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Author: Dustyolman Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 27417  
Subject: Re: terminology Date: 11/5/2012 8:19 AM
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In a recent Stock Advisor I found the following phrase. Being new at this and also being older and not retaining information as quickly as I used to, I'd like this explained in a simple way:

and has the following options: short JAN 2013 $47.00 puts on Starbucks.

Thanks for your help.

Dusty
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Author: JustMee01 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 26255 of 27417
Subject: Re: Re: terminology Date: 11/6/2012 9:00 AM
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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

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Author: Dustyolman Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 26260 of 27417
Subject: Re: Re: terminology Date: 11/15/2012 9:13 AM
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Peter

Thanks for that explanation. At this point it's still a little bit beyond my experience and expertise. When the time comes, though, this is now an option I will be able to consider.

Dusty

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