Stock Market Investing: Buying Call Options
Image: Michelle Meiklejohn / FreeDigitalPhotos.net
This week I made my second stock option purchase within a month. I subscribed to Motley Fool’s Option newsletter and followed Jeff Fischer’s advice, buying call options on Johnson & Johnson and Intel. The risk is somewhat lessened by the fact that these are both solid companies. Also, the calls don’t expire till 2012…plenty of time for the underlying stock prices to go up even if the market decides to dip a few times in the next year or so. The way call options work is that I am buying the right to purchase a stock at certain price(strike price) on a certain date. If the stock is trading below that price on the expiration date, I will not exercise the right to buy the stock and the option will expire worthless. In that case, I lose the amount of money that I paid for the option. If the stock is trading above the strike price on the expiration date, I can exercise my right to purchase the stock at the strike price. What will most likely happen though is that sometime in the next two years I will choose to sell my options to someone else, hopefully at a hefty profit. Options can be traded through your brokerage account much like stocks. When the underlying stock goes up, the option typically goes up as well depending on the length of time remaining on the option as well as the proximity of the stock price to the strike price.
So that’s my latest stock market adventure. More to come…
Tags: investing, options, stock market
June 12th, 2011 at 7:53 am
Hi,
Just wondering, after a year and a half after this post, what your experience has been with the MF Options Newsletter.
Thanks!
August 3rd, 2011 at 3:04 pm
Great question, Joseph. I didn’t renew my subscription after the year. I did a few trades and made money. But I kept to the simple calls and puts. I didn’t take the time to learn the more complicated trades. I made more money following a guy named Bill Staton. He had a newsletter where he tracked 13 companies at a time. Good solid dividend companies and he only turned a couple over per year. Unfortunately, he no longer publishes the Baker’s Dozen newsletter.