But because the price of an option (once the stock reaches the strike price) tends to trend with the stock price, it is also reasonable to by options under the following senario:
Stock price of XYZ = $10.45/share and a $10 Call option for XYZ = $0.65 You expect the stock to rise to $12.00 in a short period of time
If you by 100 shares of XYZ it cost you $1045.00 (plus commision) If you buy 1 $10 Call option, it cost you $65.00
Asuming you are right, the stock goes $12.00 and you sell 100 shares of XYZ = $1200.00 but 1 $10 Call Option would be worth about $2.20 so you would sell for $220.00
Your profits would be: Stock = $150.00 on an investment of $1045.00 or a 15% profit Options = $155 on an investment of $65.00 or a 238% profit
Keep in mind in both cases you will have broker commissions, and commisions are usually higher for Options.
Before trading in any options, I reccomend that you read up on them. Besides the CBOE (mentioned by another reader here), there are on-line training sessions, and various in-persn seminars. Many of these are free to attend. If you check with your broker they may have training sessions available, check their web-site (my broker offers all kinds of "courses" in stocks, options, and futures many of them on-line)
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