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Abbott Laboratories Message Board

  • stock_green07 stock_green07 Apr 1, 2011 12:23 PM Flag

    That's why OPTIONS are scam!

    I bought May 11 50 Calls few month back when

    Stock was near $48 and paid around .80 per contract..

    Now stock back up to 49.30 and those options

    are worth 0.54 per contract, how's that even possible?

    What a scam.

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    • The primary factors determining an option price are the time remaining before the option expires and the price of the stock. I think, in the case of Abt, the fact that earnings are coming up is also influencing the stock and option prices. In your case, time and unknown earnings are working against you. I always sell calls above my purchase price. That way there is money coming in from the option sell and potentially the stock, if called (although I've never lost any stock) and no money going out. My profit is limited using this approach but I'll be ahead. Abt is especially good since it has been range bound between 45 and 55 for quite sometime. So for me options are great. They have paid the bills for the last couple years and I still have the stock.

    • Take the "scam" out of options. Sell out of the money calls above your cost basis. A bit of downside protection and if you're called out of the stock you still make a profit as well as keeping the premium they paid you.

    • frankbrogdon Apr 1, 2011 5:19 PM Flag

      you need to do some homework regarding stock volatility and how it affects option premiums, time value and time decay among other things. in your post, you asked how is this possible. based on the facts listed, the price movement of the option was not only possible, but probable.also, there is also a huge difference between buying options,like you did, and selling covered call options as a hedging strategy. i wish you good luck.

      • 1 Reply to frankbrogdon
      • Options aren't scams.

        ...another way to play the options game is to buy "in the money" options. quite often very cheap as compared to buy
        "out of the money" options.

        I, like some previous posters, sell out of the money covered calls. I get the capital gain, the cash for the option value and that sweet dividend.
        If you ever need the "cash" you can always buy those options back (close your position).

    • there are many educational sites (free from you brokerage accounts) that will explain all of this. it's hardly a scam it's the way it works. you sound like you're in way over your head. i'd say you should cover now and learn more b4 you buy options. as you can see by the other posts selling calls is more of an investment while buying calls is simply a speculation..good

    • Options aren't a scam; they are a great tool if you know how to use them. Unfortunately you, like many option beginners, typically only buy calls or puts. So unless the stock moves quickly and by a large amount you wind up losing money to time decay - and reduced volatility as those with the stock initiate covered call positions.

      Next time, consider also selling out of the money puts to finance the long call options. You will need to put up some margin money, but it will greatly reduce the cost of the call. I usually only like to do this at a net credit (ie, I take in more by selling the put than the cost of buying the call).

      Personally, for a low implied volatility stock like abt, I ususally don't like to sell puts since crap happens and you don't take in much money. But occasionally on selloffs in a stock it's worth it.

      I agree with other posters who suggest you read online tutorials for options or get yourself a basic book.

    • Your May options are now worth very close to a dollar. Consider yourself lucky!!!

    • There's an article in todays Wall Street Journal (4/4/11) on using stock options to supplement income. This may be helpful.

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