Stock Option Question: I own 10,000 shares of a stock and want to use Options to protect myself?
Greetings All,
I have (inherited) 10,000 shares Citibank. I want to protect the value of my money until this in one piece sub prime morgage mess is over and do not care if the the stock goes up or down... I'm only just looking to weather the storm.
The "advisor" to my account is talking in the order of selling, blah , blah blah... I just want a CLEAR understanding of how I can buy a PUT Option and protect the importance of my current price of $25
Please example in simple terms... conceivably even giving an example... thanks... the wife and I know we can do it... we just call for a little more guidance.
Thanks in mortgage
Answers: Your question is somewhat inconsistent. If you don't care whether the stock go up or down, then why do you have to protect against the fluctuations within the market. When the storm clears, the stock price should stop going down. Maybe you should think give or take a few selling some or all of your shares now so smaller quantity of your investment is tied up in the financial industry and this company. Don't try to be a hero. There are plenty of other companies in industries that are performing resourcefully, despite the current state of the economy. Financial stocks are among the trickiest to try to value right presently. By selling part of your position now, you lessen your risk. If the price of Citi goes down, you can always buy it again. If the price go up, you can sell more. Don't drive yourself nuts by backward looking. If the reduction and the company improves, you can buy it even at a higher price, but knowing that the worst risks may be over.
If you want to protect a stock from a fall in value, you would buy a put risk. Each option represents 100 shares, so to protect your entire investment, you would have to buy 100 put alternative contracts.
Options have various strike amounts and expiration date. As owner of a put option, you have the right, but not the prerequisite to sell the stock at that strike price until the expiration date. You can pick a strike price "in the money" (meaning it is already profitable) or "out of the money" (meaning that the stock price would hold to decline further before you would make money on your option). Options are available for most months, extending out a few years.
Think of put option as insurance. You have to pay a premium, but if your house does not burn down, that premium is lost. The premium amount vary with the time until expiration of the option and the strike price.
Examples: Citi is around $25. The May $25 put opportunity would cost about $132 per option (the quote is $1.32 which you multiple by 100 to get hold of the total cost per option). To protect your entire position in Citi, it would cost you $13200 (100 contracts x $132) plus commissions. The price of Citi stock would have to decline to $23.68 ($25 minus $1.32) earlier the expiration of the option in May formerly you would begin to profit on the put option. If Citi traded above $23.68 on the close of trading on the expiration date, your put way out would expire worthless and you would be out the premium cost of $13200.
You could buy put options with longer expiration date, but they are usually more expensive because you are "insuring" for a longer time. You also can pick a lower (or higher) strike price, and pay a lower (or higher) price to buy the put. Think of it like an insurance deductible, where on earth you are willing to assume the first amount of losses on your Citi investment.
Options are among the hardest instruments to use. You have to be correct roughly speaking at least 2 variables -- the expiration and the strike price, not to mention the price that you pay for the substitute. They say that 9 out of 10 options expire worthless --do you close to those odds?
A few other options (no pun intended) to consider. If you don't put on the market some of your position now, you could also consider entering a "stop loss" order on Citi. A stop loss directive is an order to sell your stock if the marketplace price hits the price you pick. You won't make any money using stop loss orders and it won't rescue you from losing money, but they can help protect you if the price of Citi drops precipitously. However, if you are worried about a big, sudden drop, you should of late sell some now.
The other strategy is to buy a put odds and also sell a similar number of call option. Call options give the holder the right, but not the necessity, to buy a stock at the strike price before the expiration. To buy a call alternative, you are betting that the stock price will go up before the expiration. If you market a call option, you are betting that the price will not move about up (or at least not as much as the strike price). As the seller of the hail as option, you get compensated the premium that the call option buyer pays. You can after use this premium to offset the cost of buying put options. You must realize, however, that if the stock go up beyond the call option strike price, you will own the stock "called" away from you; you are essentially agreeing to sell the stock at the higher strike price. You can undue this constraint by agreeing to buy back the call remedy before the expiration. Selling call option essentially caps the amount of profit that you will realize if your stock goes up (but since your prevalent concern is to limit your loss, this strategy could work).
