Wednesday, August 15, 2007

First Trade

Today was the first day I could trade so I tried something small to test out the platform. As I have often promoted, I bought Cisco today. But rather than the usual stock buying, I purchases two call options for Cisco ending September '07 at a strike price of $32.50 for $0.45 each.

Options contracts are sold usually in multiples of 100, so buying two contracts really means I purchases 200, or $90 worth. A call option purchase makes money if the underlying stock rises above the strike price by the ending, or expiration, date. In between, the price of the contracts can rise as the underlying stock closes in on the strike price. Also, there is inherent time value of money depending on how far away the expiration date is.

I will talk more about this later, but for now, my roommate is wielding my very nice cutlery in her first attempt to make a fruit bowl out of a watermelon, and I need to make sure she doesn't lose a limb.

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