Buy a Call Option v Sell a Put Option

FortyTwo said:
Thanks. I'd be grateful for a brief explanation (example). I can understand how I might believe a stock is going to rise to x in y days but how do I match that / compare that with the implied volatility?
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You should read up on some options math and how implied volatility is calculated.

For maturity, its really easy. Do you think the stock will rally above the strike+premium. If not, then sell the put. If so, then buy the call.

For before maturity, you need to understand the cost of time value bleed (theta) against the delta and the gamma. (the theta, gamma, and delta being determined by the implied vol).
 
cesfx said:
Option trading experts normally wouldn't even bother replying to question that shows very low knowledge level.
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I take it, that you aren't an options trader (hence so many posts in this thread). Why are you speaking about things you don't know about then?
 
newwurldmn said:
I take it, that you aren't an options trader (hence so many posts in this thread). Why are you speaking about things you don't know about then?
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I am a trader but not an expert or a professional.
I have been using options for about 5 years, trading markets over 10.
I dared to give advice because I think I started a bit like the OP, by chipping away info from traders I knew, and trying with real money to cover spot trades or viceversa (like the strategy op was discussing in another thread), create multileg non directional credit strategy... Until I took a few losses and went back to the study the basics, just to realise how vast the universe of options is.
Just giving beginner to beginner advice.
I didn't try to explain, just warn.
 
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The simple answer is that when you sell an option, you give up your rights in return for the premium you receive. The buyer can sell you stock at any time they want up to and including expiration. Your short put will convert to long stock. It is most common at expiration if ITM, but can happen earlier. Not likely if there is a lot of time left or not ITM.

FortyTwo said:
Thanks - I'd be grateful if you could explain (explain the process) 'being PUT the stock
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FortyTwo said:
CALL OPTION
I buy a CALL Option believing the stock will rise above my Strike price. I profit when I close that Option at a price above my Strike Price.

SHORTING a PUT OPTION
I short (sell) a Put option believing the stock will rise above my Strike price. I profit when I close that Option at a price above my Strike Price.

Both Option contracts profit when the Share Price rises above the Strike Price. If I believe that the Share price in Widget PLC is about to rise why would I choose one Option contract over the other?

Note1. I don’t hold any stock in Widget PLC.
Note2. I understand that the Premium received factors into the ‘profit’ equation with the Short Put Option
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Here's just one simplified example.
GE stock currently @ 10.41
10 Call = .66 ($66)
10 Put = .27 ($27)
If I buy the 10 Call I need price to be above 10.66 at expiration to make a profit.
If I sell the 10 Put I just need price to stay above 10 to make max. profit ($27).
So the Call purchase needs price to rise .25 just to get to break even but if I sell the Put the price can fall .41 and I'll still make the maximum $27.
Max. profit by selling the Put is $27 but buying the Call has unlimited profit.
Options can & should be closed before expiration so that changes things but I'll confuse it if go down that road.
This could get much more complicated if I talk about the greeks but I'll keep it simple for now. :)

ge.png
 
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cesfx said:
Just giving beginner to beginner advice. I didn't try to explain, just warn.
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Chris Butler (the guy in the YouTube tutorial) says that he did 300 hours of study before he did his first trade. At 4 hours a day that's about 75 days. I reckon I've done 30 hours max. I know I've got a LOT to do before I put up any money.
 
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