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Joy Global, Inc. Message Board

  • sandmeadowman sandmeadowman Jul 29, 2006 7:31 PM Flag

    Options (Long commentary)

    I use option in lieu of buying the common stock. It's just in my opinion a faster way of getting my intended result. Here's how it works: You first figure out how high(low) the stock will go by a certain date. For example, for better or worse, I believe JOYG will hit 42.64 sometime between now and August 18th (August expiration date) which is up $5 from last night's close. Look at "Options" under Quotes on Yahoo and you'll see that the $40 options trade for $1.10. That means that on expiration day, JOYG had better be above 41.10 for me to break even. If its below $40, I lose everything. Any close above $41.10 is pure profit. Now, this is the fun part: I bought 30 of these for an average price of $1.25, (i.e. 30 x $125 = $3,750.
    So... If JOYG goes down $5 on Monday, my options will be worth (consult Yahoo Options page please) the same as the $45's which is .25 or $750. Ouch.
    If JOYG goes up $5 on Monday, my options will be worth the same as the $35's which is $3.70 or $11,100. Champange, anyone?
    This works just as well for the downside. If you think JOYG is doomed for sure, why not buy some puts? They work the same way.
    The best thing to do is make a prediction, "buy" some imaginary calls/puts and see how the price and your profits/losses would fluctuate.

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