/biz/ - Business & Finance

An option is the right, but not the obligation to either buy or sell shares of a stock.

A call option is the right to buy
A Put option is the right to sell

The price you can buy or sell at is called the strike price.

Options are (generally) sold = 100 shares per contract.

You pay a premium (small amount) to purchase this right.

Example:

"CVS Jan 17 '20 $85 Call @ 4.90"

This means that for 4.90 per share (or $490 + commission) you can buy the right to purchase CVS @$85 per share, and that right expires on January 17, 2020

So, if CVS shares go above $89.90, you can buy shares at $85, and then immediately sell them again at the higher price. (though in real life, you never do that, you simply sell the call itself as a profit.

Next up.... puts

Can someone answer me

dumb frogposter

>>7568360

are you absolutely retarded? the first post in your stupid thread is a 100% correct answer.

>>7568218
Pro tip
You get rich by writing them and taking on unlimited potential risk
Expected volatility is always twice what the actual volatility is

If you need to ask here you should not trade them in the first place

>>7568353
Thanks bro
>>7568408
U fucking brainlet we posted at the same time. Kys

>>7568218
Unironic Intel and PayPal

>>7568434

i'll literally fucking kill u m8. stay poor and broke

Puts.

If you think the price of a stock is going to go down, you have 2 choices.

1. Short the stock, at which point you should be put in a mental institution,

2. Buy put options, which do the same thing but with a fixed risk.

Example:

"GE Jan 17 '20 $27 Put @ $9.40)

Total cost = (9.40 x 100) + Commission

Break Even price = (roughly) $27- Total Cost

So if the price goes down, you can buy the stock at market price, and then sell at a higher price with the option. (though again, almost never happens, you just sell the put at the same profit)

The advantage of puts over shorting is this... with a short you have unlimited risk.

Let's say you short ABC @50. If it goes down, it makes money. But imagine that on a sunday night ABC announces they have discovered the cure for cancer or something.

In this case, it does something called "gapping up", where the price goes up never having crossed prices in the middle.

So ABC now opens on Monday @ $200 per share. Guess what... you know OWE $150 per share, and you damn well better come up with the money.

But with a put, you are always sure that the MOST you can lose is everything you put into it.

Bottom line... you can make slightly more shorting because you don't have to pay the premium. But with shorting you get unlimited risk.

>>7568476
Im just trying to find ways to use my spare 100k in cash. You stay poor

>>7568490
>If you think the price of a stock is going to go down, you have 2 choices.
you could sell calls

>>7568419
Also op you could just use google or even watch a youtube vid
Faggot

>>7568506

woah 100K. i apologize

>>7568551

Yes, but I would never suggest that to someone just starting out.

Unless they have a level 3 options account, they can't sell naked calls.

Though... covered calls are often a good source of income, which i was going to bring up later.

>>7568571
I did but i couldnt understand the terminology>>7568353
So who buys the contract?

>>7568422
Nice answer, did you copy and paste it from reddit?

>>7568587
Apology accepted

>>7568648

>>7568587

If you want to make a steady income with not as great as a risk, you could do what's called a covered call. This is especially good if the stock pays a dividend.

Covered Call:
Buy 100 shares of a stock
Sell one call on the same stock.

For example, real world example I did a few weeks ago....

1. Buy 100 shares @ $40.60
2. Sell one $43 call at $3.26

Meaning... someone paid me $326 for the right to buy my $40.60 at $43.00

So, the price stays where it's at, I keep the $326, and I also keep the stock

If the prices goes up above $43, they exercise. Which means not only to I keep the $326, but I also get another $2.40 per share profit because they're paying me more than I paid for the stock.

The risk comes in if the price drops below $37.34 (40.60-3.26)

The trick is to sell calls that never get exercised. After they expire, you just sell another call etc.

On top of that, since you own the shares, you also earn the dividends while you wait to see if the shares get called away.

>>7568611

In the regulated stock markets, you have people called "market makers", who are there to provide liquidity.

Their job is to always be around to buy or sell.

So, if you have the bid and the ask on a stock, they will always buy at the bid and will always sell at the ask.

>>7568648

You're never going to make it with that attitude, OP.

>>7568751
Fuck i hate being stupid. This shit is confusing i guess il just stick to my meme coins.

>>7568895

you really are retarded, aren't you? stick with the coins. bett er suited for retards like u

>>7568947
No one loves you and i accept your apology

>>7568895

Trading meme coins is like trying to make money in an unregulated forex market. If you're not really on top of all this, you're going to be eaten alive.

>>7569013
Yea i know. Ive made a comfortable amount in crypto since i got in march last year. Just trying to find ways to diversify what ive already cashed out

>>7569073
You're an idiot. If you don't understand options you'll never truly understand how to make money in a market. You won't understand risk adjusted return, or anything about hedging downside.

>>7569197
Hence why i said il be sticking to meme coins. I might buy some property when prices go down in the next recession