Options: Low Cost Investing

[New-born baby]

Greetings,

If I understand this correctly,scenario would be buy 1000sh of ''XYZ stock at say $10,if option chain will allow,sell 10 calls for $1,that immediately puts $1000 in your acct.If stock rises above $11 by expiry,you lose your 1000shares,but still keep $1k profit,no matter how high it rises.

If stock drops you still keep $1k profit,and still own stock at whatever price it is,whether you sold options on it.

I can't see the greater risk involved,unless commisions eat too much of profit?The skill is finding a stock that you can sell the option on at a good price.I dont see how a rising options premium affects the writer,worst case your stock is bought at strike price.

what am I missing?

cordially Tom

Tom,
No, I am sorry but you misunderstand--or else you mis-typed. Options work like this:
Here is the option chain for SUF (current price $ for APR 06. Note the different "strike" prices on the left. That is the agreed upon price for which the seller and buyer agree to exchange money for shares.


Now look at the $7.50 strike. The "bid" means that someone will give you $.75 to buy SUF from you at $7.50 on or before the 3rd Friday in APR 06, i.e., April 21--next Friday--IF SUF is above $7.50 on or before that date.

Look again at the $7.50 strike. The "ask" price means that someone has to pay $.85 for the right to buy SUF from someone for $7.50 on or before APR 21, 2006.

IF SUF is $7.49 on APR 21 one hour after the close, the option expires worthless and the seller keeps all the money and the stock.

IF SUF is $7.51 on APR 21 one hour after the close, the seller keeps the $.75 and receives a payment of $7.50 IF the buyer wants to buy the shares for $7.50. Sometimes they say "forget it."

IF SUF is $100 on APR 21, the seller keeps the $.75 and receives $7.50 per share; the buyer rejoices in that the is going to now sell SUF for $100, and he has only $$8.25 invested in the stock!

Commisions with IB are $.75 per contract--almost free! So say you sell a call for $1. That's $100-$.75=$99.25 in your pocket. What extra risk is there to that? I'd call that extra profit, or extra safety.

[TFred]

Greetings NBB.

As an example,PVX,

Buy 1000 sh, at 10.75,cost $10760 with IB,sell the Apr 06, $10 call for $1.65,which is the bid.If you sell the calls,you collect $1650.00 at that time?

If it stays here ,or goes up you deliver your shares at expiry,which is 1 week away,at the price of $10 or $10000 from you acct.,which leaves you with an extra $890 from the sale?Plus Ex date is the 20th,1 day before expiry,could possibly add .10 per share.

If Im way off I'll shut up until I do some more reading.

cordially Tom

[New-born baby]

Greetings NBB.

As an example,PVX,

Buy 1000 sh, at 10.75,cost $10760 with IB,sell the Apr 06, $10 call for $1.65,which is the bid.If you sell the calls,you collect $1650.00 at that time?

ANSWER: YES

If it stays here ,or goes up you deliver your shares at expiry,which is 1 week away,at the price of $10 or $10000 from you acct.,which leaves you with an extra $890 from the sale?Plus Ex date is the 20th,1 day before expiry,could possibly add .10 per share.

ANSWER: YES AGAIN :

If Im way off I'll shut up until I do some more reading.

ANSWER:NO YOU ARE A SMART COOKIE!

[TFred]

Greetings,

I forgot to mention that Id be selling 10 calls at $10 strike,with the ask at 1.65.IB comm. $7.50?

cordially Tom

[New-born baby]

Greetings,

I forgot to mention that Id be selling 10 calls at $10 strike,with the ask at 1.65.IB comm. $7.50?

cordially Tom

Commision should be $7.50 on 10 calls.
Hey, check out the stock price of PVX. Isn't it $11.75 instead of $10.75? There would be no profit if that is the case . . . I don't think Cans have good option chains.

[TFred]

Greetings,

Obviously you need to be able to sell those calls,with volume of 20 at that price,might have to sell them cheaper?

cordially Tom,BTW thanks again NBB,you need a bolg of your own.

[TFred]

Greetings ,

Yes it is 11.75,dyslexia not good for reading quotes.


cordially Tom

[New-born baby]

Greetings,

Obviously you need to be able to sell those calls,with volume of 20 at that price,might have to sell them cheaper?

cordially Tom,BTW thanks again NBB,you need a bolg of your own.

No Tom. Selling calls isn't any problem. Do you see the number "35" on the left of the bid price? that tells you how many they will sell you at this price. So you could sell 35 calls at that number and they'd give you the money without any hestitation

[dmk112]

DMK,
I have to thank you for your last post. You made my mind up for me on something I have been thinking about for awhile.

and that is??

[New-born baby]

Tfred

Tom,
You see that option chain on PVX? Have you thought of a way to use it?
Let me give you this idea:

Let's say you buy PVX at $10.50, and it makes a divy run up to $12. You want the divy, but you know that to hold means that PVX dives down. No problem for TFRED. Just sell the $10 call for that month on PVX. (It always has to be deep in the money). It would be $2. Then the stock dives down and you collect the divy, the $2, and they take the stock away at $10 when the stock price is probably close to $10.50 again. No problem to you: you just rebuy the stock

There are a lot of ways to play these options.

[peanuts]

options, not for me right now

Thanks for trying to help me to understand and trade options everyone. I don't think I'm ready to risk more money on something new, just yet. Heck, when I think of it, I've got to master long and short positions first, and that's where I should be focussing. Being a jack of all trades, but master of none isn't the way to make money in the markets, but that is just my opinion. I'm sure a lot of you make good money doing this. Maybe when I'm full time trading, I'll be more in tune for this.

Thanks

[diogenes]

For what it is worth sold my first option (dbrn) for around 100% gain.
While I do expect it to tend to a higher price, a cut-off is a cut-off.

[New-born baby]

For what it is worth sold my first option (dbrn) for around 100% gain.
While I do expect it to tend to a higher price, a cut-off is a cut-off.

That's a way to go!! CONGRATS!

[dmk112]

Dell just broke down from a triangle formation, this is pretty huge.

[spikefader]

Dell just broke down from a triangle formation, this is pretty huge.

Shoo, I'm just about to buy a Dell laptop......should I worry!? lol