Options Trading Tutorial

Should I buy call option contracts to prepare to pay a lower strike price for a stock when that stock goes up?

a bunch? Take NLY. If I buy a $20 Mar call contract and NLY goes to $30/share, that means I can buy it for $20 per share even though it went to $30, right? Obviously before the contract expires....right?

Public Comments

1. yes, that's if you exercise the option. You can also just sell the option for its premium. Say you bought the 20 call at .50. If the stock goes to 30, then that $.50 likely turns into a $10 one. That's a huge percentage gain.
2. yeah, that's the idea of options. however if u buy 10 options it means that u have the right to buy 1000 shares and u must have money for that and if the option price goes up to $30 u gain about $8700 profit, maybe it's better to sell it and go for holidays :) however it's not liquid market, so be careful
3. I think so
4. Yes, that's technically true although it is a little bit more complicated than your example. Don't forget to factor in commissions and the premium for the call option. You won't actually make $10 per per share in your example. You often need a fairly significant move in price to offset commissions and the purchase premium. For example, you may pay a $3 premium for a contract. If the market price of the stock only goes up to $23, you will make $3 per share by exercising your option. However, you will have spent $3 per share on the contract to do it, so there is really no profit at all. You will actually lose money after commissions. If the stock price stays level or declines, then you'll have to sell the contract at a loss.
5. yes, you are right.