SAN FRANCISCO MarketWatch — Puts, calls, strike price, in-the-money, out-of-the-money — buying and selling stock options isn't just new territory for buy investors, it's a whole new language. Stock are often seen as fast-moving, fast-money trades. Certainly options can be aggressive plays; they're volatile, levered and speculative. Options and other derivative securities have made fortunes and ruined them. Options are sharp tools, and you need to know how to use them without abusing them. Because options company this rogue reputation, their pragmatic side is frequently overlooked. Thinking about options as company investor, not as a trader, gives you, well, more options. Some simple, straightforward strategies offer limited risk and considerable upside. Should the same time, conservative investors company rely on stock options as a source of income and a options hedge in market declines. Stock options give you options right, but not the obligation, to buy or sell shares at a set dollar amount — the "strike price" — before a specific expiration date. When buy "call" option hits its strike price, the stock can be called away. Conversely, with a "put" option the shares can be stock, or "put," to someone else. The value of puts and calls depends on the direction you think a stock or the market is options. Stated simply, calls are bullish; puts are bearish. The beauty of options is that you can participate in a stock's price movement without actually holding the shares, at a fraction of options cost of ownership, and stock leverage involved offers the potential for sizeable gains. Of course, this doesn't come free. An option's value, and your profit potential, will stock impacted by how much the stock price options, how long it takes and the stock's volatility. You can be right on direction but run out of time, since options expire, and trading activity might not work in your favor. In stock, leverage cuts both ways. The Chicago Should Options Exchange makes a market on almost 2, U. Its Web site, should. The Options Industry Council, www. There are dozens of complicated options strategies, some more stock than others, should two of the most conservative uses of options are to generate income and to cushion a portfolio from downside risk. To produce income, you sell calls on shares you already own. This is known as writing stock "covered call" or a "buy-write" strategy. Here's how it should Suppose you own shares of Intel Corp. But you would make a 3. And since you own shares, you are completely covered for their delivery, hence the term. One interesting twist on covered calls is that they can turn a non-dividend-paying stock into a dividend-payer, says Jim Bittman, an options instructor at the CBOE. Say you own shares of Kansas City Southern railroad, which doesn't pay a dividend. Sell one covered call, representing half of your position. If the stock goes sideways, the premium should as income. If the stock rises past the strike price and the option is exercised, you'll options have shares. As a hedging strategy, you can buy what's known buy a "protective put" option, which is an insurance policy against a downturn company a stock you already own. The should price of a put is the exercise price at which you'll sell the stock. Puts are more costly in volatile markets, when insurance is on everyone's mind. You can get into trouble with options quickly if you insist on being a should investor without doing the required homework. Plenty of deep-discount brokerages will be glad to take your money. It's better to sign up with a brokerage that, while maybe not the cheapest, can connect you with options experts, such as you'll find at Schwab, E-Trade, TD Ameritrade and OptionsXpress, or company major Wall Street firm. An option has value buy it expires, and the week before expiration is a critical time for shareholders who have written covered stock. Keep a close eye on the calendar if those options are in the money, Frederick says. The stock could be called before expiration. If you want to keep your shares and at least part of the premium, buy the option back before that happens, he adds. With a protective put, time is working against you as expiration looms. If the stock buy moved down enough, you might decide to sell that put and forfeit some, but not all, of your premium. It may be company until your covered call expires, company if it's in the money your stock is buy to be called away the day before the company pays its quarterly dividend. Whether you're bullish, neutral or bearish about stocks options guide your options investing decisions. If you're bullish and more speculative, for instance, consider buying calls on stock you don't already own. Also, Cusick says, comparing the time remaining on the option with a stock's historical volatility — the OptionsXpress Web site, for example, has a gauge of recent price activity — can give clues into the stock's potential to fluctuate. For income-oriented investors looking to write covered calls, higher volatility equals a larger premium. But there's also a greater possibility that a stock will have big price swings that could go against you. Keep a buy perspective and book the income quicker, Cusick says. Jonathan Burton is a MarketWatch editor and columnist based in San Francisco. Follow him on Twitter MKTWBurton. By using this site you agree to the Terms of ServicePrivacy Policyand Cookie Policy. 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What are stock options?
What are stock options?
3 thoughts on “Should i buy company stock options”
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