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URL:  http://boards.fool.com/dfra-you-wrote-1-may-one-invest-by-selling-and-30241662.aspx

Subject:  Re: Options without Stock Date:  9/4/2012  2:41 AM
Author:  joelcorley Number:  1080 of 1200

dfra,

You wrote, 1. May one invest by selling and buying options WITHOUT OWNING THE STOCK?

Certainly.

Also, 2. If he "wins" what does he receive?

A profit. If you bought a position, you either sell for one before the option expires, or your broker exercises the option at expiration if it was still worth something. If you sold a position, you either cover at a profit or simply keep the premium you sold when the contract expires worthless. Complex options are just combinations of the above.

Finally, 3. If he "loses" what is lost and how to protect further loss (owing more)?

You lose money. If you buy a contract, your maximum downside is the entire amount of the purchase. If you sell a contract, your maximum downside is potentially unconstrained in the case of a call or constrained by the strike price in the case of a put.

Of course that you ask such a simplistic questions tells me that you haven't studied any of the material widely available on the subject. Perhaps you should do some basic research?

I would certainly recommend you hold off on trading any options. Options can be a good way to lose big.

BTW, do you know what an option is? It's a contract to buy (or sell) some other security at a future date for a pre-determined (strike) price. An option to buy is known as a Call; an option to sell is known as a Put. You can buy or sell both Calls or Puts. Options are often bought by traders that have little interest in owning the underlying security - they're only interest may be in making a profit on short-term up or down swings in price. They may also be hedging a bet on a stock against short-term up or down swings. In this respect, options can be viewed a lot like insurance...

- Joel
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