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rookies question
- Thread starter nouveau
- Start date
reading your posts you seems all to be experts.
a friend of mine just told me a bit about options and futures yesterday. He told me: that if he was buying an call option of HOf09 for exemple @ 1020 usd for 42 000gal. with an Strike price of 2.87 (god knows what that mean).
He show me on a chart that this particular option was at 1.97 dollards.
He then told me that every time this option will go up by one cent he will make 420 dollards profit.
today I look at the market and this option went up to 2.11 at one stage so if he would have sold his options at that time he would have made 14 time 420 dollards?
is that true?
and 1020 USD / 42000 gal = 0.0248...
so I it seems very confusing to me. can some one explain?
a friend of mine just told me a bit about options and futures yesterday. He told me: that if he was buying an call option of HOf09 for exemple @ 1020 usd for 42 000gal. with an Strike price of 2.87 (god knows what that mean).
He show me on a chart that this particular option was at 1.97 dollards.
He then told me that every time this option will go up by one cent he will make 420 dollards profit.
today I look at the market and this option went up to 2.11 at one stage so if he would have sold his options at that time he would have made 14 time 420 dollards?
is that true?
and 1020 USD / 42000 gal = 0.0248...
so I it seems very confusing to me. can some one explain?
I'm not sure which particular contract (i.e. commodity) you are talking about, but if the contract size is 42000 gallons then 1 cent is equal to 0.01*42000=420 per contract. That's where that $420 figure comes from. It's just the size of 1 contract.
A contract size has absolutely no bearing on options behaviour or trading in general. It's just something you have to take into account when you size your positions. For example, mini S&P 500 futures are $50 per index point and options on the Russell 2000 index are $100 per point, etc.
Regarding your friend, don't look at the upside only, if that option moved down 11 cents then your friend would've been down 11 times $420!
A contract size has absolutely no bearing on options behaviour or trading in general. It's just something you have to take into account when you size your positions. For example, mini S&P 500 futures are $50 per index point and options on the Russell 2000 index are $100 per point, etc.
Regarding your friend, don't look at the upside only, if that option moved down 11 cents then your friend would've been down 11 times $420!
the commodity in question is heating oil for delivery in january.
if i understand correctly. this means that 1020 dollards (ie one option) control 42 000 gall of heating oil.
so the investment is always the price of the option. ie 1020 dollards for this particular contract.
so what's established the profit sor losses are
1)the size of the contract,
2)the value of th option at the time of buying and selling.
3)the lengh of the contract
to make calculation simples let said the contract was1000 usd for 40 000 gal
if he had bough 3 call options and 1 put option 4000 usd the gallon goes up by 3c t he gets 400X 3 X3= 3600$ + 3000$ initial investment= 6600$.
the gall is at 2.00 dol at time iof buying
if the option goes down by 3c he will lose completly his 3000 call options but he will recoupe 3 X 400$ = 1200+1000 on his put options.
however if the market moves further down over 7.5c for exemple he will be start to be in his money again, I'm correct?
so as option can't be of negative value and if the contract stills run for 45 days he as got 45 days during wich the market will have go up by at leat 1c or down by 7.5 for him to have a chance to be in hios money. in other terms i can only loose it at the time of selling the price of the gal is between 1.925$ and 2.01$
am i correct?
if i understand correctly. this means that 1020 dollards (ie one option) control 42 000 gall of heating oil.
so the investment is always the price of the option. ie 1020 dollards for this particular contract.
so what's established the profit sor losses are
1)the size of the contract,
2)the value of th option at the time of buying and selling.
3)the lengh of the contract
to make calculation simples let said the contract was1000 usd for 40 000 gal
if he had bough 3 call options and 1 put option 4000 usd the gallon goes up by 3c t he gets 400X 3 X3= 3600$ + 3000$ initial investment= 6600$.
the gall is at 2.00 dol at time iof buying
if the option goes down by 3c he will lose completly his 3000 call options but he will recoupe 3 X 400$ = 1200+1000 on his put options.
however if the market moves further down over 7.5c for exemple he will be start to be in his money again, I'm correct?
so as option can't be of negative value and if the contract stills run for 45 days he as got 45 days during wich the market will have go up by at leat 1c or down by 7.5 for him to have a chance to be in hios money. in other terms i can only loose it at the time of selling the price of the gal is between 1.925$ and 2.01$
am i correct?
Lets cut the shit. Noveau, the questions you are asking scares me. If you really are interested in understanding how your friend trades I suggest you begin by reading as much as possible. Once you have some idea about how it all works then start paper trading till you understand how profits come about. Whatever you do mate, don't trade real money. I'd be happy to get you started on some reading to point you in the right direction.
i do not have any intention to trades real money at all at the moment. as i said i'm just interested.
so if you have bit of time could you tell me if i'm correct.
i understand that the difference between option and future is that futures can carries negative value: not the options
the value of an option varies with the contract and define the position of the contrat.
a option as a time limit.
for a trader an option's value is equal to the price of the total of goods controled at the time of buying. and profits or losses are made depending of the price of the good controled at the time of selling.
can you answer?
so if you have bit of time could you tell me if i'm correct.
i understand that the difference between option and future is that futures can carries negative value: not the options
the value of an option varies with the contract and define the position of the contrat.
a option as a time limit.
for a trader an option's value is equal to the price of the total of goods controled at the time of buying. and profits or losses are made depending of the price of the good controled at the time of selling.
can you answer?
Quote from Grinder:
Lets cut the shit. Noveau, the questions you are asking scares me. If you really are interested in understanding how your friend trades I suggest you begin by reading as much as possible. Once you have some idea about how it all works then start paper trading till you understand how profits come about. Whatever you do mate, don't trade real money. I'd be happy to get you started on some reading to point you in the right direction.
AMEN!
Quote from nouveau:
can you answer?
Download this free book that I prepared. It contains the most basic description of what an option is and how an option works. It's free and informative and written for beginners.
http://www.mdwoptions.com/TheBasics.pdf
Mark
Quote from nouveau:
i do not have any intention to trades real money at all at the moment. as i said i'm just interested.
so if you have bit of time could you tell me if i'm correct.
i understand that the difference between option and future is that futures can carries negative value: not the options
the value of an option varies with the contract and define the position of the contrat.
a option as a time limit.
for a trader an option's value is equal to the price of the total of goods controled at the time of buying. and profits or losses are made depending of the price of the good controled at the time of selling.
can you answer?
Listen, forget about your friend and this heating oil option. Pick up a book on options or download one, or just visit some of the websites like exchanges' sites to at least learn what an option is and how it works. When I read your post it really sounds like you have just a bunch of mumbo jumbo in your head and you keep throwing some terms around, which you don't really understand.