options question b/c im a newbie

[HuskerFan1]

someone posted an option trade a few days ago about nflx and it peeked my interest but i dont wanna trade a high flyer like nflx i was looking at some gold stocks earlier and noticed a stock that just started trading options there's only a few of them i just have general questions on how much it costs and what i would make...

here is the stock Revett Minerals Inc (RVM)

the top one is nov11 i would want to buy the 5.00 call, how much would it cost and would what i make if its trading at say $5.20 on the day it expires and say $6 or $7

Call Options Expire at close Friday, November 18, 2011
Strike Symbol Last Chg Bid Ask Vol Open Int
2.50 RVM111119C00002500 2.40 0.00 2.50 2.85 2 251
5.00 RVM111119C00005000 0.85 0.00 0.85 1.10 5 45
7.50 RVM111119C00007500 0.35 0.00 0.25 0.40 2 262

this is the second one and the one im actually really interested in buying id like to definitely buy the $5 call what would that cost and how much would i make if it was trading at $6 7 and $8

Call Options Expire at close Friday, February 17, 2012
Strike Symbol Last Chg Bid Ask Vol Open Int
2.50 RVM120218C00002500 2.30 0.00 2.60 2.95 2 2
5.00 RVM120218C00005000 1.10 0.00 1.15 1.45 160 195
7.50 RVM120218C00007500 0.50 0.00 0.50 0.75 55 66

 

[DesertNole]

You want to add the premium that you pay to buy the contract and to your strike price to determine your breakeven point. The bid/ask for the Nov call is .85/1.10, which means you will probably get filled for around $1 (it is very thinly traded, not much open interest) per share, or $100 per contract. So your breakeven point would be approx $6.

someone posted an option trade a few days ago about nflx and it peeked my interest but i dont wanna trade a high flyer like nflx i was looking at some gold stocks earlier and noticed a stock that just started trading options there's only a few of them i just have general questions on how much it costs and what i would make...

here is the stock Revett Minerals Inc (RVM)

the top one is nov11 i would want to buy the 5.00 call, how much would it cost and would what i make if its trading at say $5.20 on the day it expires and say $6 or $7

Call Options Expire at close Friday, November 18, 2011
Strike Symbol Last Chg Bid Ask Vol Open Int
2.50 RVM111119C00002500 2.40 0.00 2.50 2.85 2 251
5.00 RVM111119C00005000 0.85 0.00 0.85 1.10 5 45
7.50 RVM111119C00007500 0.35 0.00 0.25 0.40 2 262

this is the second one and the one im actually really interested in buying id like to definitely buy the $5 call what would that cost and how much would i make if it was trading at $6 7 and $8

Call Options Expire at close Friday, February 17, 2012
Strike Symbol Last Chg Bid Ask Vol Open Int
2.50 RVM120218C00002500 2.30 0.00 2.60 2.95 2 2
5.00 RVM120218C00005000 1.10 0.00 1.15 1.45 160 195
7.50 RVM120218C00007500 0.50 0.00 0.50 0.75 55 66

 

[DowntownMickeyBrown]

Read Natemburg - Option pricing and volitality , before you trade opotions

 

[HuskerFan1]

i think this stock could move before those those feb 2012 expire thats why im interested, you get a spike is metal prices, huge increases in production in the coming couple Qs and qe3 and these small jr's who are starting to pull it out of the ground, the stock prices can move quickly....

SPOKANE VALLEY, WASHINGTON--(Marketwire - July 18, 2011) - Revett Minerals Inc. (TSX:RVM) (NYSE Amex:RVM) today announced second quarter 2011 production from its Troy Mine in northwestern Montana of 342,822 ounces of silver and over 3.03 million pounds of copper production, a 65% increase in silver and 60% increase in copper production over the same period last year and 40% increase in silver and 51% increase in copper from the first quarter of 2011. Silver and Copper grades along with metal recoveries also improved, primarily from an increased production from the C Bed area.

 

[HPark1]

Calls and puts are simply an option to buy the underlying stock of the company (calls) or sell the underlying stock of the company (puts) at the specified strike price.

In the case of the Nov expiry call options. The 5.00 strike price call options looks like it would cost roughly 1.00-1.05 to purchase per option. Now if it traded at 5.20 on the final day then you would be in line for a 80% loss on your initial investment as you basically paid 6.00 per share. The share price of Revett would have to exceed 6.00-6.05 for you to make a profit. ie if Revett traded at 7.00 you will have doubled your money.

Formula to calculate potential profits;

Price of stock minus cost of option and strike price divided by cost of option

ie. If Revett traded at 7.50 on the final day. 7.50 - 1.00 (cost of option) - 5.00 (strike price) / 1.00 (cost of option) = 1.5x your original investment


Remember you can trade in and out of options at anytime and not have to wait for the final days before acting. And the prices for the options will react daily to the price movements of the underlying stock along with the time remaining on the options. ie if Revett moved to 5.50 next week those 5.00 call options would probably cost 40-50% more then they do now and you could sell them for a nice profit without waiting for what's next.

If you hold your options all the way to the end then you have to exercise your options and thus come up with the cash to pay for the stock... Personally I have never gone this route, I've always closed out the contracts before the expiry.

Note when you trade options you buy/sell contracts. If purchasing calls or puts you are "buying to open" and then "selling to close" when trying to sell them. The "buying to close" and "selling to open" are for those that are writing the options. And each contract is worth 100 shares. So typing in a buy order for those 5.00 Revett call options would mean you purchasing an option to buy 100 shares, so it would cost $100 per contract. There is an additional fee to pay as well when dealing with options per contract, about 1-1.50 per contract plus the usual 7-10 dollar commission per trade.


Hope this helps, thought it would be easy to explain but perhaps not wise enough to simplify it.