I'm going to take $1,405.35 and turn it into $100,000 using stock options.

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Darias said:
As I understand it, that was a call option, or a buy option: It means that he owns the option to
purchase a set amount of shares of google, on the day that the option is expired, at $775/share, regardless of the market price. He paid $0.90 for those options.

Google currently is at Last [Tick] $758.045. So, say that option that he bought is two weeks long. That means that he's hoping google's share price will pass the $775 dollar mark within those two weeks. Say exactly two weeks from now, google is at 875. Therefore, the option is worth 100 dollars per share that it's good for, as the owner of the option can exercise it, allowing him to buy x shares of google at 775. As google would be currently worth 875, the owner then sells the shares at a profit.
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In terms of basic idea: pretty much, yes.

Wikipedia also has a lot of examples for this scenario:

An investor typically 'buys a call' when he expects the price of the underlying instrument will go above the call's 'strike price,' hopefully significantly so, before the call expires. The investor pays a non-refundable premium for the legal right to exercise the call at the strike price, meaning he can purchase the underlying instrument at the strike price. Typically, if the price of the underlying instrument has surpassed the strike price, the buyer pays the strike price to actually purchase the underlying instrument, and then sells the instrument and pockets the profit. Of course, the investor can also hold onto the underlying instrument, if he feels it will continue to climb even higher.

An investor typically 'writes a call' when he expects the price of the underlying instrument to stay below the call's strike price. The writer (seller) receives the premium up front as his or her profit. However, if the call buyer decides to exercise his option to buy, then the writer has the obligation to sell the underlying instrument at the strike price. Often the writer of the call does not actually own the underlying instrument, and must purchase it on the open market in order to be able to sell it to the buyer of the call. The seller of the call will lose the difference between his or her purchase price of the underlying instrument and the strike price. This risk can be huge if the underlying instrument skyrockets unexpectedly in price.

  • The current price of ABC Corp stock is $45 per share, and investor 'Chris' expects it will go up significantly. Chris buys a call contract for 100 shares of ABC Corp from 'Steve,' who is the call writer/seller. The strike price for the contract is $50 per share, and Chris pays a premium up front of $5 per share, or $500 total. If ABC Corp does not go up, and Chris does not exercise the contract, then Chris has lost $500.
  • ABC Corp stock subsequently goes up to $60 per share before the contract is expired. Chris exercises the call option by buying 100 shares of ABC from Steve for a total of $5,000. Chris then sells the stock on the market at market price for a total of $6,000. Chris has paid a $500 contract premium plus a stock cost of $5,000, for a total of $5,500. He has earned back $6,000, yielding a net profit of $500.
  • If, however, the ABC stock price drops to $40 per share by the time the contract expires, Chris will not exercise the option (i.e., Chris will not buy a stock at $50 per share from Steve when he can buy it on the open market at $40 per share). Chris loses his premium, a total of $500. Steve, however, keeps the premium with no other out-of-pocket expenses, making a profit of $500.
  • The break-even stock price for Chris is $55 per share, i.e., the $50 per share for the call option price plus the $5 per share premium he paid for the option. If the stock reaches $55 per share when the option expires, Chris can recover his investment by exercising the option and buying 100 shares of ABC Corp stock from Steve at $50 per share, and then immediately selling those shares at the market price of $55. His total costs are then the $5 per share premium for the call option, plus $50 per share to buy the shares from Steve, for a total of $5,500. His total earnings are $55 per share sold, or $5,500 for 100 shares, yielding him a net $0. (Note that this does not take into account broker fees or other transaction costs.)
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rjc571 said:
If google goes above 775 by tomorrow then he gets teh moniez

*disclaimer: I knew nothing about option trading as of 10 minutes ago so this may be wrong
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This is more or less correct. Google has to close above $775 + the option premium by Friday of this week. Because the OP cant exercise his option with only $1400 in his account, he will need to sell by market close or get nothing.

Edit: I should also note, that as long as the price of GOOG goes up faster than the option decays, the OP can still sell before GOOG goes above $775 for a decent profit.
 
rjc571 said:
He paid .90 of what? 90 cents? 90% of his original investment?
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he said 15 calls. That's 15 calls on 100 shares which is 1500 shares with a 0.90 cent premium per share.

*disclaimer, please correct me if I'm wrong. Trying to learn as we go here :P
 
rjc571 said:
If google goes above 775 by tomorrow then he gets teh moniez

*disclaimer: I knew nothing about option trading as of 10 minutes ago so this may be wrong
Click to expand...

