Call options are extremely volatile, it's true that 80% of options expire worthless. So how do you make money on them....buy them with at least three months before expiration and use them only for short term trades. Time erodes the value of call options....the closer they get to the day of expiration the uglier it gets. They trade just like stock but will have much lower volume so ONLY use limit orders to purchase them. Each contract is for 100 shares but they are priced per share. For example: The SNDA call option I have today has a December expiration and the quote is for Bid 3.70 and Ask 3.90. You could even try to make money between the spread here. You could put in a limit at $370/contract and immediately try to sell it at the ask for $390/contract. I bought the contracts a few days ago for $3.20. If you play with these things don't do it with more than 5% of your overall account value...that way you can be wrong 20 times before you're out of money. I would also not mess with these until after a year of trading stocks alone.
Link for quotes
http://finance.yahoo.com/q/op?s=SNDA&m=2007-12
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Any regulations regarding call options - like how long you have to hold them, etc?
If I buy a call options for a stock trading at 40 to buy it at 45, the stock goes to 145 by the time the option is due to expire, and I exercise it. Who has to sell me the shares for 45? Is it the original issuer of the option or the person I bought the option from? If it is the most recent seller, there could be a downside risk there.
Any regulations regarding call options - like how long you have to hold them, etc?
If I buy a call options for a stock trading at 40 to buy it at 45, the stock goes to 145 by the time the option is due to expire, and I exercise it. Who has to sell me the shares for 45? Is it the original issuer of the option or the person I bought the option from? If it is the most recent seller, there could be a downside risk there.
Call options trade just lik stock, you can trade them the second you buy them. If you choose to wait until they expire and you are "in the money" (usually a baed idea). Then your brokerage will automatically place them in your account. The only advantage to holding until expiration is that you could defer tax implications until the next year....But if you've made a handsome return in a volitile stock it's usually best to take the money and run before expiration. Also every day closer represents deterioation in your "time premium". This time premium can be very important. especially in the last month. Say there are 20 trading days in the month. 1/20th of the value of the time premium will evaporate the first day you hold the option. Whereas if you bough a call 5 days before expiration you will lose 1/5 the premium each day. I've had stocks go up 2% in a day but the call option was actually cheaper the next day.
I understand that they trade like stocks. The question had to do with liability. It appears that if you buy a call, selling it is not a sale but is called offsetting. If you offset - sell an existing call, there appears not to be a liability. The liability is at the original issuer
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