I'd like to start using calls/puts to hedge my positions on my scottrade account but I don't really know how they work on a practical level:
do the prices of the options contracts quoted apply to a single share or for a 100 shares?
if for example I buy a put contract (if it's for 100 shares) but say I only own 80 shares, does that mean I can't exercise or does it mean that I can continue to exercise but I overpaid for the contract?
can i sell call contracts if I don't own the minimum number of shares if it's a margin account?
are options prices cheaper at the end of the month if they are going expire soon?
hope the questions make sense. thanks.
1) Price is per share, contract is for 100 shares
2) You can excercise the put, but you'll have to buy an additional 20 shares to cover
3) Don't know
4) Yes, an option is worth less if there is less time until expiry. The same way it is worth less if the UA is less volatile.
1) Contract covers 100 shares. So if you buy 1 call option, that gives you the right to purchase 100 shares at x strike price. 2) Yes. Having say that though, if you're buying a put to cover your long positions, why don't you just buy a long call (say 2 years out)? 3) Depends on your broker and depends on your strategy. If you're selling just naked calls.. um.. a little risky don't ya think? 4) Options are cheaper as time expires. They also get cheaper in times of low volatility so in markets like this, strategies to short vol work quite well.
Scottrade won't let you do much with options. You can write covered call, but that means you need to have 100 of the actual stock in case you get exercised. You can't do anything naked (not holding the actual position needed in case you need to cover for it). Also scottrade will make you sign a form and you need to get pre-approved to be able to trade. You know what is the best thing to do? Call your actual local branch, and ask them about it. Or just go in person there. All the interns and brokers are just browsing craigslist and throwing paper clips at each other, oh, and answering the occasional phone call from some dumb ass customer who can't figure out what his name is.
Seeing that you don't know much about options, I would learn about them first before doing anything with them. Also using options to "hedge" means that you probably have a s... load of cash on your account to trade, if that was the case you would have a financial adviser taking care of investing for you, as opposed to carelessly playing the stock market with thousands. If you have less than $25000 I would just concentrate on buying and selling, before ever considering about hedging. Those were my two cents; those views do not represent that of the company I worked for, work for, and you should play at your own risk and yadi yadi yada.
Remember, you will always be a salesman, no matter how fancy your title is. - My ex girlfriend
If you are interested in options, check out thinkorswim.com
Scottrade denied my application for options. Apparently they are very risk averse with options
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