Bob,
You're welcome! (Take whatever I say w/ a grain of salt, please, I'm not a professional, but glad to help if I can.)
Yes, if you buy July calls on GTIS, the most you can lose is your premium PLUS your commission. Realize though, there is usually a bid associated w/ the option, so technically, you may get a pittance back if you chose to sell the call before they expire worthless.Many options do have a bid of 0, though, on the smaller caps. The reason I wouldn't sell the calls if the stock tanked prior to expiration, though, is that the cost of the commission to sell that lousy call would possibly supercede what you're getting to sell them, thus, it's sometimes better to let them expire than to sell them. Less net loss in the end.
For example (all hypothetical,I can't look up true numbers now - no time, sorry): Buy 10 XYZ July calls for 2 now, stock is at 8. June comes, stock tanks to 4. Calls are now .0625 /.24. To sell the call, you only get .0625 X 1000 shares (10 contracts) = 62.50 back. You have a discount broker who charges $62.50 for a 10 contract trade.You get back 62.50 - 62.50 on commission = zilch. Why sell the calls for nothing? :) You lost 2 x 1000= 2000 on the deal in all.
I notice you are talking July 10's on GTIS. Why? Only because they are cheap & you think that it will move toward or exceed 10 by expiration? Consider the 7 1/2's or 5's as well, if only on paper. More premium now than the 10's, but more bang for your buck! "In the money" calls move faster, usually, than the out of the money calls do. So, if you buy 5's, 7 1/2's, and 10's all at once (hypothetically), and the stock moves up 1 pt., you may see the 5's move 1/4, the 7 1/2's move 1/8 and so on...the deeper in the money you are, the more valuable the call, typically. (I have seen exceptions to this, but it's usually true.)
Also, The farther out you go, the higher the offer, usually. If you believe that the stock will exceed 10 in March, you may want to buy the March or April calls, more cheaply than the July's, but realizing it's higher risk, as you have less time for the "plan" to pan out! :)
If you can afford to gamble, you may want to stagger your expiration dates. This is more commission, of course, but still, the cheaper premiums on the nearer expirations could offset the gamble. Maybe buy 10 Jan's, 10 March', 10 July's, whatever. Always consider commissions, but if you're picking up some calls for 3/8 or something, and they double, you still did well. If money is no problem, get the farthest out call that you can afford. More time to play, less risk. Buy the deepest in the money call you can afford, they'll move the most. Buy some out of the money calls (the 10's for example) cheaply, for speculation, perhaps, as well.
On your buy vs. sell observation:
No, you do not risk any premium loss on selling calls. (Covered ones, that is.) You keep the premium regardless of the stock's movement. You must have underlying shares, though, to sell a covered call.
Selling an uncovered call (naked) works when you owned the call (had bought it earlier), and the difference between your basis & your sell is profit or gain.
Selling a put is a little more frightening! You keep the premium regarless, but if the stock drops to your strike in the month of expiration, you get "put to". You are FORCED to buy the stock at the strike. This is great if it's a terrific price, and maybe the market is just down that day. Kinda like putting in a day order that fills unexpectedly when the stock sells off one fine morning! Unless the stock is tanking big time, you wouldn't mind owning the stock at the strike. Plus, your premium technically offsets your basis by lowering the cost that you paid. Get it? :) Still, very risky, and you must have the $$$ to pay for the buy if you are put to, or else, you may end up in bad, bad shape. (Broker can sell your other holdings, of course, to pay off your debt if they want, or you can get margin calls, "Pay us $100,000 now, or else!!") :) If stock is tanking on awful news (deja vu anyone? <gg>), then you will cry if you get exercised, being forced to buy ON THE WAY DOWN...and your excellent price is now WAY HIGH!! (Options traders nightmare!!)
Lottery? Yes. However, this is educated gambling, in my book. Lottery is pure chance, buying calls based on research & some speculation is still highly risky, but much safer I think than the lottery. (Much more expensive, though, unless you play thousands of bucks in lottery every month!)
Investing for fun? Nice! So, start slowly w/ options, playing maybe 5 or 10 calls until you get comfortable with the stragegies, then branch out, get more aggressive. Hey, you can even get stupid! Buy 100 Jan 55 contracts of GTIS for two cents, then watch them expire worthless! (Damn! Why didn't the stock move to 50 like I thought it would? <gg>) Better lay off that egg nog, dude. (If you got that, you are learning options!!! Otherwise, you're wondering if I am on drugs!)
So, if the bid on the option that you want to sell exceeds the commission when the call backfires, you can sell it to recoup some of your loss of premium from buying the calls, but it may not be a significant amount. Some is better than none, but oftentimes, the bid may drop so much that it's basically not worth it to sell the calls, as I discussed above.
In this scenario, if you are bullish on GTIS, then you hopefully will break even on the deal, if not profitable. If you are really unsure where it will be in July, you could always hedge your bet by buying a put when the stock runs cheaply, realizing that it will become worthless if the stock does run up by July. Yet, it's cheap insurance!
Now, I will get back to cleaning the house. yuk yuk.
Vicki |