Financial Markets Book Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds
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by Robert Hashemian

Page 281

up within your anticipated time limit, you can hold onto your position until eternity. No one is going to take your 200 shares away from you, unless of course the company goes belly-up, but this is a marginally small risk all shareholders must grapple with (and really, what are the chances of Ford disappearing?).

If you can't come up with $10,000 to buy the shares, you can buy fewer shares, but then you have smaller profits. Maybe you only have $400 to invest. This will get you 8 shares, and if Ford's stock does indeed go to $60, your gross profits would be $80 which after taxes and commissions (there are two commissions, one to buy and another to sell) you may end up with a $40 profit, assuming you use a deep-discount broker. Not much profit for your time and effort.

How can you use the $400 to generate more profits based on your speculation? Enter Ford call options. Rather than buying the shares, you can go ahead and buy Ford call options instead. But which one would you buy? First you would look up the available call options for Ford. Your broker would be able to provide you with that. And you may gasp at the variety of call options to choose from. Assuming that we are in the beginning of January, you would notice several call options with different prices for January, several for February, several for March, and so on for up to nine or so months into the future. The months, as you may guess are the expiration months, and the prices are the strike prices. You would immediately notice that the closer the options are to expiration, the cheaper they are. Also the higher the strike price, the cheaper the options. Let's look at the January prices, which are closest to expiring. Some of the options might be:


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    Bonds Futures Stocks Options
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