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Strategies & Market Trends : Canadian Options -- Ignore unavailable to you. Want to Upgrade?

To: Gary McCoy who wrote (961)	4/6/1998 7:05:00 AM
From: Porter Davis	Read Replies (1) \| Respond to of 1598

Answer time (I hope)... Gary posed these questions: --- QUESTION 1 I'm still a bit confused about the "CLOSED" position. >Call it 'closing'...you buy/sell to 'close out' a position Let's say I buy 4 May $9.00 CALLS on RGO for .35 RGO price climbs and I re-sell these calls at .75 without exercising my option. Is this when I would use a closed position. >You would sell 'closing' or 'to close'. By selling these options wouldn't my TD account automatically show RGO as empty whether open or closed position was used? >No, technically your position would be long 4 and short 4, which can cause big trouble if not caught before expiry. --- QUESTION 2 How do I go about exercising my option to buy. >Simply instruct your broker to exercise your option(s). --- QUESTION 3 I have a pretty good understanding of buying and selling CALL contracts, but can you help me with the sale of PUT contracts. Let's use Ranger Oil as an example Say I sell 4 - May $10. PUT contracts @ 1.00 In May RGO drops to $9.00 If the owner exercises the option, do I have to buy his stocks outright or can they be sold immediately at market & just pay the difference? >Puts are just the obverse of calls. Puts give the holder the right to sell stock at the strike price any time up til expiry. The put writer has the obligation to buy the stock under the same terms. If you are assigned on your short puts, you will be required to take delivery and pay for the underlying. If you do not wish to do this, you must close your position by buying back the puts 'closing' prior to assignment. --- QUESTION 4 What happens if there is a trading halt for an extended period of time. Do you loose out on the option? >No. Option holders have the right to exercise their options during the life of the contract regardless of whether the stock is trading or not. I believe the only exception is if a CTO (cease trading order) has been issued by the OSC/QSC/BCSC/etc. I strongly recommend that anyone really serious about options read the book "Options as a Strategic Investment" by Lawrence MacMillan. Not an easy read, but when you finish it, you'll know all you need to know about the theory of options. Next, of course, comes putting it into practise. Another nice rally in gold this morning. Maybe my long ABX will off-set the creaming I expect to get for my short BLD. Happy trading. Porter