Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Non-Tech : The Critical Investing Workshop -- Ignore unavailable to you. Want to Upgrade?

To: alias who wrote (5318)	2/27/2000 12:55:00 PM
From: Voltaire	Respond to of 35685

People also buy calls to make money on appreciation of such. V

To: alias who wrote (5318)	2/27/2000 3:54:00 PM
From: candide-	Read Replies (1) \| Respond to of 35685

Hi Alias, I know you asked V, but if you don't mind I'll throw in my 2 cents worth to your question. In your example: 1. The buyer paid $6200 to exercise the right to purchase 400 shares of Qcom at $135 ($54,000). This is $15.5 per option. (15.51004) Ok, one thing to keep in mind is the date when the option expires. 2. Assume the price of the 400 shares went to $170 (market value of $68,000). Let's say for this example you bought the July $170s sometime in Feb., and by March the stock price reached $170. So continuing on with your example; 3. If he exercised his option he would have bought 400 shares at $54,000+$6200 for a total of $60,200. If he turned around and sold the 400 shares at $170 he would receive $68,000. But, what if you did not want to wait until the expiry date, you want to cash in now, and get some further out options for the next run. Or, you may never have intended to buy the stock, you just had a feel the stock was going to appreciate and you wanted to maximize your leverage. And you did Maximizing your leverage by 8.7x (135/15.5). You can also see if you were to buy a larger lot of options, say $100K worth, that you might get nervous trying to purchase $1M worth of stock, even if you were going to turn around and sell it right away. 4. $68,000 less 60,200 is $7800. Why wouldn't he do this? I really thought this scenario was why one bought calls. You have certainly hit one reason that someone buys calls, but maximizing leverage is another. The obvious danger is, and I speak from experience, if you get too aggressive on buying STO, or if some unforeseen market condition occurs, and the "time capsule" is off, then you eat right through the option's premium value. Uncle Frank warned me one time and I did not listen. I paid dearly! The other thing I have found about buying calls is the further out of the money you buy the more risk you are taking. I know this seems obvious, but the leverage factor becomes tempting when you can buy way out of the money at $2 vs. $15.5. You can buy at or near the money, longer tern, and still gain great leverage, while driving some of the risk out of options trading. For what it's worth...? C-

To: alias who wrote (5318)	2/27/2000 6:47:00 PM
From: Dealer	Read Replies (1) \| Respond to of 35685

THANK YOU! VOLTAIRE and thanks to Clappy and Alis for sticking your hands up and asking the right questions. I learn by your asking the questions as I'm sure many others did to. Please continue to ask questions that pertain to that which voltaire speaks on the thread. It is difficult for a professor to speak and we jump up and go to another class to ask a question. When voltaire is through and he ain't through yet, "the fat lady is still singing." I suggest at that time we give voltaire a rest by taking technical question to the options thread. The options thread is a great place for the mechanics and depth. I do not think that is voltaire intention. he doesn't even want to get into that, leave that to Jill and Poet. Class is still in session! We are just taking a break. Thanks again to all who are raising their hands to help us learn. I sorta feel intimidated. If I ask a question it might be something he has told me over and over and over and I just didn't get it. What happens then? I get a failing grade. Better you guys ask. Can't wait until the market opens tomorrow. I think CNBC will be covering a story as to the run on CC's at opening. Wouldn't Voltaire love it if Maria called for an interview..............at that he forgets all about them aching fingers. She better bring her body guards. dealer (looking at her stack of homework)