New to options, help needed

R

Rlkv011

Hi,
I am new to options. I just started researching options this past month. I understand the basics of trading options. I do have a few questions.

1. Say I buy a call option, and the price of the stock rises enough where it would be profitable to exercise the option. What if I do not have enough money in my account to purchase all the shares? Is this where a margin account comes in?

2. As the price of a stock goes up does doesn't the value of the contract also increase? Is this another way to make money on an option?

Thanks for your time
 
Quote from Rlkv011:

Hi,
I am new to options. I just started researching options this past month. I understand the basics of trading options. I do have a few questions.

1. Say I buy a call option, and the price of the stock rises enough where it would be profitable to exercise the option. What if I do not have enough money in my account to purchase all the shares? Is this where a margin account comes in?

2. As the price of a stock goes up does doesn't the value of the contract also increase? Is this another way to make money on an option?

Thanks for your time
More...

I am sorry but there is more research time ahead for you to learn more about the basics. Many beginners claim to "understand the basics of trading options" but they fail to realize what they do not know still is quite significant. But at least you are asking questions. My main advice is that your questions do not convey that you truly understand the basics so keep studying and do not fall into the false sense of knowledge most newbies fall prey to.

First when purchasing a call option that is at the money, if the stock price goes up, holding all other things constant, the call will increase in value. Therefore instead of exercising the call, many people simply trade the option itself since it has value. You only exercise if you truly want to take possession of the stock. If you want to profit on the increase in the price of the option, you simply sell the option in question to close.

This is a tip of the iceberg answer but options have value and most people who are speculating trade the options themselves.
 
Rlkv011,

Pick up Guy Cohen's "Options Made Easy." It has been a great help to me. While it's a bit simplistic, it's a good starting off point.
 
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