Replies to post #4482 on Langlui's Big Board and Options Plays

[langlui]

MrBigzy, you can sell option at anytime before expiration. Options expire on every third Friday of each month.

How much you can make on options depends on how much the stock itself goes up or down. E.g. GOOG on last Friday closed at $450. It shoot up to $550 on Friday. If you bought the April $500 call option on Thursday before the close at $0.55 ($55) each, the same option went up to $48 ($4800) on Friday. You just turned a $55 lotto to a $4,800 profit. If you have 10 contracts, you could have turned $550 lotto into $48,000 profit.

My boyfriend bought 9 contracts at $0.55 on Thursday. His cost is $495 + commission. He also bought 10 $400 put option at $0.50 each. Whichever way GOOG goes, he is going to make money. If GOOG goes up to $500, the $500 call option went from $0.55 to $48, but he would have lost the entire $500 investment in the $400 put option. If GOOG goes down to $400, the $400 put option went from $0.50 to $48, but he would have lost the entire $500 investment in the $500 call option. The only way that he is going to lose money is only if GOOG moves +/- 5%. Because we would then be looking at GOOG to trade either at $425 or $475; none of those prices reach the desire value of $400 or $500.

This is more complicated when it comes down to straddle or strangle.

For more basic option strategy, just familiar yourself with simple call or put.

Easier to understand is "call up', "put down". That's how you want the direction of the stocks go. You buy call option if you think the price movement is up. You buy put option if you think the price movement is down. Now this is the easiest part.

The harder part is to work with the premium and time value. Current month is May. May options' premium is much higher in the first two weeks (this week and next week). Once we enter the month of May, those May options' premium are going to go down. Time value decay as the option gets closer to expiration date.

I know this sounds a little complicated. I hope this helps. Do you have a stock in mind? We can start from there.