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re: SLV
Posted on 12/11/13 at 1:00 pm to rmc
Posted on 12/11/13 at 1:00 pm to rmc
quote:
I had to read the definitions of puts and calls at least two times each before I really grasped it and then go find a calculator on the internet to show me exactly what would be going down. I'm still not sure I really know WTF is going on.
Since you've done your research, can you explain what you have found, in laymans terms?
Posted on 12/11/13 at 1:03 pm to Lsut81
I'm interested in these things as well, more for information and knowledge than for actual use. So you guys may want to start a new thread so that others can weigh in and see. It's slightly hidden in this silver thread.
Posted on 12/11/13 at 1:35 pm to Lsut81
quote:I'll butt in here but my explanation below is far from complete.
Since you've done your research, can you explain what you have found, in laymans terms?
A call option gives the buyer of the option the opportunity to buy a block of stocks (in lots of 100 shares) at a set (strike) price. The person who buys the call option pays a price to the seller (writer) of the call option and this price is called the "premium."
Obviously the buyer of the call option hopes and/or expects the price of the underlying stock to go up. If it does, and the stock's price exceeds the "strike" price, he can exercise his option and buy the stock at the lower strike price and immediately sell the shares at a profit (minus what he paid for the option).
Or, he can simply sell the option itself which has also increased in price because the underlying security has increased in price.
A put option is the reverse; it gives the buyer of the option the opportunity to SELL the underlying security at a set price. The buyer of a put hopes and/or expects the stock's price to fall and he can make a profit if the price of the stock falls below the strike price of the option (minus what he paid for the option). Like a call option, a put option also has a market value and if the price of the underlying security falls, the market price of the put option goes up. So the buyer of the put can simply sell his option and make a profit, again minus what he paid for the option.
Put options are also used to protect the downside risk of a security owner just in case his stock declines in price. He can guarantee himself a price at which he can sell his stock.
Posted on 12/11/13 at 1:40 pm to Lsut81
This is my understanding. Anyone who knows more than me feel free to correct me.
Selling a call:
I sell you a contract (1 contract = 100 shares) to buy Shares of Company X at $Y (strike price) by a certain date for $Z per share (premium).
So let's do an example.
I sell Lsut81 1 contract SLV for $20 per share by December, 21, 2013 for $.10/share.
You would give me $10 (.10 x 100) for the premium. On or before December 21, 2013 you would have the option of buying 100 shares of SLV for $2000 ($20 x 100) from me.
So how does this benefit you? Well, if shares of SLV are trading for $25 on December 20, 2013, you'd make a profit of $490 ($2500 - $10 - $2000) if your turned around and sold the shares.
If the price stays below $20, it doesn't make much sense for you to buy at $20 and you'd just let the contract expire. In that scenario I just made $10 from the premium.
A covered call means you actual own the underlying asset.
ETA: Russian beat me to it and seems to have made a more concise explanation.
Selling a call:
I sell you a contract (1 contract = 100 shares) to buy Shares of Company X at $Y (strike price) by a certain date for $Z per share (premium).
So let's do an example.
I sell Lsut81 1 contract SLV for $20 per share by December, 21, 2013 for $.10/share.
You would give me $10 (.10 x 100) for the premium. On or before December 21, 2013 you would have the option of buying 100 shares of SLV for $2000 ($20 x 100) from me.
So how does this benefit you? Well, if shares of SLV are trading for $25 on December 20, 2013, you'd make a profit of $490 ($2500 - $10 - $2000) if your turned around and sold the shares.
If the price stays below $20, it doesn't make much sense for you to buy at $20 and you'd just let the contract expire. In that scenario I just made $10 from the premium.
A covered call means you actual own the underlying asset.
ETA: Russian beat me to it and seems to have made a more concise explanation.
This post was edited on 12/11/13 at 1:45 pm
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