Options For The big Board Stocks

[missionsman1]

I would like to start a thread here on Option Calls and Puts.

I have bought QQQQ contracts with a Jan 08 expiration date with a $60.00 strike price for .04 per share or $4.00 for 1 contract of 100 shares. I sold enough yesterday and now have 12 contracts or 1,200 shares left. the price hit .27 pps today or $27.00 a contract but when i got to the computer they dropped to .22. This one has been pretty easy for me to make some money on. I bought before from .05 to .10 per share and sold for .19.

Lets say the qqqq is at 53.00 now, as the price of the QQQQ increase so will the shares, but as the time expires, that will effect the price also. If the QQQQ's would hit 70.00 before my contracts expire on the second friday of jan, i would be able to get at lease 10.00 per share or $1,000 per contract for the contracts i bought for $4.00.

If anyone else buys options, please post. I am just a beginner here and lost a bunch on some VSE calls this year. I do like some of these great value buys on leap options .

[Grizzums]

Originally Posted by missionsman1

I would like to start a thread here on Option Calls and Puts.

I have bought QQQQ contracts with a Jan 08 expiration date with a $60.00 strike price for .04 per share or $4.00 for 1 contract of 100 shares. I sold enough yesterday and now have 12 contracts or 1,200 shares left. the price hit .27 pps today or $27.00 a contract but when i got to the computer they dropped to .22. This one has been pretty easy for me to make some money on. I bought before from .05 to .10 per share and sold for .19.

Lets say the qqqq is at 53.00 now, as the price of the QQQQ increase so will the shares, but as the time expires, that will effect the price also. If the QQQQ's would hit 70.00 before my contracts expire on the second friday of jan, i would be able to get at lease 10.00 per share or $1,000 per contract for the contracts i bought for $4.00.

If anyone else buys options, please post. I am just a beginner here and lost a bunch on some VSE calls this year. I do like some of these great value buys on leap options .

Intreating strategy you are using mission. I am not big on OTM options and much prefer atm or more so deep ITM.

I do like using leaps..EMC leaps have treated me well.

I bought some flr back when it was at 70 and made off on them and also had a long stock position to go along with them....

I am not actively trading right now....but I think when I get back into it, I will use options more as indicators and and hedging instruments....I do like to use spreads if I am going to make a pure option play. I think a good key is to look to set up trades where you can have a delta neutral position.

I will try and keep an eye on your thread here mission and wish you the best of luck. Don't get greedy with options, if you have an opportunity to take profits, don't hesistate, know your competition....l you are playing against. very saavy option traders. Know how to take. opposite positions in order to limit your downside risk if you happen tp fall on the wrong side of the trade. With options, if your thesis doesn't hold, take the small loss. I never hold to near expiration..... I like to cash in with both intrinsic and time value still in play. Remember options are an asset wasting away....

Good luck.

[BadThad]

How about a tutorial on the basics of options? It'd give us a nice QA thread. ;)

[missionsman1]

Never buy an option at the offer price or with a market order. Use a limit price that falls between the bid and offer. Take your time. If the underlying shares do not move then the option price will fall. If you have the time, place the order at the bid. If it is a liquid option, like a QQQQ index option, you WILL get filled most of the time. Try it - you will be pleasantly surprised.


Never buy an option that has an expiration of one month or less, UNLESS you know that it is nothing more than a speculation and that YOU WILL lose your investment 80% of the time.


Never pay more than $40 to ANY broker to execute a 10-contract trade.
I pay $10.00 for 10 contracts through Zecco.

Even if you are going to speculate using options, take a look at the prices for options that are two or three months away from expiration. They may be more expensive, but you will have more time for things to go your way.


Take your time.

[Ciao]

Hi missionsman1

I think I have asked this question before (I can remember where… and sorry if you have already answered me):o

Are options same as Covered Warrants? They sound +/- the same. :confused:

Some time I trade the CW specially in the Italian market (they give me (the bank) very few USA (in the past done few on AAPL + GOOG)
I some time used the PUT against a share(specially the b/chips one) that goes down but I don’t want to sell it so the put CW will safeguard my capital…. It is a bit complexes to explain it properly

Here is a link (English) for more info on CW
http://uk.warrants.com/

have a nice w/e

[Ciao]

Originally Posted by BadThad

How about a tutorial on the basics of options? It'd give us a nice QA thread. ;)

Hi BadThat
if you mean the Covered Warrants as well, here is a link (in English) to help you more
http://uk.warrants.com/services/education/

have a nice w/e

[missionsman1]

Hi Caio!
I found this.
A warrant is a security that, for a small price, gives you the opportunity to buy a stated number of a related security -- usually common stock -- at a stipulated price during a specified period of time -- typically 5, 10, 20 years, or, occasionally, perpetually.

