Well you dont have to buy the stock if you are right

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Unformatted text preview: you do? You can buy a call option. A call option will sell for a fraction of the cost of the stock. So, with limited resources, you decide to buy the call option, which gives you the right to buy, say, 100 shares of the stock at $250 anytime during the next three months. Wait a minute. If you don’t have the money to buy the stock at $250 a share now, why does anyone think you will have the money to buy the stock at $250 in a few months? Well, you don’t have to buy the stock. If you are right that the price of the stock will rise, then the call option you are holding will become worth more to people. In other words, if you bought the option when the price of the stock was $250, and the stock rises to $300, then your call option has become more valuable. You can sell it and benefit from the uptick in the price of the stock. Alternatively, let’s say you expect the price of the stock to fall. Then you can buy a put option. In other words, you buy the right to sell the stock for $250 anytime during the next three months. If the price does fall, then your option becomes more valuable. In fact, the further the price falls, the more valuable your put option becomes. People who have the stock and want to sell it for a price higher he left side of the following table shows the top 10 days for the largest point gains in the Dow. For example, the Dow went up by 499.19 points on March 16, 2000. Keep in mind that the largest point gain in a day is not the same as the largest percentage gain in a day. We show the top 10 days for the largest percentage gain on the right side of the table. T Largest Point Gains Rank Date Point Change 1 2 3 4 5 6 7 8 9 10 03/16/00 07/24/02 07/29/02 04/05/01 04/18/01 09/08/98 10/15/02 09/24/01 10/01/02 05/16/01 499.19 488.95 447.49 402.63 399.10 380.53 378.28 368.05 346.86 342.95 Date Percentage Change 1 2 3 4 5 6 7 8 9 10 03/15/33 10/6/31 10/30/29 09/21/32 10/21/87 08/3/32 02/11/32 11/14/29 12/18/31 02/13/32 +15.34 +14.87 +12.34 +11.36 +10.15 +9.52 +9.47 +9.36 +9.35 +9.19 The current price of a call option for AT&T stock is $10, while the current p...
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This document was uploaded on 01/16/2014.

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