Well I trade premium so it only needs to ACT like it's going above $775, or really just move up for the option to increase the price. Whether it's actually $775 by close tomorrow is irrelevant, the contracts will be in someone else's hands by then.
 
Wouldn't Google be an unwise investment since they're already a money powerhouse? I just dont see too much swing potential in a company that large.

Granted, I know nothing about this, just speculation.
 
Playing in investopedia with 10k start... Im down 15 bucks already! I am not going to try options until I 'get' them however, I'll need to do some reading first.

I also don't have any cash in my portfolio either :p.
 
Davedough said:
Wouldn't Google be an unwise investment since they're already a money powerhouse? I just dont see too much swing potential in a company that large.

Granted, I know nothing about this, just speculation.
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I think it has to do with the fact that he isn't buying the actual stock. He's basically selling pre-orders for the Wii U on eBay. I think?
 
Davedough said:
Wouldn't Google be an unwise investment since they're already a money powerhouse? I just dont see too much swing potential in a company that large.

Granted, I know nothing about this, just speculation.
Click to expand...

I don't know, I don't really look at long-term investments except for my Roth account. Only long term investment (couple of years) I like right now is SLV (silver)...I see it over 50 by mid-2013
 
Darias said:
As I understand it, that was a call option, or a buy option: It means that he owns the option to
purchase a set amount of shares of google, on the day that the option is expired, at $775/share, regardless of the market price. He paid $0.90 for those options.

Google currently is at Last [Tick] $758.045. So, say that option that he bought is two weeks long. That means that he's hoping google's share price will pass the $775 dollar mark within those two weeks. Say exactly two weeks from now, google is at 875. Therefore, the option is worth 100 dollars per share that it's good for, as the owner of the option can exercise it, allowing him to buy x shares of google at 775. As google would be currently worth 875, the owner then sells the shares at a profit.
Click to expand...

So he's not forced to actually buy it at 775, but he can sell to someone else the option to buy, right?

OP should list the amount of shares he bought the option for. NM he said 15.
 
Davedough said:
Wouldn't Google be an unwise investment since they're already a money powerhouse? I just dont see too much swing potential in a company that large.

Granted, I know nothing about this, just speculation.
Click to expand...
On a day to day basis, there isn't much that swings like Google. But day to day does not mean investing either.
 
OP should list the amount of shares he bought the option for.
Click to expand...

options are sold in 'lots' of 100.

So, buying 1 Call contract means you're buying options on 100 shares

So he's not forced to actually buy it at 775, but he can sell to someone else the option to buy, right?
Click to expand...

correct. This is exactly how the majority of options plays go down.
 
"Google is reportedly making two new versions of the Nexus 7 that are expected to be thinner, and will use TN panels made by Taiwan-based panel maker HannStar Display, according to industry sources.

One of the models will be priced at US$199 while the other will be priced US$99, and both models are expected to hit markets by the end of 2012, added the sources.






AWW SNAP.
 
Merino said:
he said 15 calls. That's 15 calls on 100 shares which is 1500 shares with a 0.90 cent premium per share.

*disclaimer, please correct me if I'm wrong. Trying to learn as we go here :P
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So basically there's two different values for the stock, the actual stock price which is around 757 right now, and the much lower/more volatile "option price" which he bought at 0.90, which is based on whether or not people think the stock is going to go above its strike price? Is this correct?
 
Basic way to understand options:

Take an orange. The orange is the underlying stock, as an example we could use Google, or GOOG.

Right now that orange is priced at $1. People are selling $2 call options that expire in a month for .25

That gives me the right to buy that orange for $2 a month from now, and I'm paying .25 for that contract. If I buy that contract today, and in a week, it is discovered that Elvis owned this orange and held it in his hand, this orange is now worth $100,000, but I have a contract that will force the seller to give it to me for $2, meaning the contract I paid .25 for is now worth $99,998.

I can hold on to this option until it expires and cash it in and get my orange and pay $2, but then I have an orange that maybe people don't want to buy, and maybe I don't have $2 in my name. Instead, I can also just resell that contract to someone else and take my profit, and now they assume all the risk. If it turns out it isn't Elvis' orange, the price goes down and they messed up, or if I had held on too long hoping to cash it in and it turns out it wasn't his orange, I lose my profits.
 
Good luck man.

As a matter of fact, this topic reminded me that I wanted to get into this after my studies, but I've been so busy with the job hunt that I had forgotten about this since last year.

