trading my first few options soon

[clavocat]

i might be trading my first few options soon but i was wondering...if you have a 50 call and stock X goes to 55 and the premium costs 3.00 per share, would you exercise or just sell on the expiration day??


now if you had a covered call at 50 and it went to 55, would they exercise or just sell back the option to you? im a lil confused on when they will exercise or when they will just sell it back to you. if they sell the option before expiration will you have to buy it? or will the person who buys it exercise against you??

thanks.

[aiki14]

i might be trading my first few options soon but i was wondering...if you have a 50 call and stock X goes to 55 and the premium costs 3.00 per share, would you exercise or just sell on the expiration day??


now if you had a covered call at 50 and it went to 55, would they exercise or just sell back the option to you? im a lil confused on when they will exercise or when they will just sell it back to you. if they sell the option before expiration will you have to buy it? or will the person who buys it exercise against you??

thanks.

I have rarely exercised an option, I don't generally want the shares so I sell the call. Unless I really believed in the stock I wouldn't put the $5500 into it. Plus the commissions.

On the covered call you would most likely be exercised, and lose your shares and any profit you would have made over the strike plus premium. It depends on whether or not the contract holder paid a higher premium than you sold it for.

[clavocat]

I have rarely exercised an option, I don't generally want the shares so I sell the call. Unless I really believed in the stock I wouldn't put the $5500 into it. Plus the commissions.

On the covered call you would most likely be exercised, and lose your shares and any profit you would have made over the strike plus premium. It depends on whether or not the contract holder paid a higher premium than you sold it for.

ok so say they didnt want it like you dont want yours, and you sell the option...who buys it?? the person who wrote the option or someone else that wants to buy it??

[aiki14]

Someone else. At the very end usually a broker dealer who can arbitrage the sale.

[clavocat]

Someone else. At the very end usually a broker dealer who can arbitrage the sale.

when will you sell an option? a month before, week before?? and if you left it until expiration would you still be able to sell it, thanks again aiki

and if he paid a higher premium and say the stock went to 52, so he lost 100 bux, what would his options be?? exercise and sell for the 100 loss? or sell the option?? ive done research on this but most of the stuff i find is on strategies and not exactly how they work.

[aiki14]

Just like with a stock I set a price to get out. With the exception of protective puts I am looking for 25% or better. The more time value the better.

[aiki14]

Clav, on the second half of your post, one can try to sell the call to minimize the loss, or eat the premium which happens quite often, the later the date the harder to sell and if there are no buyers you're out of luck.

[clavocat]

ahh ic ic, so how far out do you usually buy, because if you bought march calls right now, and the stock gets to ur target in the beginning of march you might not be able to sell it??


protective put is buying a put when you own the stock right to protect??

[aiki14]

ahh ic ic, so how far out do you usually buy, because if you bought march calls right now, and the stock gets to ur target in the beginning of march you might not be able to sell it??


protective put is buying a put when you own the stock right to protect??

I usually find contracts 3 to 5 months out to be the best value.

If the stock gets above the strike price you'll be able to sell the option contract, you might take a loss but it will be less than the worst case scenario.

Yes, a protective put is held against a position you hold. It can also be an index put to protect your whole portfolio.

[robvia]

I buy calls 6 months out deep in the money. When you do that the "delta" is higher and it moves faster. Search google for the term Lenny Dykstra Options Delta and a few articles will come up. He used to be on TheStreet, looks like he came back to Real Money.
http://1option.com/index.php/global/comments/lenny_dykstra_deep_in_the_money_options_strategies _who_took_my_money/
http://adamsoptions.blogspot.com/

The time value will disappear as you hold the options. I had a couple that went up big but I held them thinking they would keep going (DEO and COP) and they came back. I'll exercise a DEO option in a couple months and buy the 100 shares because DEO has a nice dividend.

[clavocat]

ok scenario that i was looking at was this. tell me what you think and if this is all right.

Buy 100 LFC at 45.50

sell 1 50 call for 3.20

Buy 1 45 put for 3.70

this would make the options cost 50 bucks, so 50 dollars downside risk plus 50 dollars downside risk with the stock which would give me 100 risk total until the protective put will cover my losses, upside is 400 dollars, 4.50 in the stock- 50 dollars premium on put option....tell me what you think please...these are all july 07 options too so it will give me some time to get to 50 and above.

[clavocat]

I buy calls 6 months out deep in the money. When you do that the "delta" is higher and it moves faster. Search google for the term Lenny Dykstra Options Delta and a few articles will come up. He used to be on TheStreet, looks like he came back to Real Money.
http://1option.com/index.php/global/comments/lenny_dykstra_deep_in_the_money_options_strategies _who_took_my_money/
http://adamsoptions.blogspot.com/

The time value will disappear as you hold the options. I had a couple that went up big but I held them thinking they would keep going (DEO and COP) and they came back. I'll exercise a DEO option in a couple months and buy the 100 shares because DEO has a nice dividend.

you go deep in the money so you basically trade to option premiums right?? id be more interested on selling the option closer to expiration to capture intrinsic value, explain more in depth of your strategies please and why you dont speculate.

[robvia]

I don't speculate because if the option ends out of the money you lose it all.

I'm going to lose $1700 this week because AAPL went down after they reported instead of going up. I have to regroup and make it up in March/April.

The farther in the money you buy, the more the option price will move with the stock price, this is called the "delta." As you follow options, you'll start to notice this.

Lenny's column is back and it can be found on TheStreet.com here.
http://find.thestreet.com/cgi-bin/texis/author/?au=A1100645
http://www.thestreet.com/_tscs/newsanalysis/investing/10338224.html

Cramer has the same strategy, buy in the money calls 6 months out. When they go up, sell before they come back down.