I'm still a bit confused about puts and calls and I wonder if anyone can help.
This April 7-9th when stocks were at an all time low and I didn't have money available.. (it'll be available next month).. is there a way with options I could have purchased them at their April 7th price?
What's that called? buying a 180 day call option or buying a 180 day put option??
Might have been worth it to exercise.. oh well live and learn but I'm hoping to learn now.
You buy a
call if you think something
will go up. You but a
put if you think
something will go down. The difference is options require less capital to participate in gains or losses.
In my opinion however unless you really know what you are doing its probably better not to mess with them.
While options give you leverage (100 shares per contract) and cost less than buying 100 shares of stock, they also decay (lose value) if the stock or index does not move enough to account for the premium you paid for them. This is how the option market maker makes money. The more volatile a stock is, the more expensive the option.
Also, if you overpay for an option it loses value pretty quickly whereas a stock or index is a little more forgiving and you will probably get most of of your money back if you change your mind vs the option that changes in value (up or down) at a greater rate than the stock.
Over the long term,
option sellers (the premium collectors) wind up winning more often than not.
Its fun to play with if you keep it very small with maybe one contract trades. If you do, I think its better to buy "in the money" as they act more like the stock than "out of the money" as you are buying something that has no value right up front, which makes them "cheap". Its a suckers game but if you like to play, stay small and be very careful. Its easy to assume you are the smartest guy in the room, but ....
