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     Kubang Celebrity Bewarse Username: Kubang Post Number: 38787 Registered: 09-2011 Posted From: 161.141.1.1 Rating: N/A |
first you need to read little bit about "options", investopedia is a good site for basics. in this case, COST calls for Jan with $160 strike price means - Vijiaa is expecting that Cost will go much higher than $160 by Jan expiry (generally options expire third friday of every month). Premium (it's a combination of implied volatility and time left to expiry) for that call was around $5 when he bought; meaning by expiry date stock has to be at least $165 to break even and anything above that would be gain for Vijiaa.. Each option means right to buy (call) or sell (put) 100 shares at the strike price. In this case each call would cost Vijiaa $500 before brokerage commission. Let's say on Jan 19th (or before) COST goes to $170. he will gain $500 {($170-$165)x100} on his original $500 investment. If the price stays less than $165 on that day, he will lose all his $500 capital. Ignorance is bliss |