Get AARP Getting Started in Options PDF

By Michael C. Thomsett

ISBN-10: 0470553839

ISBN-13: 9780470553831

AARP electronic variations provide you with sensible advice, confirmed suggestions, and professional counsel.

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Example text

As the owner of a call option, you have the right to buy 100 shares at $80, or 15 points below the current market value. This is the purchaser’s advantage in the scenario described, when market value exceeds the fixed contractual price indicated in the call’s contract. In that instance, you as buyer would have the right to buy 100 shares 15 points below current market value. You own the right, but you are not obligated to follow through. For example, if your call granted you the right to buy 100 shares at $80 per share but the stock’s market price fell to $70, you would not have to buy shares at the fixed price of $80; you could elect to take no action.

That would be the same amount of profit you would realize by purchasing 100 shares of stock at $8,000 and selling those shares for $8,200. (Again, this example does not take into account any brokerage and trading costs. ) Example Falling Expectations: You buy an 80 call for 2 ($200), which gives you the right to buy 100 shares of stock at $80 per share. By the call’s expiration date, the stock has fallen to $68 per share. You lose the entire $200 investment as the call becomes worthless. However, if you had purchased 100 shares of stock and paid $8,000, your loss at this point would be $1,200 ($80 per share at purchase, less current market value of $68 per share).

The Chicago Board Options Exchange (CBOE) offers many online and live educational seminars on options trading; seminars, online courses and tutorials, articles, and books are easily found; and more and more stock investors are beginning to recognize the value of options as part of their portfolios. Even with all of the improved access, lowered costs, and widespread availability, there remains a great deal of confusion about the market. Anyone new to options trading is easily confused and lost in the jargon and technical explanations of how options trading works.

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AARP Getting Started in Options by Michael C. Thomsett

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