Tony,
The Russian saying is "no risk, no champagne."
Attractive homilies aside, options can have you retire early or die.
A relatively small amount of money gives you the right to purchase the stock at the strike price at any time prior to expiration date; a few dollars allows you to "control" a much more expensive share. I'm sure some of the folks have/will post links to excellent explanations,,, just beware: unlike stocks, that have intrinsic value (more or less) and which give you an indefinite period to win, lose or draw, options become worthless if the stock doesn't make it significantly past its strike price by the third Firday of its expiration month. (And, of course, a large proportion of options are traded "along the way," as their price will change in corresspondence with the progression of the stock price.
If you're right in your bet, [you can buy "calls" if you believe a stock will go UP, or "puts" if you believe it will tank down] your $1000 can become a ten bagger.
However, something like 80% of options expire worthless.
Be careful, very careful. You'll notice that, on options expiration Fridays, many stocks will finish "right on the money" of the most popular strike price,,, The option buyer loses if the strike price of a call or a put is $30 --- and the stock finishes at $30! He's lost his entire premium --- to be in the money, a win, the stock must finish at the strike price PLUS the premium paid for the option (for a call).
I've gotten lucky a few times,,, maybe not quite lucky enough to make up for the damage I've incurred by losing the premium I paid in its entirety. With many of my bad, dumb, or just-too-soon stock buys (dumm inguneers can be so ahead of the pack :) holding, holding, holding can lead to recovery or better "when the world catches up." :) (As happened to WAVX recently,,,)
The options trading does mark a kind of graduation day for this little stock,,, all sorts of new games and players,,, all sorts of new engineers coming now,,,
I hope this helps. Everything I've said is approximately true. I'm sure there are guys who know much more. Just be careful, very careful! I'm somethin lyke a dumm ungineer to!
:))
.k |
