Investment Board

Hi James... glad to meet you.. from Kicknbass 10/2/2008 2:14:09 PM
I have to go to work.. but I am going to bookmark this page.. talk to you later... take a look at POT and IPI and AGU (Aquiriam)? they have bottomed. But come spring they will be rocketing up ... talk later... check out gold on the short play. i only do stocks, not commodities or puts and shorts.. what do you do? Cos>

Learn options from bigL62 #13853 10/3/2008 10:41:32 AM
Several books on the subject. My best tip: buy a stock that pays a good dividend and is flat or on an upward trend, sell an at the money call (option), let it expire and take your profit. This is called a "covered call". Example:

Stock ABC is trading at $24.85 and trending up and pays a 3% dividend. The option for an October call strike price $25 is $1.05. Buy 1000 shares of ABC (cost $24,850). Sell 10 (1 option = 100 shares) Oct 25 Call @ $1.05 (gain $1,050). When October options expire (3rd Friday of October), if ABC trades @ $25 or above, the option police pay you $25 each for your 1000 shares (gain $25,000). So, your gains are $25,000 + $1,050 = $26,050. Your inital investment was $24,850. You made $1,200 in less than a month 4.8%. Compound that over 12 months.

Now, there is a possible downside to this trade. If ABC closes below $25, the option you sold for $1.05 expires worthless and you get to keep the 1000 shares of ABC another month. If ABC happens to pay a dividend while you are holding it, you gain. Also, you can sell a call option for November strike price to gain more. Lets say a November $25 call is selling for $1.10. You can sell 10 of them and gain $1,100. Then at the expiration of November (3rd Friday of Nov), if ABC is at or above $25, the option police take your 1000 shares for $25 each ($25,000 gain) and you can start over.

If ABC trends down sharply, say it drops to $20, then you are kind of stuck but that is why you use stocks that pay dividends. At least you are gaining something.

If the stock rebounds in a few months back near $25, you can use the above example to exit the trade.

Next weeks lesson will be a time (calander) spread using only options.