Options Trading Tutorial

How important is Strike Price?

On trading options how important is the strike price? I mean is it like the price target that you think the stock will reach by the certain date? For example if I buy a October call with a strike price of 25 and the current price of the stock is 20 and the price goes to or above 25 I gain ?? and if not what??? :)

Public Comments

1. options huh? This is one investment that you don't want to mess with if you don't understand them. You can loose all the money...quick. I cannot emphasis this enough. Also, before you get started, trade them using a simulation. Investopedia.com has a great simulator where you can trade options and see how you would have done without risking any money. Best of all it's free to join. An option's value depends on many different variables. Time value Underlying stock value Underlying stock volatility Current interest rates To answer your question it depends on your strategy. Strike price is very important, but so is the time to expiration, trading volume, the bid-ask spread, and stock fundamentals. If you buy an Oct call with a $25 strike price with the price at $20, you will make a profit if the stock price hits 25 or more. However, you can make some money if the stock increases beyond $20 because the option price increases as the stock price approaches $25, not only once it hits it. If the option expires and it did not get close enough to 25 to increase in price, the money is gone. You loose 100% of the investment. This is what I say you need to know what you are getting into. Use the simulator. It will help you understand things about options you would never have thought to ask. Also, get some books on options. There are too many ways to loose money if you don't know what your doing. Getting Started in Options by Michael Thomsett http://product.half.ebay.com/Getting-Started-in-Options_W0QQtgZinfoQQprZ59768901 Good luck with that.