The biggest thing about options investing Options are a great way to lose a lot of money or make a lot of money in a very short period of time. As crazy as that sounds options are very dangerous and require great care for those who wish to make money. THE EXPIRATION FOR ANY OPTIONS CONTRACT is the third Friday of the month that it says it's due. So let us say we have a company called xyz inc. Let's say the stock price for this company is $50 dollars a share and it's a june 5.00 $60 call. kids investing Well in out particular example above the contract would end the third Friday of June. The strike price which is the price the stock has to reach before you make and profit is 60. The price of the shares that you will CONTROL in your contract is only 5 dollars a share and the break even price is 65 since to make the 5 dollars a share you put into the contract it has to go above 60 at least 5 dollars. So say we buy a contract for 2,000 dollars and we now control with the contract 400 shares of xyz inc. as 2000/5=400. The stock price goes too 65 dollars. We would break even since the strike price is 60 and YOU ONLY GET MONEY BACK IF IT GOES ABOVE the strike price. So if it goes to 65 you would make 5 dollars a share and you would have 2,000 dollars back again. Now say the price just shoots up to 80 dollars a share. You would make 20 bucks a share so you would make 8,000 dollars a 400% increase just like that. You can see you can make or lose a lot in a short period of time, and that's the thing you need to understand about options investing because if it is bellow the strike price your just going to be out a lot of money. One thing you should watch for is stock buybacks
When do smart investors use options for investing in stocks?
You can use options if you know for a fact that a stock price has been beaten down unfairly. I knew almost certainly that about a year ago when we were having a bad bear market that Dollar Tree Stores inc. at less than 25 dollars a share was way too low for the time being.swing stock trading
In a bad economy shouldn't a dollar store be going up? It turns out I was right but I didn't have the courage at the time to buy options on the stock. Bellow I provide a link to an option screener and strategies about options investing. This is here for all of you who want to invest in them. I must admit though that most the people who play options are simply gambling. Options are not really investing and should be used only if you have money that you simply don't CARE if you lose. I have never heard of anyone who consistently made money on options contracts especially these days. People who play options usually are not investing for the purpose of value investing but rather they just can't afford to go to Vegas :] no matter what you read about options investing.
