Since I don't have the opportunity to trade options, I would like to ask, what they actually contain?
My guess is: One put option, strike price USD 4.5 holds the right to sell 100 Nokia shares at the mentioned price at execution day. Practically speaking, the difference in share-price at close is simply payed out, if close is lower than USD 4.5. If it is higher, the option is worthless. Is this it?
And when a price of f.i. USD 0.35 is mentioned, this is to be multiplied with 100 to get the actual price for the option at trade? In this example giving a price of USD 35 for the option.
Anyone trading these?
The options game is a loser for the small investor.
Most options exire worthless. But you paid for them, didn't you?
Risk is less, but on average, you are not going to beat the house at their own game.
Shorts need options to cover their own bad guesses.
Do yourself a favor, buy stocks when they hit their lows, and be worry free.
I will repeat my mantra, It's not about how much you can make, it's about not loosing. Once you have lost principal, its FV is gone FOREVER.
"Most options exire worthless. But you paid for them, didn't you?" This statement implies that people are buying the options with the intent to exercise them. I believe the strategy is to profit by trading on changes to the option premium caused by market volatility. Meaning, most of the profit is already made by the time they expire and people let the expire without exercising on purpose.
Yes, you are right. In NOK case, I would only buy call options if I were you. If price is 0.23, for strike price $4.5 for April 2013, then you will pay $230 for 10 contracts. Or just $23 for 1 contract. 1 contract is a 100 shares. 10 contracts is 1000 shares. You have the right but not the obligation to buy the shares. You do not have to exercise if you do not want the shares. You can just sell the call options again in the open market when the price is higher than $0.23 and make a profit on the premium.
A Yahoo! User - Thanks so much for explaining this. I am just learning about options and did not understand how the pricing worked. In your examples above, the cost would then be $230 plus whatever commission your brokerage charges for each contract, correct?