Example: The May 25 call option are $93. If you sell 100 call option and buy 100 May 25 put options, you will receive $9300 in telephone call option premium (minus commissions) and pay the $13200 to buy the puts. Your total outlay will be roughly speaking $4000 net. Now, you are protected from loss if Citi's stock price goes down by only $0.40 (the difference between the put and call premiums). At expiration, if the stock price is less than $25, the ring up option will be worthless (meaning you get to maintain your stock and the call option premium, which you in actuality used to buy the puts), and each put option should be worth the difference between the strike price of $25 and the stock price on expiration. You could still closing stages up with a net loss by pursuing this strategy, but it will be smaller amount than the loss if you just bought the put options.
Read up on option and don't enter a transaction until it is clear.
But you really need to diversify your holdings. You might want to wait until Citi pays their subsequent dividend, but sell some now, when rates rates are lower (before they go up) and reserve the money for taxes. You'll sleep better.
Buy 100 PUT contracts at the 25 strike. This is insurance against a drip in the price. Probably as far out as June. If the price drops, exercising those PUTs at the 25 strike price will pay envelope you $25 a share, the same goes if you buy the 30 strike PUTs, they will recompense $30 a share. you can buy put options with $25 as the strike price. It would protect your shares at $25.
you can do this through resort broker.
Hi. I will help best I can. 1st - this is a great idea to protect the efficacy with an option. It is call a put option - what this means is that you can PUT your 10,000 shares of stock to the hawker of the option for the strike price of $25 regardless of how low the Citibank falls to. The only desperate thing about option is that they cost money and they expire. They usually only last in the order of 3 months TOPS and then they expire and you lose all the money you remunerated for the options if the stock never goes down.
But you definately can buy a put alternative and it will protect you if the stock price falls - so long as it has not expired.
Regarding the issue of not having the actual change to exercise the put option once it is "in the money" - you can in truth sell/trade the option itself - it has actual bread value too - you do not need to in reality buy the stock to exercise the option.
Also - if you are so unsure about Citibank you may want to consider the "advisor's" support and just sell it for something rather less risky. -
Tell me this. If you think that the stock price will plummet - just sell the stock in a minute (keep the money in your brokerage acct) and buy it back once the price go down. Keep the difference or buy more shares.
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I have (inherited) 10,000 shares Citibank. I want to protect the value of my money until this in one piece sub prime morgage mess is over and do not care if the the stock goes up or down... I'm only just looking to weather the storm.
The "advisor" to my account is talking in the order of selling, blah , blah blah... I just want a CLEAR understanding of how I can buy a PUT Option and protect the importance of my current price of $25
Please example in simple terms... conceivably even giving an example... thanks... the wife and I know we can do it... we just call for a little more guidance.
Thanks in mortgage
Answers: Your question is somewhat inconsistent. If you don't care whether the stock go up or down, then why do you have to protect against the fluctuations within the market. When the storm clears, the stock price should stop going down. Maybe you should think give or take a few selling some or all of your shares now so smaller quantity of your investment is tied up in the financial industry and this company. Don't try to be a hero. There are plenty of other companies in industries that are performing resourcefully, despite the current state of the economy. Financial stocks are among the trickiest to try to value right presently. By selling part of your position now, you lessen your risk. If the price of Citi goes down, you can always buy it again. If the price go up, you can sell more. Don't drive yourself nuts by backward looking. If the reduction and the company improves, you can buy it even at a higher price, but knowing that the worst risks may be over.
If you want to protect a stock from a fall in value, you would buy a put risk. Each option represents 100 shares, so to protect your entire investment, you would have to buy 100 put alternative contracts.
Options have various strike amounts and expiration date. As owner of a put option, you have the right, but not the prerequisite to sell the stock at that strike price until the expiration date. You can pick a strike price "in the money" (meaning it is already profitable) or "out of the money" (meaning that the stock price would hold to decline further before you would make money on your option). Options are available for most months, extending out a few years.
Think of put option as insurance. You have to pay a premium, but if your house does not burn down, that premium is lost. The premium amount vary with the time until expiration of the option and the strike price.
