a mortgage, unless you are buying the house with cash, within the time period of thirty days. All real estate contracts require the buyer to pay a down payment of usually 10% of the purchase price or $1,000. Down payment requirements are different by state and vary on the price of the home you are buying. If you obtain a mortgage but do not close on the home within the closing date (expiration date) agreed to in the contract (option) you lose your down payment (premium). Equity or stock options work the same way. When you buy one option you are buying the right to buy one hundred shares of stock for a specified price over a set period of time (1 option equates to 100 shares of stock, 5 options equate to 500 shares of stock, 10 options equate to 1,000 shares of stock, and so on). The price you pay for this right to buy the stock is your premium. Unlike the home example there are not any exceptions with an equity option. If you do nothing and the option expires your broker will make you buy (called or assigned) the stock at the agreed upon strike price. For example, if you bought Dell Computer, 10 DELL June 35 for a premium of $1.65. You have the right to buy 1,000 shares of Dell Computer at $35 or $35,000 by the third Friday in June. For this right you paid a premium of $1.65 or $1,650. As the price of the Dell stock changes so does the Dell option price. If Dell drops in price to $25 you have a loss of $35 - $25 = $10 or $10,000. If Dell Computer goes up in price to say $50 then you have a profit of $50 - $25 = $25 or $25,000. You must have the cash in your account or the broker will use margin. In the Dell example if you let the your options expire you must have a minimum of $35,000 in your account. Should this scare you? Obviously yes! The question should be why would you let the option expire? Options allow you to control many shares of stock at a much lower cost than buying those same shares of stock. As with any investment you must know the:
At whentobuy.com we identify range bound stocks that have inexpensive options, then we compute this information for you. Additionally, we monitor the option performance every week so you know the status of your trade. Want to learn more about investing with options, click here.  While others shy away from stocks in a range bound pattern, we find steady and dependable profits week after week. Whether your preferences are stock or option plays we have the research you need for consistent profits? Join now!  Back | The Basics | Risks With Options | Options Strategy | | Range Bound | Continuation | Strategies | Practice Trades | Performance | Cancel | Options | Useful Links | | Order Now | Return Home | Home Business | Digital Economy | Sign In | Disclaimer | Training Center | FAQ | What's New | Contact Us | |
||
 |
 |