Rapture, may I have a stab at it? I read you and lazer, and am appreciative.
I’m long CRMD thanks, to a CTSO mod.
Also, I am a former “Professional” options trader. Lol. Also, just yesterday, !, I turned a roughly 40K profit into a roughly 10k loss, (CTSO Aug 12.5 calls). Those are my bonafides, lol.
Okay. Long winded post........quiet Saturday.....
Ok. Think of it like any other “option”, to buy something, like a real estate contract, where you obtain an ‘option’ to buy (but not an obligation), If you are a BUYER of a call option.
So, a Call option, if you BUY it, gives you the right, but not the obligation, to purchase the stock (CRMD, the underlying), at a set price, within a determined time frame. The right/Not the obligation. Example CRMD Mar 2.5’s (btw, I bot 600 of em, at .10 / fingers crossed). So. Each one represents the right (YOU are not obliged) to buy 100 shares of the underlying, at whatever “strike price” , in this case 2.5. So let’s say you buy 100 CRMD Mar 2.5’s. You pay .10. You really paid $1,000, for the right, but not the obligation, to buy 10,000 shares of CRMD, at 2.5 dollars a share, anytime between now and the 3rd Friday in March. Remember, each call really represents 100 shares of stock. So, the. 10 cents for each is really 10 bucks, each (out of your pocket). You’ll never really (almost ever) literally exercise that right....The Calls will always trade (9 variables go into the pricing of an option/don’t worry about it) in the options market/secondary market. So, you bought one hundred, at a dime, ($1,000 to you; 100 times ten bucks) and Celgene buys out CRMD for 4 bucks a share.!!! Those 2.5 calls will have an INTRINSIC value of 1.5, (2.5 plus 1.5 =4), or 150 bucks each. You’ll simply sell them back into the (secondary) options market, (probably the bid ask will be about 1.4 Bid and 1.6 Ask, (cause the market makers want to lock up some profits). So, in theory, if you sell em at their intrinsic value of 1.5, you’ll have turned $1,000 into $15,000. Sounds easy. (you will also miss out on all price moves from .63 to 2.5.... which is why Lazer wants 1 or 1.5 strikes). Or just buy the stock, capture the full move, and also you don’t worry about the decaying time value of an option. They are worth ZERO if CRMD is below 2.5 third Friday in March. I will lose 6K, if so. Good news, you can only lose all you spent....As a BUYER.
So, if you’re still with me.... just FYI, the folks that SELL you the call option, they just entered into a legally binding contract (option “contracts”! Ah!) to deliver/sell to you/the buyer CRMD shares, at the “strike price” or “contract” price, of $2.5 dollars a share....even though the stock is now trading at 4. Lots of leverage if you’re right. Not easy being right. Smart folks tend to sell calls, with fat “premiums” , or excess over intrinsic values (based on those 9 variables) , against stock they own. It called a Covered Write. Or a Buy Write. Google that one. There is only .10 cent premium in these. Clearly the “market” is not expecting this. Hope I gave you something. I’m swinging for a buy out. I also bought the stock, fwiw. Thank you and Lazer for your dialogue. Sorry to make you read, hope there is something somewhere in this mess.
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