The Motley Fool Discussion Boards

Previous Page

Learning to Invest / Investing Beginners

URL:  http://boards.fool.com/dusty-options-are-a-little-confusing-at-first-30363496.aspx

Subject:  Re: Re: terminology Date:  11/6/2012  9:00 AM
Author:  JustMee01 Number:  26255 of 27494

Dusty,

Options are a little confusing at first. They've sold January puts on Startbucks, with a strike price of $47.

A "put" is an options contract that allows the buyer to forcibly sell 100 shares of the underlying stock.

The seller of the put will receive those shares (and pay for them of course @ the strike price), if the contract is exercised.

In exchange for that risk, the put seller receives a small payment, that's paid by the buyer.

That $47 is the strike price (the price at which the contract executes). Above the strike, there won't be any execution. However, if SBUX falls below $47, the buyer of the put will sell SBuX and receive $47 for the 100 shares.

The "JAN 2013" is the options contract month. That's the date that the contract ends. After that date, the contract is null and void.

Someone who sold these fairly short term puts would characteristically be bullish on the stock and looking for a little income. Selling puts can generate some cash on the side. In order to accept the risk of being put to, they must however, be willing to own the stock. Therefore, I'd have to conclude that they're bullish on SBUX long term, but think it will trade flat for the next couple of months.

Peter
Copyright 1996-2014 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us