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On Wed, 13 Sep 2000 17:13:56 -0600, you wrote:
> ... Level 1 options trading. This level of trading allows you to
> trade only covered calls and married puts. It will not allow you
> to buy calls and puts if you do not own the underlying security.
FWIW, I'm confused by the above.
Why would you need the underlying if you BUY a Call?
I understand that the brokerage house would require the underlying IF
you are SELLING calls, at least they are then covered when the stock
is called, ..... but for BUYING Calls???
Buying calls just means that you give money up front (to the Call
seller aka "writer") for the option to buy the security at a set data
and price. If it never reaches that price, the writer (the person
selling the put to the BUYER) just keeps the money. The person that
bought the call just looses the money!
If the BOUGHT CALL goes into the money, the BUYER has the option to
call the stock - AND PAY FULL STRIKE PRICE + Commission on 100 shares
for each 1 option - or most likely, if the "speculator" does not want
to BUY at strike price, he can cover by selling the option, and profit
between the BUY and SELL (closing position).
Similar situation applies to PUTS. BUYING PUTS only give the option
of the BUYER to force the writer (seller of the PUT) to buy at a set
strike price.
Still confused by the thread,,, and Datek's "quoted" response.
This is about the least speculative option strategy.
FWIW, most option buyer's premium expires worthless (loss to the
buyer, to the benefit of the seller (me<g>)... but the loss is limited
to the premium (for the buyer).... so.... where is the risk for the
"firm"???
-÷ Chris ß ÷-
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