Anyway... One that I see all the time (no not the CD to teach me to use Ebay) is for selling how-to videos on option trading. They always claim that "people like you" are making money hand over fist trading options. I had no idea what options were, and I like making money. So I went over to my friends at fool.com and read up on it.
Options Trading is appropriately named, due to the fact that you are generally buying or selling the option to buy or sell... Is that right? Yes. Here is what may happen in an option trade.
Lets say you like Intel and you think they are going to go up, you would enter an agreement with a seller to determine a strike price (this is the price you agree to buy at, at a later date). That means that anytime with in the option time, you can buy (but don't necessarily have too) at that strike price and the seller must sell at the strike price. Making these option agreements isn't free, you have to buy the option to buy.
So if the stocks go up, then the value of the option you have goes up. Now that you have this option, lets say Intel is doing very well and the contract is worth more to others then what you paid for it, you can sell that option to someone else. Now that person holds the option to buy at the price you initially determined.
So in option trading, you are literally trading the option to buy and sell shares, which you can either trade on again, or use or never use.
Weird, huh?
So lets sum up.
Option trading is trading the option to buy or sell at a certain price.
When buying, you can make money on share price gains, and lose money on share price losses (max loss is the amount you pay for the option).
Here is an example of a table you'd see when trading options.
The "Last Price" is the price you pay, per share, for the option. Options are sold in 100 increments. So that means if you wanted to buy the option to buy at $90 in July, you would pay the seller $870.00 for that option ($8.70 per share).
So if you bought that option and bought the shares at the agreed price your total purchase price would be $9,870 ($90 x 100 + $8.70 x 100), meaning the shares would have to increase past $98.70 a share for you to make money.
Or you could try to sell the option for more then $8.70 a share to someone else, or do nothing and take the $870 loss.
Options are very confusing and even after reading all there is to know... I still hardly get it.
So to sum up, don't mess with options.
-tCT
I see options like a bet.
ReplyDeleteSo if you are employed by and have options for Corrupto, Inc., and you know that they are releasing a secret new product soon, you buy tons of options to buy the stock at a low price in the future.
Then, when you use your options, you get a huge price discount.
It's basically like a Rain Check from a store, but you buy it.
So go get a job at the Corrupto, Incorporateds of the world, and be rich!