Call/Put options general question?

Question

how can i determine what the total amount of money i will pay would be for an option, either if i let it expire or if i end up using the option. I only have 2000$ in the market, and therefore can't afford options if they are too expensive.

Thak.s

Answer 1

Very simply, if you purchase a call or put contract and hold it to expiration, one of two things will happen:

1. the stock doesn't reach the strike price at expiration and expires worthless.  In this case, you will lose the premium you paid to purchase those options.

2. on expiration day, the stock closes at .01 or more in the money(ie you purchase an option with a 30.00 strike price, the points would be 30.01 or higher if it's a call, or 29.99 or lower if its a put), you will be automatically exercised on that option.  In the case of our 30.00 call example, you would be forced to purchase 100 shares at $30 for every call contract you own, or if they are puts you would be forced to sell 100 shares at 30.00 for every put contract you own.  If you don't have the money to afford an exercise, it would very important to liquidate the contracts BEFORE expiration.

Answer 2

While I agree with the first answer that you would probably be better off investing in a no load indexed fund, that does not answer your question.

I am assuming you are talking about a stock option traded on an American exchange. (If you are looking at options on futures or stocks outside of the United States you will need to look up the specifications.)

Option prices are quoted on a "per share" basis. A standard contract is for 100 shares, so you need to multiply the price quoted by 100. To buy an option you have to be willing to pay the lowest amount someone will accept. This is the "ask" quote. If the ask quote is $1.20 you will pay $1.20 x 100 = $120.00 for a contract. Do not use the "last" quote. Some options are very thinly traded so the last trade may be hours, days or even weeks old.

Answer 3

For someone with that amount of money you should be buying a no load indexed fund.  Options are more like gambling and not suitable for your situation because if you guess wrong you can lose all your money very fast.