How to use Call options !Leverage your stocks by using Call Options and of course you could use put options too. Let`s talk all about call`s first. Remember calls are for thinking the stock is going to go up. Puts are for thinking the stock is going to go down, and to remember this we are going to use a phrase " you call up your girl freind and she puts you down ". Why would you want to buy a call and not just buy the stock ?
well thats an easy question, first buying a call is a contract for a hundred shares and you can buy those 100 shares at a great discount. I will show you the exact amount you can pay on this day 6-17-08 for lets say 100 shares of apple`s stock.
Today aaple closed at $ 181.43 a share, so if we wanted to buy
100 shares that would cost us about $18,143.00, now let`s look how much it will cost us for a call october contract.-----below---
Look at the yellow box above, that is what is refered to as an at the money call, see its the 180 strike price, and since the stock is at about $180.00, thats right at the money. Now let`s look at the price of it. WOW ! only 20.30 thats for each share so we need to times that by 100 and we will get the total price which = $ 2,030. yes thats it. $ 2,030 to control 100 shares of apple until october 20, 2008 We could bye cheaper ones or more expensive ones by going deeper in the money or out of the money. I will explain that later. Now let`s look at a 2009 LEAP for january, then we will look for a 2010 Leap and compare the prices. 2009 ----below----
This one gives us more time so we must pay a little more for the time, its a January 180 strike and it cost $ 2,755.00 to control a 100 shares ofn apple until january 2009.
Now lets look at the 2010 Leap ---below---
The 180 january 2010 Leap cost $ 4,625.00 to control hundred shares of apple for almost 1 1/2 years ! You buy a PUT Leap if you think the stock will go down and make money if you are right or you can buy a Call Leap if you think the stock will go up in that time period. So now that you have seen the prices what would you do, buy the stock or buy the Leap ? Do you want to learn to make a monthly income using a long term Leap.
People use a stragegy with stocks called " a covered call strategy " so we can use the same strategy except that we will use a Leap instead of buying the stock.
Lets discuss what a in the money and an out of the money option is. There are basically 3 types ... In the money, Out of the money and At the money options, see not to complicated. At the money is when you buy an option right about where the price of the stock is for that day, like Apple is about at $ 180.00 so a 180 strike would be at the money. In the money is when you buy a option thats in the money like a 175 call, 170 call, 165 call, 160 call etc... and the deeper you go down from the price the deeper in the money you are, and that will cost you more the deeper you go. See if the price of the stock is at 180 and you buy a 160 call you then are 20 points deep in the money. However if you buy an out of the money call it would be anything above 180 like a 190 call, 200 call etc...and thats because the price has not reached that point yet ! its out of the money. Out of the money calls are the cheapest ones, and the farther you go out or away from the price the cheaper they get, thats because you will need a greater move of the stock to get to your price You could learn this in one day its not that complicated only remember at the money, in the money or out of the money.
Look below at the link to see whaty im talking about.---below---
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