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Strategies & Market Trends : Options for Newbies -(Help Me Obi-Wan-Kenobe) -- Ignore unavailable to you. Want to Upgrade?

To: Carl Fritch who wrote (662)	2/6/1998 9:00:00 PM
From: Tim Fierro	Read Replies (1) \| Respond to of 2241

You seem to have a good grasp of how it works... Thanks. I was trying. <g> I will try to answer the rest your question. You always have the potential to make more money by selling the option and not buying the stock. The trick is to have the stock move enough to make the option worth more than you paid for it before it expires... This is the gotcha that hurts all option players. A good way to look at an option price when considering it is to add the price of the option to the stock strike price. This will tell you how much the stock has to be worth for you to "break even" on your purchase of the option... then to make a profit the stock has to move even farther...You also have to consider the commission costs in all of this as well. I think that was the heart of it. By going out 7 months, the premium I would pay would be 50 cents. If I truly believe the stock will rise more than 50 cents in 7 months, then it would seem to be in my favor to buy the option. So I did account for the breakeven at $8 but then would need to see it rise above that level to gain commission charges and then the profit potential. All this assuming that while the stock moves up, the option is moving with it to compensate. One more thing, about commisions, are they the same as stocks or they billed separately by the broker on how much they want to charge for options? Tim