Examples: Citi is around $25. The May $25 put opportunity would cost about $132 per option (the quote is $1.32 which you multiple by 100 to get hold of the total cost per option). To protect your entire position in Citi, it would cost you $13200 (100 contracts x $132) plus commissions. The price of Citi stock would have to decline to $23.68 ($25 minus $1.32) earlier the expiration of the option in May formerly you would begin to profit on the put option. If Citi traded above $23.68 on the close of trading on the expiration date, your put way out would expire worthless and you would be out the premium cost of $13200.
You could buy put options with longer expiration date, but they are usually more expensive because you are "insuring" for a longer time. You also can pick a lower (or higher) strike price, and pay a lower (or higher) price to buy the put. Think of it like an insurance deductible, where on earth you are willing to assume the first amount of losses on your Citi investment.
Options are among the hardest instruments to use. You have to be correct roughly speaking at least 2 variables -- the expiration and the strike price, not to mention the price that you pay for the substitute. They say that 9 out of 10 options expire worthless --do you close to those odds?
A few other options (no pun intended) to consider. If you don't put on the market some of your position now, you could also consider entering a "stop loss" order on Citi. A stop loss directive is an order to sell your stock if the marketplace price hits the price you pick. You won't make any money using stop loss orders and it won't rescue you from losing money, but they can help protect you if the price of Citi drops precipitously. However, if you are worried about a big, sudden drop, you should of late sell some now.
The other strategy is to buy a put odds and also sell a similar number of call option. Call options give the holder the right, but not the necessity, to buy a stock at the strike price before the expiration. To buy a call alternative, you are betting that the stock price will go up before the expiration. If you market a call option, you are betting that the price will not move about up (or at least not as much as the strike price). As the seller of the hail as option, you get compensated the premium that the call option buyer pays. You can after use this premium to offset the cost of buying put options. You must realize, however, that if the stock go up beyond the call option strike price, you will own the stock "called" away from you; you are essentially agreeing to sell the stock at the higher strike price. You can undue this constraint by agreeing to buy back the call remedy before the expiration. Selling call option essentially caps the amount of profit that you will realize if your stock goes up (but since your prevalent concern is to limit your loss, this strategy could work).
Example: The May 25 call option are $93. If you sell 100 call option and buy 100 May 25 put options, you will receive $9300 in telephone call option premium (minus commissions) and pay the $13200 to buy the puts. Your total outlay will be roughly speaking $4000 net. Now, you are protected from loss if Citi's stock price goes down by only $0.40 (the difference between the put and call premiums). At expiration, if the stock price is less than $25, the ring up option will be worthless (meaning you get to maintain your stock and the call option premium, which you in actuality used to buy the puts), and each put option should be worth the difference between the strike price of $25 and the stock price on expiration. You could still closing stages up with a net loss by pursuing this strategy, but it will be smaller amount than the loss if you just bought the put options.
Read up on option and don't enter a transaction until it is clear.
But you really need to diversify your holdings. You might want to wait until Citi pays their subsequent dividend, but sell some now, when rates rates are lower (before they go up) and reserve the money for taxes. You'll sleep better.
Buy 100 PUT contracts at the 25 strike. This is insurance against a drip in the price. Probably as far out as June. If the price drops, exercising those PUTs at the 25 strike price will pay envelope you $25 a share, the same goes if you buy the 30 strike PUTs, they will recompense $30 a share. you can buy put options with $25 as the strike price. It would protect your shares at $25.
you can do this through resort broker.
Hi. I will help best I can. 1st - this is a great idea to protect the efficacy with an option. It is call a put option - what this means is that you can PUT your 10,000 shares of stock to the hawker of the option for the strike price of $25 regardless of how low the Citibank falls to. The only desperate thing about option is that they cost money and they expire. They usually only last in the order of 3 months TOPS and then they expire and you lose all the money you remunerated for the options if the stock never goes down.
But you definately can buy a put alternative and it will protect you if the stock price falls - so long as it has not expired.
Regarding the issue of not having the actual change to exercise the put option once it is "in the money" - you can in truth sell/trade the option itself - it has actual bread value too - you do not need to in reality buy the stock to exercise the option.
Also - if you are so unsure about Citibank you may want to consider the "advisor's" support and just sell it for something rather less risky. -
Tell me this. If you think that the stock price will plummet - just sell the stock in a minute (keep the money in your brokerage acct) and buy it back once the price go down. Keep the difference or buy more shares.