I trade opitions. Options are contracts. They are not stocks. Options are leverage. 1 option contract controls 100 stocks.
Most people sell, also called write, options. When you sell an option you immediately recieve a credit. This is called the “premium”.
Let’s say you own a piece of land and someone wants to purchase it. They would put a down payment to hold the property for a certian time period. This is called the contract. The contract will settled on the day of expiration. The seller and buyer may agree to call off the contract any time prior to expiration. The buyer may decide to walk away. If the buyer walks away the seller keeps the premium.
If you buy an option, you must pay tbe premium to the seller. Now you are betting the the price of the stock goes up “call” or down “put” enough to cover the premium and the price of purchase or “strike” price. Most people buy options if they plan on owning the stock.
If a stock is trading at $100 a share you can buy a put option (contract) controlling 100 shares at $80. You must pay the seller a premium for 10% control of the stock for a predetermined timeframe.
If the stock remains above $80 you can end the contract, but lose a portion of your premium or you can let the option expire worthless and lose all of your premium or you may honor the conyract and purchase 100 shares of stock for $8000, plus fees.
Since you now own 100 shares, you can sell 1 option against them. Let’s say you list them for $100 a share. The buyer pays you a premium or down payment. If the stock hits $100 or above by expiration you would keep the premium plus $20 per share or $2000. If the buyer walks away or if the stock doesn’t reach $100 on expiration you keep the premium and the stock. You can do this over and over, which is called a rolling strategy.
90% of options are not exercised. They are either closed prior to expiration or expire worthless. The purpose of selling options is to keep the premium.
I hope this helps.
Very much so. Thanks to all who responded.
This point you make here about 1 option controlling 100 shares of stock, I have been wondering if someone might put 1,350,000 shares on the 13 F form, instead of 1,350,000 contracts, which would be for 135,000,000 shares.
If caught in a discrepancy there could they then say they made a mistake putting down the number of contracts instead of shares.
Haven’t checked the listed outstanding interest in puts on the stock.
It would help if we knew the strike price and expiration date on these options.
Then we could check the outstanding puts and see what percentage of them were held by this Soros Fund.
Also could Soros have other entities and investment vehicles that bought puts in MGM?
Bumping because after reading your first two posts you have done a more succinct synopsis of options trading than I have ever found on investment sites.
Thanks, sheers and good luck.
Southpark