When to sell BTU Mar11 65 Call?
Ok, trying to learn options. I currently have BTU Mar11 65 Call. I am still confused about closing and expirations. If I close now I am in the money. Should I close now or hold? As I understand it I have to close before expiration or it expires worthless? So to purchase an option it must be monitored daily and closed manually when in the money?
If you do not exercise your option (if it is your choice and not the person you bought or sold it to) then, you will have to sell it (or buy it) to close the position to make money....otherwise it will expire worthless.
For example, say you want to buy one put for AAPL for march 19th expiration with a strike price of 245$....I think the last trade today was 11.70 or so.... So you pay $11.70 x 100 = $1170.00 + commision.
You now control 100 shares of AAPL with only a possible maximum loss of 1170$. Since this option is already in the money with AAPl around 244, the price movement will more closely represent the movement of the stock..... with some time decay factoring in.
If AAPL tanks 100$ per share before March 19th and you still hold the option, then your option price will probably be in the range of 105-110$ per contract..... that's 110$ x 100 = 11,000.
So say its March 18th...or any time before expiration. You could now either:
1) buy 100 shares of AAPL (if you didn't use the put as protection for an investment of 100 shares of AAPL) at its current trading price and put those shares in the fellow's account that bought the contract from you.....BUT, that fellow would have to pay you 245$ x 100 for the contract!!!
2) You can sell the contract and take the profit if you don't own any AAPL shares
3) do nothing and let the money slip through your fingers (don't die if that scenerio happens!!!)
So that is the put side of things......
Calls are essentially the same deal, but focus on the upside.
If you are just buying calls and puts and then selling them for profit, you won't need that much money (and better if you don't cause you can lose your a$$ faster than you can click the trade button if you're not careful). If you are selling naked calls or puts (selling to open without owning any shares or enough money to cover the cost of shares getting assigned to you), you will need much more money in your account since most brokers won't allow selling naked calls without 100k$ or naked puts without 50k$.
My advice is if you are interested in trading options is throw about 1000$ or so into an account and play the options by buying calls and puts on stocks that have a high price and and a lot of volitility that you can read. If you can build it up to 50 or 100k from there, than you should be fine selling calls and puts..... BUT
if you ever get to the point where you can sell naked calls..... you best be aware that there is unlimited downside. aka, imagine the poor folks that sold naked calls on NFLX or AAPL about a year or so ago.... and never closed their position. OUCH:eek2:
Options are by far the fastest way to make money in the stock market by risking a lot less money than you would spend on the stock.... but its also the fastest way to lose money....because in the end it may expire completely worthless (but that could be a great thing if you were the one who sold the contract).