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Hi Jawad,
One of the best things about options is their flexibility, one of
the worst things is their flexibility {;-)
First you must understand the types of options. A call give the
buyer the right (but not the obligation) to buy 100 shares of stock at a
specified price, the strike price, for a specified time, the expiration
date. A put give the buyer the right to sell 100 shares of stock at a
specified price for a specified time.
You can be either a buyer of the option or a seller. You can also
chose from puts or calls with many strike prices and several expiration
dates. Some basic examples are:
If you believe IBM is going up you could "Buy to open" a call, you would pay
the premium. If IBM moves up in a short time the call will become more
valuable. The risk of loss is fixed to the amount you pay for the option,
the potential is unlimited.
OR you could "Sell to open" a put and collect the premium. If IBM goes up
the put becomes less valuable, but you as the seller keep the premium. The
amount you make is limited to the amount you collect at the sale but the
risk is UNLIMITED, since if IBM goes down you would be responsible for the
difference between the strike price and the lower stock price.
If you believe IBM is going down you could "Buy to open" a put, you would
pay the premium. If IBM moves down in a short time the put will become more
valuable. The risk of loss is fixed to the amount you pay for the option,
the potential is unlimited.
OR you could "Sell to open" a call and collect the premium. If IBM goes
down the call becomes less valuable, but you as the seller keep the premium.
The amount you make is limited to the amount you collect at the sale but the
risk is UNLIMITED, since if IBM goes up you would be responsible for the
difference between the strike price and the higher stock price.
It is very important that you thoroughly understand options before
you attempt to trade them. There are many books about them. I recommend
you start with one of the ones by Lawrence MacMillan.
Good luck
and good trading,
Ray
Raffurty
-----Original Message-----
From: jawad <jawad777@xxxxxxxxx>
To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
Date: Sunday, February 14, 1999 3:17 PM
Subject: Options: How to place orders?
>I would like to know what each of these choices in placing an order
>for a put or call means.
>
>Buy open-
>Sell open-
>Buy close-
>Sell close-
>
>Thanks,
>Jawad
>
>P.S. I found out what my trading system was called. It was bottom
>fishing. It is not that easy to make money i have also learned. I am
>down to about 16,000. Mostly because of SMTK in which i lost all of
>my money. Well, i guess that's just the way the ball bounces.
>
>
>
>_________________________________________________________
>DO YOU YAHOO!?
>Get your free @yahoo.com address at http://mail.yahoo.com
>
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