The price at which the warrant can be exercised is fixed above the current price of the stock at the time the warrant is issued. For example, when the common stock is at $10, the warrant might entitle the holder to buy one share at $15.

Why companies issue warrants

Companies typically sell warrants as sweeteners to enhance the marketability of a new issue of its common or preferred stock or as part of a new bond issue -- in all three instances, steps taken to raise money for the company. Warrants sometimes are issued in place of cash or stock dividends to stockholders of record.

In general, think of them as an incentive move on the part of the company.

Listing

After a warrant is issued, it trades on either the New York or American stock exchanges or over the counter. It is listed in the stock tables and trades like other investments. You can quickly recognize a warrant because it will have the initials wt next to the name of the stock.

Their pros & cons

A warrant, like an option, provides a way to calculate on making money on the future price of a stock. Investors buy warrants when they believe a stock will be moving up in price. And that dollar investment is less than if you purchase shares of the stock outright.

For example, you might pay $1 per share for the right to buy Company ABC at $10 within five years. If the price goes up to $15 and you exercise your warrant, you'll save $4 on every share you buy. You can then sell the shares at the new, higher price and make a profit.

$15 - ($10 + $1) = $4, or $400 on 100 shares

On the other hand, if the price of the stock when the warrant expires is below the set price -- in our example that would be below $10 in five years -- the warrant is useless. In other words, on its expiration date, a warrant loses all its trading value.

Another negative -- as a warrant holder you do not have equity or voting rights nor do you receive dividends.

Trading activity

The price of the warrant is directly affected by the trading volatility of the underlying stock.

The two securities, in fact, tend to move somewhat in parallel directions. Therefore, an advance in the price of the stock creates a higher percentage gain for the warrant than for the stock.

Warrants vs. options

The key advantage warrants have over options is that they run a much longer length of time. The longest option lasts nine months. Warrants, however, run for years and some in perpetuity, which gives investors a chance to speculate on a company over the long term at a relatively low cost. This time frame also makes warrants less risky than options.

Other thoughts

You should buy only warrants of a common stock that you would want in your portfolio.

The best profits come from warrants associated with companies that have potential for strong upward movement in price due to significant earnings gains and/or the announcement of important new products or services.

[missionsman1]

Options are a way to gain from a movement in a stock's price without actually purchasing the stock outright. One buys a "call" option if one thinks a stock is going to go up and a "put" option if one thinks a stock is going to go down. Options are generally considered riskier than stocks, but if managed well and one does not over commit than they can be an effective tool for making money in the stock market.
Read on to learn more option-related terms, advantages and disadvantages of options.

Purchasing an option gives one the right, but not the obligation to buy (a call option) or sell (a put option) a specified amount of stock (usually 100 shares) at a specified price (called the strike price) during a specified period of time (up until the expiration date).

An example on a stock that one thinks is going to go up. If the date is July 10th and stock ABC is trading at $50.00, one might buy in August at $55.00 call option for $1.50. The actual cost of the option is $150.00, because it is for 100 shares multiplied at $1.50. Options expire on the third Friday of the month. So your option would expire, for example, on August 19th. Note, that even though the stock is not trading at $55.00, the option still has some intrinsic value because the stock has a month to trade at $55.00 or above. As the stock moves up and down the value of the option will go up and down. One does not have to wait until the expiration date to make money buying or selling options. They are sold all throughout the day and the price fluctuates throughout the day based on the movement of the stock. One might buy one or more options depending on how much stock one had planned on originally purchasing.

Option-Related Terms


Call Option: purchased when one thinks the stock is going to go up
Put Option: purchased when one thinks the stock is going to go down
Strike Price: the price at which one can buy the stock (call option) or sell the stock (put option). There are usually many strike prices to choose from
Expiration Date: the third Friday of the month that the option is for. There are usually many expiration months to choose form. And also the date the underlying 100 shares of the stock can be purchased (call option) or sold (put option) if that is favorable to do so.
Intrinsic Value: The amount by which a call option is in the money, calculated by taking the difference between the strike price and the market price of the underlying stock. For example, if a call option has a strike price of $50 and the stock is trading at $60 a share than the call option has an intrinsic value of $10 a share. If the stock price is less than the strike price the call option has no intrinsic value.
Option Price Is Affected By Many Variables


The Strike Price: the farther away from the current stock price the cheaper the option
The Expiration Date: the shorter the expiration date the cheaper the option
How quickly the stock is moving: if it is moving up or down quickly then the option price will move up or down at a higher percentage rate than if the stock is not very volatile
Advantages Of Options


