08-17-2010, 03:50 PM
Grieve Wrote:If you want short but limit your losses, buy puts.
I did my first short (on BP) a few weeks back and made some money, but generally I'd rather stick with puts.
Question on calls and puts: Do you need the money to cover the full purchase price of shares, or is it all done automatically when you excersize the option?
For example: A buy a call option for 100 shares in BP at $50. If it goes above $50 to say $60 and I want to excersize the option, do I technically need $5k to initiate the purchase before I sell the stock, or do I just excersize the option and I get my profit?
$60 - $50 a share = my profit - premium