Options for Newbies -(Help Me Obi-Wan-Kenobe) Message Board

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Strategies & Market Trends : Options for Newbies -(Help Me Obi-Wan-Kenobe)

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To: LTK007 who wrote (830)	5/13/1998 12:45:00 AM
From: Madpinto	Read Replies (1) of 2241

Max, these questions have real merit. As a matter of fact, it gets a little complicated. First of all, 100 calls at 1/16 will cost $625 plus your commissions. The options will go out worthless if the stock stays below $65 at expiration. However, a rumor leaked this week could make your calls go up in value even if the stock never trades above $65! It all comes down to what another investor (or mkt maker) is willing to pay for them. Accordingly, the stock moving to $65 1/2 does not necessarily mean you will be able to sell your options for $1/2 each (intrinsic value). The bid may be below the current intrinsic value. You could sell stock (at any price over $65) and exercise your options, but you would incur additional commissions. The most you can lose is the original purchase price unless you exercise the calls. May expiration is Saturday, but you have until a short time after the close on Friday to decide if you want to exercise your options. Your firm will automatically exercise them for you if they finish 3/4 point or more in the money (over $65) unless you instruct them otherwise. Mike

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