I studied some of this at the university so it wouldn't take me too long to get back into it again, when I find time I got to start with this.
 
Timedog said:
So he's not forced to actually buy it at 775, but he can sell to someone else the option to buy, right?

OP should list the amount of shares he bought the option for. NM he said 15.
Click to expand...

He did, he said 15 (later corrected to 14). Its 15 x 100 so 1500 shares.

Edit: missed the NM...
 
So what's the top and bottom value you are looking at before ditching this specific option?
Since most of your start-up money is now invested into these 14 calls.
I've seen it up to 1.20 and it's now down to 0.7
 
Yea, I can't really figure out these options. But I'm trying to work and read about this shit. Investopedia seems to have a pretty good knowledge base I just need to dedicate my time to reading and understanding it.

So in the GAF game I'm only doing straight up stock trading. I do have 1 option for Microsoft but I kinda did that on accident so I don't even know what the hell it is. Oops.
 
MVP said:
Basic way to understand options:

Take an orange. The orange is the underlying stock, as an example we could use Google, or GOOG.

Right now that orange is priced at $1. People are selling $2 call options that expire in a month for .25

That gives me the right to buy that orange for $2 a month from now, and I'm paying .25 for that contract. If I buy that contract today, and in a week, it is discovered that Elvis owned this orange and held it in his hand, this orange is now worth $100,000, but I have a contract that will force the seller to give it to me for $2, meaning the contract I paid .25 for is now worth $999,998.

I can hold on to this option until it expires and cash it in and get my orange and pay $2, but then I have an orange that maybe people don't want to buy, and maybe I don't have $2 in my name. Instead, I can also just resell that contract to someone else and take my profit, and now they assume all the risk. If it turns out it isn't Elvis' orange, the price goes down and they messed up, or if I had held on too long hoping to cash it in and it turns out it wasn't his orange, I lose my profits.
Click to expand...

Excellent analogy. That makes things gel. Now, does that mean you bought 100 options at .90 so, using that same analogy above, you'd have $999,998*100 if you cashed them all out?
 
FlashFlooder said:
Please don't anyone see this thread and decide to jump into options trading. You will most likely lose your ass very quickly.
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saltinekracka said:
My friend and I tried trading options...once. I lost $650 real quick and he lost $6500. I'm sticking with good ole fashioned stock trading from now on.
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Anecdotes like these are much needed, especially after seeing how easily one could make a significant profit (and just as easily lose everything).
 
So you paid 90 cents for options that had a 85 cent ask price and were last sold for 70 cents?

That isn't gambling, that is just lighting money on fire.
 
MVP said:
Basic way to understand options:

Take an orange. The orange is the underlying stock, as an example we could use Google, or GOOG.

Right now that orange is priced at $1. People are selling $2 call options that expire in a month for .25

That gives me the right to buy that orange for $2 a month from now, and I'm paying .25 for that contract. If I buy that contract today, and in a week, it is discovered that Elvis owned this orange and held it in his hand, this orange is now worth $100,000, but I have a contract that will force the seller to give it to me for $2, meaning the contract I paid .25 for is now worth $999,998.

I can hold on to this option until it expires and cash it in and get my orange and pay $2, but then I have an orange that maybe people don't want to buy, and maybe I don't have $2 in my name. Instead, I can also just resell that contract to someone else and take my profit, and now they assume all the risk. If it turns out it isn't Elvis' orange, the price goes down and they messed up, or if I had held on too long hoping to cash it in and it turns out it wasn't his orange, I lose my profits.
Click to expand...

Like this explanation.
 
Davedough said:
Excellent analogy. That makes things gel. Now, does that mean you bought 100 options at .90 so, using that same analogy above, you'd have $999,998*100 if you cashed them all out?
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Yep, and my math was messed up, it's $99,998. Of course it's an extreme example and no stock ever goes from $1 to $100,000 overnight, but it should hopefully illustrate how these contracts work.
 
mackattk said:
Anecdotes like these are much needed, especially after seeing how easily one could make a significant profit (and just as easily lose everything).
Click to expand...

It's the same as gambling in Roulette, except you don't need to follow the news and extensive market forecasts for roulette, and just need to look at the last 20 plays displayed on screen to make an assessment.
 
Okay so here's where I'm getting lost at the call/put stuff:

You've bought 14 calls at 90 cents, which is basically a contract to buy 1400 shares of google at 775 when your contract expires, so right now, you're out of pocket $1260.

So, how do you get rid of the 'call'? Do you sell that contract to someone else? like, are you not obligated to buy 1400 shares of google, which would be just over a million bucks?


