02-17-2009, 10:38 PM
He is actually rolling the dice to buy a call option. This is a contract to buy stock at a given price before a certain date. He bought a contract that has to be executed prior to February 21st, meaning he has to sell the contract, execute it (buy the stock) or let the contract elapse in which case it is worthless.
So for example. Lets say JNJ is trading at $58 and you are confident its going to go to 60 in the next month or so. You can buy a contract for blocks of 100 shares at say, $1.00 for $60 that have to be executed by March. The stock gets close to 60 and the contract value increases to $2.00. You sell the contracts and double your money.
You can also buy puts to "bet" the stock will go lower. So you buy a contract to sell the stock at a lower price. So you buy a put for JNJ at 60 and the stock is at 62. The price goes down to 58 and you have a contract to sell it at 60, or 2 bucks a share profit. You can sell the option contract for a profit though and never have to really buy or sell the shares.
The trick of course is that the contract keeps losing value the closer it gets to its expiration date. Its Wall streets version of Las Vegas. Its risky stuff and shouldn't be played with unless you are using "fun money".
The purpose of options isn't to really do this, but to secure stocks you want to buy or you own. Its like a insurance policy you buy.
So for example. Lets say JNJ is trading at $58 and you are confident its going to go to 60 in the next month or so. You can buy a contract for blocks of 100 shares at say, $1.00 for $60 that have to be executed by March. The stock gets close to 60 and the contract value increases to $2.00. You sell the contracts and double your money.
You can also buy puts to "bet" the stock will go lower. So you buy a contract to sell the stock at a lower price. So you buy a put for JNJ at 60 and the stock is at 62. The price goes down to 58 and you have a contract to sell it at 60, or 2 bucks a share profit. You can sell the option contract for a profit though and never have to really buy or sell the shares.
The trick of course is that the contract keeps losing value the closer it gets to its expiration date. Its Wall streets version of Las Vegas. Its risky stuff and shouldn't be played with unless you are using "fun money".
The purpose of options isn't to really do this, but to secure stocks you want to buy or you own. Its like a insurance policy you buy.
Maul, the Bashing Shamie
"If you want to change the world, be that change."
--Gandhi
![[Image: maull2.gif]](http://bengtel.com/maull2.gif)
"If you want to change the world, be that change."
--Gandhi