stock noob question:
Can anyone explain, in a few sentences and plain english, PUT and CALL options?
Cant explain it better than Bitfunder......
BitFunder options are best thought of literally as the 'Option' to buy or sell shares in the future for a guaranteed price set today.
Users can post or 'write' options for people to buy or sell shares from them anytime within a set period of time for a flat one time fee.
For instance, I could post/'write' the option for someone to buy 100 shares of FIAT.USD from me at 0.025 BTC per share as long as it is within a week from today.
Someone can browse the listings, like my price and time frame, and purchase the option paying me a fee such as 0.1 BTC one time for the option.
Now my 100 shares are locked in reserve until the expire time comes, or I cancel unsold amounts.
Depending on the option type, if someone buys it, my BTC or shares must remain on reserve until 'executed' or the option expires.
Anytime during this one week period, the persion who bought my option may 'execute' that it and pay me 0.025 BTC for up to each of my 100 shares of FIAT.USD.
This is ideal if the price per share has gone up over 0.025 BTC recently. People can also use options to cover their losses by buying options to sell shares
at a specific price so that if the market falls out, they do not lose as much since they have a promised price they can safely trade the shares at.
You are literally buying or selling the option to trade X amount of shares at Y price before the option expires.
How to Start buying options:
First you want to decide what you are wanting to do. Do you think the price per share of an asset will be going up or down?
If you think the price will go down soon, then you will want to buy PUT options. If you think the price will be going up, you will want to buy CALL options.
Once you have selected which option type you are interested in, you can sort the proper listing. The 'strike price' is the price that you will be able to buy or sell shares at if you 'execute' the option. You do not pay this right now. This is the guaranteed price you can buy/sell the shares for at the later time.
The 'option price' is the price you pay now per share for the option to buy or sell shares before the expiration time.
Once you are done sorting through the list and have picked out an option that best fits your thoughts and at an agreeable price, just click on the 'Buy' button.
A window will appear in the middle of the screen. (Make sure you have javascript enabled, and if you use NoScript, be sure that BitFunder is allowed!)
The left side of the window will give you a breakdown and a detailed explanation of the option you are looking to purchase.
On the left hand side you will see if the option is 'breakable' or not. This lets you know if you have to buy the entire amount, or if you can break it up.
If the option is breakble, the amount field will be enabled and you can write in how many shares you want. (You MUST to use whole round numbers.)
The right hand side gives you the oppertunity, (if available) to choose how many shares you want to buy from the option.
The right hand-bottom box gives you a general idea of what would happen if you 'executed' the option at a later date.
Now all you have to do is purchase the option. The page will change and a notice will let you know if your purchase went through or not.
Note: Options can dissapear pretty quick, so don't stop to think on it too long!
Frequently Asked Questions
Q: What is the difference between the 'price' or 'option price' and the 'strike price'?
A: The 'price' or 'option price' is how much you pay for the option up front to be able to execute the deal at the 'strike price' per share during the timeframe.
Q: What is the difference between buying a 'PUT' and a 'CALL'?
A: 'CALL' means you are buying the option to purchase X shares at Y price at any time before the expiry, where a 'PUT' means you can sell X shares at Y price anytime before the expiry.
Q: So if I have see a 'strike price' of 0.2 BTC, and an 'option price' of 0.001 BTC for 10 shares, what do I pay when?
A: If you buy the option for all 10 shares, you would pay 10(amount) * 0.001(Option Price) = 0.01 BTC up front for the option. Then if you choose to execute the option before it expires, you would then pay 10(amount) * 0.2(Strike Price) = 2 BTC.
Q: How do I know the option writer can cover my option?
A: All option writers must have the funds or shares available at time of posting/'writing' and be reserved for this purpose.
Q: What happens if I don't execute an option? Are there fees or penalties?
A: The only thing you loose is the original amount you paid to purchase the option.
Q: If I execute an option, will it show as a market trade?
A: Due to the fact that options may execute at prices outside current market price, we do not post executed option trades.
Q: If I execute an option, will it show in my trade history?
A: Yes.
Q: I am trying to buy an option, and it will not let me change the amount.
A: Look on the left side of the option details, it is probably not breakable. If it is, then check that BitFunder is allowed for javascript.
Q: What is a 'breakable' option?
A: The original writer of an option can set it to be 'breakable' or not. This determines if you can purchase the option for a partial amount or if you must purchase the whole amount.
Q: When I am trying to purchase options, I occasionally get told that the option is no longer available or cannot be found.
A: Someone bought it before you, or the option writer canceled it.
Q: Can I rewrite an option?
A: Yes. A rewritten option must be set for a strike price at least 1% higher/lower of the original strike price depending on if it is a 'CALL' or 'PUT'. The expire date will be inherited from the parent option.
Q: Why do I get 'Invalid Strike Price' when rewriting an option?
A: The Strike price must be able to cover the original strike price and possibly a trade fee. We will not allow you to take a loss.
Q: If I rewrite an option, can I change the expire date?
A: No. Rewritten options must maintain the same expiration as the original.
Q: How many times can an option be recursively rewritten?
A: To infinity, and beyond!
Q: What kind of quantity restrictions are there?
A: Option share amounts must be for whole numbers with a minimal of 1.
Q: What are the fees to trade options?
A: There is a 10% fee on the purchase of the actual option itself.
Q: What is the fee to execute the option?
A: Normal trade fee based on your fee tier. If you execute a 'CALL' there is no trade since you are buying shares. 'PUT' options sell shares so you pay a normal trade fee.
