question about buying(and selling) a call option?

[Jayhawk328]

I know how options work, but I am curious about what happens when I sell the option without exercising it. I have not bought anything yet (although I'm close), but I have a hypothetical situation.

Let's say the current price of a stock is $12 and I buy a January 2010 call option with a strike price of $17 for $.50 per call. If I have $2000 will that enable me to buy 4000 call options or just 40 call options because the options come in 100 share increments?

If the price of the stock goes up to $25 (in a VERY optimistic scenario), and I want to sell it WITHOUT having to exercise the option how does that work? I'm guessing the price of that option would increase because the stock price increased, but I wasn't sure if my profit comes from the stock price itself ($25 stock price-$17.50 strike price=$7.50 per call) or if it came from the actual option prices?

I am sorry this is so long, but I think this is a great way to make a profit if you don't have too much money. Any help would be appreciated, thanks.

[Mark Wolfinger]

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[Mark Wolfinger]

Ok, let's try this again.

You can buy almost 40 contracts at $50 apiece. Save cash for the commissions.

Your options would be worth at least $8 apiece in the scenario you describe. To sell, you just enter an oder tos ell the specific options you own. Just as you will buy them first, you sell them later.

The process is similar to trading socks and is not difficult.

This may be a great way to make money when you have little, but the probability is high that you will lose the little you have, rather than earn any more.

Buying options is a difficult game and few win.

Mark

[Pearlpam]

I have been told that hardly anybody every truly exercises an option. Just sell it and take your profits! The exercising of the option is done by best broker I suppose.

[Mark Wolfinger]

It's true. It's almost always a bad idea for an individual investor to exercise an option. It's easier to sell the option when you no longer want to own it.'

The exception occur when you want to own the stock and collect a dividend. Be careful because not all dividends are worth enough to warrant the exercise of a call option.

The broker does NOT exercise any options. It's strictly your decision. But if you own an option that is in the money - and you don't sell it by the time expiration arrives - then the OCC (Options Clearing Corporation) automatically exercises those options for you. That's a bad thing and often results in a margin call. Don't forget to sell your options when it's time.