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Strategies & Market Trends : Tech Stock Options
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To: sean sanders who wrote (58330)2/1/1999 3:13:00 PM
From: Soumen Barua  Read Replies (1) of 58727
 
Hi,
I also recommend that before you start investing in options you should do some paper trading (at least for a year). Always buy at ask and sell at the bid. Start with 10k paper money and keep paper trail of your trades. (You should not start with 100k paper money because that is quite a big amount for options and you may not be able to buy at the ask if you were trading options on a particular issue in real life).
There is no simple answer to your question. If you check the quote for any option and it shows you bid and ask, that is what you should expect as a buyer or seller. However there are sometimes no bid closer to expiration and that is why paper trading is important to find out all the nuances that goes on with options trading. There are some formulas about how options are priced and you can check them out in the books or internet sites. The most important factor is the volatility. Therefore thinly traded slow moving options are cheaper compared with a highly volatile heavily traded options. That is why trading stocks is better for highly volatile stocks because you don't have to pay high premium associated with their options (VIX).
Personally I would not recommend trading options because it is far too risky for new investors. For example, suppose you buy xyz stock at 100 and immediately sell them at 100. You lose nothing except the commission. However, if you buy options at 100 you will not be able to sell at 100 because the spread will not allow you to do that. Therefore even if the stock trades in a narrow range (100-101) the option prices will not reflect that change and you will still lose money if you tried to sell at the bid. Good luck.
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