/biz/ - Business & Finance

=== Options ===

> https://www.google.com/finance/option_chain?q=NYSE%3AAMD

Options are contracts giving you the right to buy or sell 100/10 shares at a certain price any time until a certain date. A "call" gives you the right to buy ie. going long.

> AMD $3.66 :: September 21st, 2013 Expiration

> $3.00 call costs $0.67 per share ($67)
> $3.50 call costs $0.30 per share ($30)
> $4.00 call costs $0.08 per share ($8)

You can buy a $3.00 call for $67 which gives you the right to buy 100 shares of AMD anytime on or before September 21st at the price of $3.00.

> AMD $3.67 :: January 18th, 2013 Expiration

> $3.00 call costs $0.87 per share
> $3.50 call costs $0.57 per share
> $4.00 call costs $0.38 per share

The prices increase with the further expiration. For $0.20 more cents a share you have allow more than 400% as much time for AMD to meet your expectations. This value beyond the call's "intrinsic value" ($3.67 current price - $3.00 strike price) is called the "premium". Premiums degrade at an accelerating pace as you get closer to the expiration. The $4.00 "out-of-the-money" call has a premium of $0.71, while the $3.00 "in-the-money" call only has a premium of $0.20.

For now, for at least a year, do yourself a favor and only buy options with small premiums. Far "in-the-money" and long expiration. Never buy a contract expiring in less than 2 months until you know why.

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