Explain to me what happens when you go to sell this contract, who buys it? my brain is melting.
 
DrEvil said:
Okay so here's where I'm getting lost at the call/put stuff:

You've bought 14 calls at 90 cents, which is basically a contract to buy 1400 shares of google at 775 when your contract expires, so right now, you're out of pocket $1260.

So, how do you get rid of the 'call'? Do you sell that contract to someone else? like, are you not obligated to buy 1400 shares of google, which would be just over a million bucks?


Explain to me what happens when you go to sell this contract, who buys it? my brain is melting.
Click to expand...

Another investor buy the call from him, and exercises it (buy the stock) to reap the profits.
When trading options, there are calls and puts. A put is essentially the equivalent of shorting a stock (you think it will decrease in value).
Additionally, you can buy or sell either. So there are 4 basic types of options contracts.

It's the same as gambling in Roulette, except you don't need to follow the news and extensive market forecasts for roulette, and just need to look at the last 20 plays displayed on screen to make an assessment.
Click to expand...

the screen actually tells you nothing ;) it's a lie.
 
DoctorWho said:
How quickly are we talking?
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If it's your first time, I give it a week max. I never advocate paper trading because there's a lot of psychology and emotions involved that you don't really feel unless you're playing with real money, but for options, paper trading is a must. I can afford to blow money, but for someone who has never traded before, trading options is the dumbest idea ever, especially if you don't have the stomach to withstand the swings.
 
The game can be searched, we just need the password. I messed up the private game I crated, I think, and it's not letting me buy more options due to the diversification rule. I don't know how to specify that I won't exercise an option.
 
DrEvil said:
Okay so here's where I'm getting lost at the call/put stuff:

You've bought 14 calls at 90 cents, which is basically a contract to buy 1400 shares of google at 775 when your contract expires, so right now, you're out of pocket $1260.

So, how do you get rid of the 'call'? Do you sell that contract to someone else? like, are you not obligated to buy 1400 shares of google, which would be just over a million bucks?


Explain to me what happens when you go to sell this contract, who buys it? my brain is melting.
Click to expand...

If GOOG starts moving up, the contract isn't .90 anymore ($1,260), it could now be trading at $1.25 ($1,750), $1.50 ($2,100), etc...I resell the option to someone else and keep the profit between the $1,260 and whatever price I sold the option at, and also take the losses if it goes down and I'm forced to sell it at a lower price.
 
MVP said:
I just transferred $1,400 into a dormant Fidelity account and I will run an experiment I've run before, which had mixed results, and try to turn a little into a lot. I will be gamb...ahem, I will be investing in mostly weekly and front month options. If you don't know what this is, Google it. If you do, you can follow my progress. Whenever I make a trade, I will update with the profit/loss amount, what symbol and option I bought, and why I did it.

I may have future withdrawals or deposits to manage risk, and I'll update the balance accordingly, along with screenshots to keep track of the progress. I will be trading just naked calls and puts, nothing fancy. This thread may also be short-lived because I'm starting with such a low amount I kind of have to take higher risks in the beginning to get some breathing room.

If you have any questions about options, I'd be happy to answer them, but just keep in mind I am not a financial advisor, and you will lose all of your money following my advice. My posts are for entertainment purposes ONLY.

I ran this experiment before with a partner keeping track, but I started with much higher, about $7k, in a couple of months I had $59.5k, before losing $30k in a single day on a stupid NFLX option that expired that same day, because I didn't think that POS could sink any lower. Oh, it could and it did and I got my face ripped off for being a stupid aggressive over-confident jackass.

After that, I sulked and withdrew my $22k-ish profits and bought the Lexus I have now. Here I will try it again and let you guys follow along.

Balance:

9/27/2012: $1,405.35

9L9ML.jpg


Trades:

9/27/12: Bought 15 GOOG calls, expire tomorrow, $775 strike....bought them at .90
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Subscribed. I have all this stock from working 5 years at my company and literally no idea what to do with any of it.
 
MVP said:
If GOOG starts moving up, the contract isn't .90 anymore ($1,260), it could now be trading at $1.25 ($1,750), $1.50 ($2,100), etc...I resell the option to someone else and keep the profit between the $1,260 and whatever price I sold the option at, and also take the losses if it goes down and I'm forced to sell it at a lower price.
Click to expand...

This game is no fun. You already have a headstart. By the time we sign up, you'll already have unlocked all the weapons and it'll take us time to reach your level.

:P
 
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