08-17-2010, 04:05 PM
In your example, you bought the right to buy 100 shares at $50. Let's say it was for October expiry - right now that would cost you 14 cents (actually $14, you always pay 100 times that, since it's 100 shares). It's cheap because the stock is only $38 right now.
If the stock went up to $60, say in September, that call would likely jump up in value to around $12 ($1200). If you sell at that point, you would never have actually owned the shares. You would have put in $14, and gotten out $1200. You would not have need to have $5,000 in your trading account.
Now...if you'd held the option to expiry on October 23rd, you might have found that your brokerage automatically buys 100 shares of BP at $50 - for example, I use eTrade and they do that. If you had no cash in your account, you would have logged into your account to find that you suddenly had $5000 in margin! It's happened to me before. However, since your stock would be worth $6000, you'd be fine...unless of course BP suddently dropped.
I never (intentionally) hold options to expiry, unless they are worthless.
If the stock went up to $60, say in September, that call would likely jump up in value to around $12 ($1200). If you sell at that point, you would never have actually owned the shares. You would have put in $14, and gotten out $1200. You would not have need to have $5,000 in your trading account.
Now...if you'd held the option to expiry on October 23rd, you might have found that your brokerage automatically buys 100 shares of BP at $50 - for example, I use eTrade and they do that. If you had no cash in your account, you would have logged into your account to find that you suddenly had $5000 in margin! It's happened to me before. However, since your stock would be worth $6000, you'd be fine...unless of course BP suddently dropped.
I never (intentionally) hold options to expiry, unless they are worthless.
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Currently PvPing in the stock market
Currently PvPing in the stock market