I am thinking of buying a call option for September of 2012 at $10 at $.05.
Here are my thoughts: "Buy To Open (Call)"
500 contract = 50,000 shares
Total Cost + 2,500 plus commission
If it goes to $.15, it will be worth $7,500 minus commission
Between Monday and Friday (options expiration date), I can "Sell To Close (Call)" my position, right?
Most importantly, are those the right terminologies or transaction names for what I am thinking of doing?
Also, any thoughts, suggestions and feedbacks are greatly appreciated!
GLTA longs on Monday!
I decided to do nothing about buying the call options because futures were in the red. I ended up buying more shares (the stocks) at $9.35 today and will probably write covered calls to maximize my gains if the God of profit allows me to.
Best of luck to all longs tomorrow.
If you've never executed an option trade before why on Earth would you make such a large bet the first time out? Start with 100 and see how you do. You obviously don't know enough to make an intelligent investing decision and Yahoo boards isn't a place to get that kind of advice. Nothing against Yahoo boards, it's a great place to get people's opinion on politics these days, but please for the love of God at least do some reading and research before you jump into options trading. Do you even have options trading enabled through your broker? Why not just pick up 50,000 shares outright (buy in increments over the next 3 months) and hold it for next 5 years? Less risk and you won't lose sleep or your house.
Your concern and suggestions are apppreciated. Yes, I have options trading enabled. In fact, I am doing quit well with my covered calls on the stocks I own and owned. So that you can understand my thinking better, the idea was to understand the maximum amount of money I can loss should I decided to place the bet. Hence, I am willing to loss it all ($2,500 plus commission) just to see if I can more than double my money in less than 4 days.
Believe me, if I have enough liquid funds in my trading account, I would pick up 50,000 shares incrementally like you suggested; I would not be asking questions about options. However, I have had my share of making and losing $19,000 within hours. Therefore, I don't get nervous when I trade. Numbness tends to be the consistant feeling.
Anyhow, thank you everyone for confirming my understanding about options. And I hope all the information you shared will also help other guys like me.
Good luck to all longs on Monday!
I smell $10 coming soon. LOL
I hope you have over 100K in your investment account. You should never put more then 10% of your account in a risk trade like that. Options are buying time and volity when out of the money. We close 9.98 a share that $7,500 went bye bye or a 100% loss in a week. The smart money like the house in vegas sells puts and calls and in small lots. 85 % of puts and calls people lose money on. If you are asking this question here on a yahoo board YOU SHOULD NOT BE DOING A TRADE like that. I rarely go over 40 contacts. My sweet spot is 15-30 days out calls on BAC and not paying more then .15 per contract for slightly out of the money contracts. The run up has been so sharp that you are paying .05 cent that was just .01 maybe two weeks ago. That is up 500% allready.
Again, it's an accepted risk level. I can bet this is a 2-3 days trade. If you time the stock right, it could be rewarding even with 1 day of trade for the amount of option contract. Same situation as fbi4hire, i don't like to buy less than 50 contracts option because on these ultra short trade, the commission and spread is very high. In this scenario, the stock day-to-day movement is very important. In this kind of trade, you can even make money in the same day minutes, hours...if you time the stock movement right. So the right question for fbi4hire is does he truly believe BAC will move upward further for the next 2-4 days to the $10 level. The large option contracts is just a piggy back on the stock movement to optimize an ultra short-term option trade gain. Anyway, good luck on your decision.
Thanks for your response and suggestions.
If I buy a call option (buy to open going long) for September of 2012 at $10 at $.05. and it does not hit $10 by options expiration date, is my loss not limited to $2,500 plus commission only?
Sorry if I misunderstood you, but can you please explain how you came up with a loss of $7,500 if it does not hit my strike price of $10?
Are you saying I can only make money if it goes above $10? I though I would make money as the premium goes above my purchased cost ($.05) as the price approaches $10 strike price.
Again, thanks everyone for participating and sharing your personal experiences. This will certainly help confirm what I read.
It's a gamble. However, worth it if BAC move above $10. I was thinking about the same line of thought, however, I opt for October $10 because I have bit less risk tolerance. Also, $10 is a huge resistance level, that's why the premium is so low for the $10 level. Good luck.
Thanks for the reply. Sorry if my questions sound stupid, how can I go for a lower strike price if $10 is right around the corner? What lower strike price do you have in mind for September 2012 or any other dates? This is a 4 day trade. And even if the profit jumps from $.05 to $.10, would it not be more than enough to cover for the commission?