Options Trading Tutorial

Stock Option Question?

I've been investing with success for several years and I just opened an margin account with options. I'm looking into getting a small position with options but I have a few questions first. First I'm having trouble making sense of the Option symbol and strike price. For example when I research EWZ, for a given month and strike price I receive 3 different symbols; EWZ C JAN 75 WKB C JAN 75 ZYL C JAN 75 I'm guessing the different with them are their expiry dates. Is there any logical meaning behind WKB & ZYL? What the best to get find their expiry? My second question is the about the strike price. I know that one contract give you the power to buy/sell 100 shares, I just want to confirm that the strike price must be multiplied by 100 to get the per contract price. For example a contract with a strike 4$ would cost 400$ per contract? Also the reason I'm looking into options is gain leverage for long term position, not day to day trading. Is there any argument to avoid LEAP options?

Public Comments

1. Regarding your second question, the strike price is the the exercise price of the option. It is the price that you have the right (but not the obligation) to buy the underlying security at until the expiration date. The price you pay to buy the contract is different - you have to pay that just to buy that option. I suggest you use options with extreme caution, they are extremely risky, and the possibility of losing your entire initial investment is substantial.
2. Read Guy Cohen's book "Options Made Easy"!
3. <<<First I'm having trouble making sense of the Option symbol and strike price. For example when I research EWZ, for a given month and strike price I receive 3 different symbols; EWZ C JAN 75 WKB C JAN 75 ZYL C JAN 75 I'm guessing the different with them are their expiry dates. Is there any logical meaning behind WKB & ZYL?>>> The "EZW" options are the "normal" January options and expire in January 2008. The WKB and ZYL options are "LEAPS" (long-term options). The ZYL options expire in January 2009. The WKB options expire in January 2010. <<<What the best to get find their expiry?>>> I went to http://www.cboe.com/DelayedQuote/QuoteTable.aspx entered "EZW" for the underlying, checked the "All exchange option quotes (if multiply listed)" box and selected the "List all options, LEAPS, Credit Options & Weeklys if avail." button to find the expiration dates. <<<My second question is the about the strike price. I know that one contract give you the power to buy/sell 100 shares, I just want to confirm that the strike price must be multiplied by 100 to get the per contract price. For example a contract with a strike 4$ would cost 400$ per contract?" The option is bought and sold for 100 times the premium quoted. If exercised/assigned, the stock is bought/sold for 100 times the strike price. <<<Also the reason I'm looking into options is gain leverage for long term position, not day to day trading. Is there any argument to avoid LEAP options?>>> LEAPS are more sesitive to changes in implied volatility (IV), so it is even more important to only buy them when you believe IV will be increasing and not decreasing or, if you are selling them, to only sell them when you believe IV will decreasing and not increasing. In the money (ITM) LEAPS have a lower delta then ITM shorter-term options, and they cost more than shorter-term options. As a result, you are likely to get less leverage from buying LEAPS than from nearer-term options. By the way, LEAPS is an acronym for "Long-term Equity AnticiPation Security" and always includes the final "S" even if only talking about a single contract. "LEAP" is not a meaningful expression.