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 282

Sample Ford Call Options

Symbol Price (Premium) Strike Price
$6 1/2

Remember that all January options would expire on the 3rd Friday of January. Let's say that we are 20 days away from that fateful Friday. This means that all of the symbols which we looked up above would expire in 20 days. But what do they actually mean? Let's dissect FAJ, also referred to as Ford January 50 call. This option's strike price is $50. This means that from now until the expiration date (20 days away) a holder of this option has the right to buy the Ford stock for $50 per share. The number of shares depends on the number of contracts the individual owns. So if you have 2 FAJ contracts, you have 20 days to exercise it and buy 200 shares of Ford at $50 per share (remember 1 contract = 100 shares). And if you want to buy 2 contracts of FAJ, per the current quote, it would cost you 2 contracts x 100 shares per contract x $2 for a total of $400 (without the commission) which is exactly how much you had to invest. but let's see what you got yourself into.

The 2 FAJ contracts now give you the right to buy 200 shares of Ford at a fixed $50 per share for the next 20 days regardless of what happens to the Ford stock. The $2 per share that you paid for your contracts is the premium you paid to the option seller to have this right. So in a

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Copyright and Disclaimer
Book Chapters
Table of Contents Copyright and Disclaimer Foreword Money
Bonds Futures Stocks Options
Mutual Funds Retirement Final Words Appendix A

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