Replies to Post #8716 onOption Millionaires

Replies to #8716 on Option Millionaires

10/25/08 1:34 PM

#8717 RE: Briboy #8716

With options, you are not purchasing stocks themselves, you are purchasing the RIGHT to either buy or sell the stock at a certain price.

Call options give you the right to BUY a stock at a certain price (called a STRIKE PRICE).

Put options give you the right to SELL a stock at a certain price.

If you think a stock is gonna go up from it's current levels, you buy CALLS. If you think a stock is gonna go down from it's current levels, you buy puts.

Playing options allows you to profit from the movement of a stock WITHOUT having to put up bazillions of dollars. For example, I have been buying CME calls. It is trading about 250 per share. To buy even 100 shares of that I'd need to plop down $25K. And if it went up $50 I'd make $5k.

But I can buy call options for much less. I've been spending about 2-3 bucks per contract (one contract gives you the RIGHT over a 100 share block). So when you buy an option contract for 2-3 bucks, you're spending about 200-300 bucks PER contract. So let's say I buy 10 contracts with a $2.50 avg and the stock goes back up to $300. My calls will probably be around 10-15 bucks per contract. With a $2K initial investment I just made a bundle. I like calls because you cannot lose more than you invest too.

When you purchase your calls or puts, they do not last an indefinite amount of time. Your contracts will expire on the 3rd friday of whatever month you bought them for.

Go to this link and type in GOOG to see an option chain. That will give you a good idea of how it works: http://www.optionsxpress.com/OXNetTools/Chains/index.aspx