Highly leveraged so one need only to invest about 10% (if buying an option that is just out of the money and with 4 to 8 weeks left on it) of what one would need to invest in the stock itself to get the same dollar return versus if one had purchased the stock outright. Of course different strike prices and different expiration dates effect the 10% ratio.
Time is on one's side in that if one buys an option that has a two month life then the stock can actually go against you by 20% or more and you can wait it out and still end up making a profit in the end if the stock turns around before your option expires.
Can really hit a super home run if the stock goes up by 20% or more.
The most one can lose is the 10% one invested.
Disadvantages Of Options


The leverage can really work against you if the stock goes down. The option will go down faster, but since one only has 10% invested it is not as big a hit as it sounds.
Time can work against you also. Everyday the clock is ticking your option loses some of it's time value.
If the stock price goes down a lot then often the liquidity of the option will go down, the bid and the ask spread may become larger and it may be hard to sell the option.
One can lose all of one's investment if the stock moves against you and you do not sell before expiration date.
In general options have a higher bid and ask spread, so immediately after purchasing an option the stock has to move to even break-even.
A vast resource of information on options can be found at the largest U. S. options trading market called the Chicago Board Options Exchange (equivalent to the NYSE for stocks). Their web site is Cboe.com.



I like the QQQQ's because its one of the most traded and the options are a bargin imo.

[Ciao]

Originally Posted by missionsman1

Hi Caio!
I found this.
A warrant is a security that, for a small price, gives you the opportunity to buy a stated number of a related security -- usually common stock -- at a stipulated price during a specified period of time -- typically 5, 10, 20 years, or, occasionally, perpetually.

The price at which the warrant can be exercised is fixed above the current price of the stock at the time the warrant is issued. For example, when the common stock is at $10, the warrant might entitle the holder to buy one share at $15.

Why companies issue warrants

Companies typically sell warrants as sweeteners to enhance the marketability of a new issue of its common or preferred stock or as part of a new bond issue -- in all three instances, steps taken to raise money for the company. Warrants sometimes are issued in place of cash or stock dividends to stockholders of record.

In general, think of them as an incentive move on the part of the company.

Listing

After a warrant is issued, it trades on either the New York or American stock exchanges or over the counter. It is listed in the stock tables and trades like other investments. You can quickly recognize a warrant because it will have the initials wt next to the name of the stock.

Their pros & cons

A warrant, like an option, provides a way to calculate on making money on the future price of a stock. Investors buy warrants when they believe a stock will be moving up in price. And that dollar investment is less than if you purchase shares of the stock outright.

For example, you might pay $1 per share for the right to buy Company ABC at $10 within five years. If the price goes up to $15 and you exercise your warrant, you'll save $4 on every share you buy. You can then sell the shares at the new, higher price and make a profit.

$15 - ($10 + $1) = $4, or $400 on 100 shares

On the other hand, if the price of the stock when the warrant expires is below the set price -- in our example that would be below $10 in five years -- the warrant is useless. In other words, on its expiration date, a warrant loses all its trading value.

Another negative -- as a warrant holder you do not have equity or voting rights nor do you receive dividends.

Trading activity

The price of the warrant is directly affected by the trading volatility of the underlying stock.

The two securities, in fact, tend to move somewhat in parallel directions. Therefore, an advance in the price of the stock creates a higher percentage gain for the warrant than for the stock.

Warrants vs. options

The key advantage warrants have over options is that they run a much longer length of time. The longest option lasts nine months. Warrants, however, run for years and some in perpetuity, which gives investors a chance to speculate on a company over the long term at a relatively low cost. This time frame also makes warrants less risky than options.

Other thoughts

You should buy only warrants of a common stock that you would want in your portfolio.

The best profits come from warrants associated with companies that have potential for strong upward movement in price due to significant earnings gains and/or the announcement of important new products or services.

thanks MM for the reply,
but I was talking about Covered Warrant which are different from Warrants which you explained in your reply (sorry for the work you put into it but I knew that)

[Ciao]

Hi Missionsman1

the Covered Warrants (CW) I think are what you in USA call Options....
reading your explanation about Options I believe it is +/- like our CW...
I have found this on an UDA site (optiontrading)

here is still a widespread misunderstanding amongst option traders that stock options traded in the US Markets are American Style Options and that stock options traded in European markets are European Style Options. That is not true. Most stock options traded in European markets are American Style Options. Hence, American or European style are merely terminologies referring to the two different styles of stock options. More and more commonly around the world, European style options are being named as "Warrants" instead.

they omit the word Covered (the warrants are totally different (as you explained on above post)

here is the link (English version) of the official Italian stock exchange explaining the real CW (part 1 +2)
http://www.borsaitaliana.it/document...warrant.en.htm

I will appreciate if you could post a w/site that deals with options.... so I could compare with the Europeans

thanks and enjoy the Sunday...

btw IMO the confusion (mine :o lol) it is that our CW come under options trading (if I say I trade options ... one ask me which options and I say CW)