Options can anyone explain the benefit to me?

Okay so Options are the right to buy or sell at a strike price in a specific time.

I understand what happens when price goes in your direction.

What happens if the price goes against you with a standard put or call?
Can someone give me a scenario of cost, fees, quotation. Run me by a hypothetical scenario of a winning options trade and a losing options trade.


Thanks ahead of time. Fuzzyzc.

Ok, current price of a stock is 100, calls and puts at 125 in a years time.

If price stays below 125, the put makes money and the call loses money.
If price rises above 125, the put loses money and the call makes money.

However, there is a maximum loss to both options, that is the price you buy them at. this differs from a stop loss, as it is unrelated to price.

It's obviously a lot more complex than that, but it's late and is the general gist. Of course, you can combine options, underlying etc and create all sorts of strategies.

It's complex but not hard to understand, head over to wiki.

http://en.wikipedia.org/wiki/Option_(finance)

Don't forget to pay attention to the importance of "Delta".

Once you get a good understanding of the options building blocks - (buying/selling Calls/Puts) and know what they are and how they can be used individually and in combination with each other (also together with a security).... Concentrate purely on the greeks.

If you don't completely understand the greeks and know how to use them then i wouldn't bother with options.

Start with Delta, Gamma and theta. They are the main greeks and will help you understand how options are priced and what can affect their pricing.

A good indepth book about options and the greeks is:

Option volatility and pricing - Natenburg

All with above but also..........


Even out of the money still, IF the price moves in your direction your options will gain money, but they also lose value as Time expires so if it's going up slowly you could find the price remains similar maybe even lower

Out of the money options are great when the market is bullish / bearish as you pay $50 say for 100lots ( 1 option ), then your MAX risk is $50 + Comm's ( if it goes under no comm's to sell ), I've done this in the great bear market and sold for $50 worth for over $1000 within 3 weeks!!

I made/took out 20K+++ trading options, then got greedy and blew a 6K account going 100% Puts ( Short ) pretty much on the gap up as the market reversed on me hard

IF I'd of went 100% LONG I'd of turned 6K into 100K+++ easy in under 3 days.

Them where the days Never had the money to get back in hence back to forex


Crap when the market is sideways as you just lose value

Old Options Expiry day Trick :-


Find a Stock say price 49.80 for instance, last day you'll get 50 Strike Calls for 10cents ( $10 for the contract ), IF the stock trades at say $51 you can exit for $1 instant 10x's for a minimal risk.

Only works on Expiry day though!!

I forgot to mention ITM/ATM/OTM (In the money, At the money, Out of the money). Also a necessity to know !

Very important regrading what it will cost (if you buy options)... or what you will receive (if you sell options). My favourite strat were credit spreads. Did well with them till i also got greedy.

Ofcourse Turveyd, if you are referring to buying OTM options in strong markets was good. I would go the other way though.... sell deep ITM and close out when i feel it was turning. Great way to 'earn' money without the need to outlay a thing (except for margin ofcourse).


EDIT: With you Expiry day trick.

It can definately turn into a nightmare if price does move against you (sell options) or doesn't move (if you buy).

Due to the cost of the option, you have to buy heaps to make decent gains and hope someone is willing to buy them off you only hours/minutes before they do expire (not likely to happen).

If you sell and the stock moves against you, you have to try to find a buyer to take them off you for a loss even with almost no theta. The other person would have to be crazy therefore your more than likely going to sink with your ship.

circumvent this dilemma with binary options - there's a good thread on binaries here on FF....

Not gonna lie Binary options looks pretty sweet. I could definitely see new traders going broke easy as hell with a pay out spread from 0% - 81%.

Seems Lucrative yet in my head a little risky. Of course if you used a 1% risk model it wouldn't been bad. With traditional trading you can limit your risk real time but with this type of trading its kind of more like gambling. Nobody really knows where a financial instrument is going to be in an hour.

I can predict the next 10 mins at crucial areas (pull backs etc) but, an hour.



Well at any rate Ladies and Gents thanks for the great Information.