Options questions

Question

Can someone just give me a simple overview of what might happen after you buy options? Lets just keep it simple and say that they are calls.

Also, what are the things to look for to find value in the price of options?

Not going to do anything stupid, just trying to wrap my head around the idea. I already checked Investopedia, etc, I would rather hear it from some of the people on this board though.

jaxwhitey · Answer

Can someone just give me a simple overview of what might happen after you buy options? Lets just keep it simple and say that they are calls.

Also, what are the things to look for to find value in the price of options?

Not going to do anything stupid, just trying to wrap my head around the idea. I already checked Investopedia, etc, I would rather hear it from some of the people on this board though.

PALLADIUM · Answer

Well if the stock goes up you will have more leverage than with the stock. On the flip side you can lose all your money if they expire worthless. For example if you wanted to but1k shares of Citigroup it would cost $23,730 however you can buy the September 22.5 calls and control 1000 shares until thethird Fri in Sep for $2700 (10 contract $270 each) if C goes to 30 before expiration they are worth a minimum of 7.5 and tripled your money versus making 25%.
As for value on out of the money calls i.e. stocks at 25 and you buy options to purchase it at 30; it's all about the time value to expiration the less time the cheaper the option.

jaxwhitey · Answer

So what would happen at the end of the day tomorrow if I had bought calls at $.05 and they were selling at 4pm for $.35? Do I have to sell the options before then? And if I don't sell them am I obligated to buy the stock at the strike price? Would I have the option to buy the stock at the strike price?

wallstreetcappers · Answer

I havent chimed in because I would highly suggest you learn the markets first, then read about 5 books on options before considering it.

I spent 6 months to a year reading and researching before I got into the specifics that you are.

Options are the markets on high end crack..you can make a ton and get killed and 90% plus of people who trade options lose.

claycourtlesson · Answer

For starters, stick with writing them first before anything else.&#xD;&#xA; &#xD;&#xA;Unless you really know your stuff (as in how they are priced), you&#x27;ll get killed.  Market makers in derivatives make market makers in common look like a little kid throwing rocks at his older brother.&#xD;&#xA; &#xD;&#xA;Scary shit, man.

jaxwhitey · Answer

I&#x27;m not planning on doing anything for awhile.  I have been on the sidelines watching options for a few weeks, I was just mainly looking for some clarity on what actually happens on the closing date.

wallstreetcappers · Answer

To answer your question, yes you have to SELL the options before the market closes tomorrow.

If they are I think 10 cents in the money, your broker can force you to exersize the options and come up with the cash to buy the shares.

JEFFMARKETCAP · Answer

[Quote: Originally Posted by wallstreetcappers] To answer your question, yes you have to SELL the options before the market closes tomorrow.If they are I think 10 cents in the money, your broker can force you to exersize the options and come up with the cash to buy the shares.&#xD;&#xA;&#xD;&#xA;[/Quote]&#xD;&#xA;Have you ever had to do this before?  I have 3 contracts of the TBSI may 55 calls that expire tommorow.  I don&#x27;t own the stock.  If I sell tommorow am I gonna have to buy  300 shares and sell it to the purchaser??  I&#x27;ve been trading options for years but never had to do so.  BUt I just came across some horror stories on google.

krafcikrr · Answer

jeff,&#xD;&#xA;You do not have to exercise your options, you can sell them prior to close. If their is a large price discrepancy between the price of the call and the instrinsic value (spot price minus strike price), then it would be wise to exercise the options and sell the stock. Usually, there will not be a large discrepancy because arbitrage funds will hammer it back into line.&#xD;&#xA;If you bought these options out of the money, then nice job! I will check back in case I didnt answer your question sufficiently.

JEFFMARKETCAP · Answer

Thank. Looks like the stock will open at around 59. Do you think If I sell this at the market to open I will be responsible to buy the shares???  I just don&#x27;t want to have to do this.  So its gonna be 4 bucks in the money

JEFFMARKETCAP · Answer

Just curious what you would do.  I don&#x27;t have enough money in my account to buy 300 shares of this stock.  I just trade the options without owning the stock.

JEFFMARKETCAP · Answer

I unloaded the options.  Hope I did the right thing.  Stock is up big.  Hope I don&#x27;t get assigned.

wallstreetcappers · Answer

Jeff,Yes yes yes..selling the options is the right thing to do.I dont see the value in paying to exersize the options.People usually TRADE the options most of the time..the only time I remember seeing people actually convert the options to shares is when they didnt want to pay the capital gains taxes on the transaction yet..so instead of selling the options they converted to shares and held off selling until later.You wont get assigned unless you let options which are in the money go unsold after expiration...

JEFFMARKETCAP · Answer

thanks bud

jaxwhitey · Answer

Just to update, I did buy a few CHK June 55 calls last week for an average of $1.60. Tried bottom feeding in an attempt to double my position on a few occasions but my offers were never filled (got too greedy).
Apparently while I was working today the options hit $6 (fvck me) and now that I am home I see that they closed at $4 (still very good).
I only put in a few hundred dollars in since it was my first foray into options but I am going to be wondering all weekend whether I should sell Monday at open or let it try to rise higher.

wallstreetcappers · Answer

Wow..A sell limit would have been a great idea.I would be wary and watch on Monday..market could open down and you get great action on that stock and then they could reverse it.How many contracts?

jaxwhitey · Answer

My sell limit would have been set under $4 probably as I would have been more than happy with a simple double up.

Just 4 contracts since I am very careful in doing something for the first time. Basically it was just fun money/weekend money to get my feet wet. So there is no real point in selling half and keeping half.

I think it spiked up early today on some preliminary info about the new shale drills. I read that CNBC was pumping CHK late in the day for a buy come Monday and after hours CHK is up about $0.80

jaxwhitey · Answer

I really wish I would have set my buy limits $0.05 and $0.10 higher than what I did when I was trying to bottom feed. But if I did I would be really sweating this entire weekend as I would have put in a decent amount of money for me.

This shyt has been a roller coaster though, daily moves of 30% - 75% have been common.

wallstreetcappers · Answer

4 contracts isnt bad, you turned 600 into 1600 so far.

I would personally set a price in my mind that I wouldnt let it fall below..say 3 and if it hits 3 on the bid you sell those contracts.

Then watch and see if it keeps going higher..never know.

jaxwhitey · Answer

Is there a site that has real time option quotes for free?

jaxwhitey · Answer

I sold off my June $55 calls at $5.50.Beginner&#x27;s luck, but I will take it.

claycourtlesson · Answer

Smart.  Don&#x27;t get greedy, close it out, take money, be happy, move on to something else.

claycourtlesson · Answer

Unless you have inside info, the market will severely punish greed 99.9% of the time.

wallstreetcappers · Answer

All brokerages give you free real time options quotes.

Those 55s are almost completely in the money, now they move tick for tick on the stock.

Good job, I bet it feels good getting the cash in the account. Now dont keep looking at the option..if it goes higher you cannot look back.

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