For those of you who like the idea of owning gold but don’t want to hold stocks, there is another way to invest. Options are contracts that give the holder the right to buy or sell a stock or ETF at a certain price, by a certain date, for a certain amount of money called a premium.
- Each call option contract gives the holder the right, but not an obligation, to buy 100 shares of the underlying equity at a price agreed upon anytime before the expiration date.
- Each put option contract gives the owner the right, but not an obligation, to sell 100 shares of the underlying equity at price agreed upon anytime before the expiration date.
In reality most equities the options represent never change hands. The holder just cashes in any premium left whenever he feels like liquidating the option. Some equities are very volatile and premiums can move up or down more than 100% in a single day.
Below is a call option chart. The colored area and white area meet at the approximate value of the underlying equity, or what is called “at the money”. The bid is the amount being offered for the option and the ask is what the seller is demanding. Last means the last price paid for that option, the change is in dollars and cents. Volume is the number of options traded at that strike price for the day. Open interest is the number of currently open options.
