Hello , I would like to know how the American options works. for example: If I bought 10 call options on the first of January for X at a price of $300. the Premium was $1. So I will pay $100 per option. And the strike price was set to $350. The expiration date of these options was on March first. After two weeks the price of X rise to be $305. So is it possible to sell the options I bought before the expiration date and before the actual price of X dose not comes over than the strike price? Would my profit be as follow? $5 * 100 * 10= 5000 --> Net-profit= 5000 â 1000= $4000 Thanks in advance
You can sell an option at any time. If the stock goes from 300 to 305 in two weeks a March call with a strike of 350 will *not* go up by $5 because it will have a delta well below 1. (In fact a call with a strike at 300 would only go up by about 2.50 because its delta would be near 0.50.) Furthermore time decay may cause your option to lose value despite the underlying going up by 5. Nothing more can be said without knowing something about the volatility of the stock. Find an option pricing calculator and learn the greeks.
Thank you very much for replaying me! I have here another question, if I sell the call options I bought before the expiration date. The person, who bought them from me, is going to exercise these calls options. Which risk am I going to carry? Is it better for beginners to start trading with options with advisory firms and follows the advisers suggestions?
If you are only selling the calls you bought previously (so have no net short position) you have no liability. Somewhere somebody else is short those calls (perhaps the original seller) and that person is the one who has to sell shares at the strike price if the calls are exercised. Very few options advisories are any good. Buyer beware. Remember that the small minority of people who are consistently profitable trading options are probably making their money trading options, not writing newsletters.