I've read up on how options work, but I don't know the actual cost of buying them. Part of why I want them to enable my account is so I can look at what pricing is like. If the cost is too high then I won't even consider it. I'm only willing to try out using as much money as I would be comfortable losing, so that means < $1000. Is that too little?
Go to CBOE.com and type in the stock ticker you want.
If you type in INTC and request the full list, you will get a long list of puts and calls with the current (20 min delayed) premium for the various strikes.
If you go to yahoo finance and get a stock quote, you will see an "options" hotlink on the menubar to the left.
CBOE is better.
If you have any questions, please ask. It's cheaper to ask than learn from experience.
Remember, there are 1000 ways to die trading options.
If a company goes belly up are options contracts voided?
No. The options contracts still must be honoured by the parties who own them. In the case of a company going "belly up", just assume that the stock price is effictively 0. All CALL options would be worthless. Any PUT options would have to be honoured for whatever price above 0 they were for.
This does raise a good point though. In the case of serious market dislocation, I have always wondered what would happen if one of the parties owning options was unable to meet their obligations. On paper you might think you were rich because your PUTs were worth a fortune, but then find out that the counter-party who wrote the PUTs didn't have enough money to back it up. I suppose that in such a case you would merely become a creditor trying to get a piece of the option writer's assets when they are liquidated. Good luck with that...
There seems to be a lot of questions about options, so here's the 30 second explanation of how they work; starting with calls.
Let me own stock XYZ, with a value of $10 per share. I mostly make money off dividends, but also off of increases in the stock price. I don't really want to sell the stock, but I would like to make a little more regular profit. So I sell Person B the option buy XYZ for $15 a share 90 days in the future for a price of 20 cents a share. If someone buys this option, I get some additional profit from my stock.
If within 90 days, the stock price moves to $20, the the option buyer will pay me $15 a share, and then can immediately turn around and sell each share for $5 profit. If the shares are worth less than $15, they will elect not to exercise their option, and I keep the option fee.
Puts are essentially the opposite. Let stock XYZ be at $10 a share, but I sell a put option for $9 90 days in the future. This is a contract stating that no matter what happens to XYZ, I will pay someone $9 prior to the put expiring. If the value drops to $7, whoever bought the put can purchase shares on the market, and sell them to me for a $2 gain per share. It's a little more complicated to understand, but same concept.
The futures are up 88 points for the dow right now. I doubt those punks will be dislodging the financial elites of this world any time soon. More likely, they'll just get their cockey asses handed to them.
Well, I'm glad that's over! Cramer called the bottom after today's discount rate cut. Apparently, that cut saved us from a 1000 point drop over the next two days. Now the psychology has been broken and even Bear Stears is going to start climbing again. Whew!
A. over at RCG is very happy about this - she is quoting Donald Trump saying that rates need to be cut another half point next month. I'm sure that Ben Bernanke calls The Donald every day to get his view on macroeconomic policy. /snark
Cutting interest rates may save the banks, but I don't think it is going to revive suicide loans, and that's what you need to keep the housing market from cratering at this point...
In case it's not clear, I felt vindicated about aggressive, inexperienced investors doing a lot of short-term shorting. They got hosed.
But yeah, nothing is solved here. We'll call this a dead cat bounce in a few weeks.
I seriously hope no one who isn't already experienced is investing in options or playing the short side based on what they learned on an internet message board.
I also know that I am probably misguided in that hope
Shorting this market because you know it is a bubble is not much different in my mind than being long because stocks and housing always go up and the Fed will always save us.
Maybe I'm just too conservative by nature, but to me the lesson of bubbles is to try to protect wealth, not to grow wealth by aggressive speculation. It feels like a casino to me no matter which side you are on, and I suspect the house always wins in this casino just like the ones in Vegas.
Comments
If you type in INTC and request the full list, you will get a long list of puts and calls with the current (20 min delayed) premium for the various strikes.
If you go to yahoo finance and get a stock quote, you will see an "options" hotlink on the menubar to the left.
CBOE is better.
If you have any questions, please ask. It's cheaper to ask than learn from experience.
Remember, there are 1000 ways to die trading options.
No. The options contracts still must be honoured by the parties who own them. In the case of a company going "belly up", just assume that the stock price is effictively 0. All CALL options would be worthless. Any PUT options would have to be honoured for whatever price above 0 they were for.
This does raise a good point though. In the case of serious market dislocation, I have always wondered what would happen if one of the parties owning options was unable to meet their obligations. On paper you might think you were rich because your PUTs were worth a fortune, but then find out that the counter-party who wrote the PUTs didn't have enough money to back it up. I suppose that in such a case you would merely become a creditor trying to get a piece of the option writer's assets when they are liquidated. Good luck with that...
Let me own stock XYZ, with a value of $10 per share. I mostly make money off dividends, but also off of increases in the stock price. I don't really want to sell the stock, but I would like to make a little more regular profit. So I sell Person B the option buy XYZ for $15 a share 90 days in the future for a price of 20 cents a share. If someone buys this option, I get some additional profit from my stock.
If within 90 days, the stock price moves to $20, the the option buyer will pay me $15 a share, and then can immediately turn around and sell each share for $5 profit. If the shares are worth less than $15, they will elect not to exercise their option, and I keep the option fee.
Puts are essentially the opposite. Let stock XYZ be at $10 a share, but I sell a put option for $9 90 days in the future. This is a contract stating that no matter what happens to XYZ, I will pay someone $9 prior to the put expiring. If the value drops to $7, whoever bought the put can purchase shares on the market, and sell them to me for a $2 gain per share. It's a little more complicated to understand, but same concept.
Well, I feel a little vindicated.
Cutting interest rates may save the banks, but I don't think it is going to revive suicide loans, and that's what you need to keep the housing market from cratering at this point...
But yeah, nothing is solved here. We'll call this a dead cat bounce in a few weeks.
I seriously hope no one who isn't already experienced is investing in options or playing the short side based on what they learned on an internet message board.
I also know that I am probably misguided in that hope
Maybe I'm just too conservative by nature, but to me the lesson of bubbles is to try to protect wealth, not to grow wealth by aggressive speculation. It feels like a casino to me no matter which side you are on, and I suspect the house always wins in this casino just like the ones in Vegas.