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NAVTEQ Investor Resource Options

Using options:


Do you want to hedge for yourself, rather than pay a fund manager to do it for you. A good way to do that is with options. Options give you the right to buy or sell stock or financial indexes at a set price during a specified time period.

A call option gives you the right to buy; a put option gives you the right to sell. You pay a premium for the right to buy or sell the underlying instrument at some time in the future at a specific price, which is called the strike price. If you are wrong, all you lose is the price of the option. Note: When you use options, you are making a bet on the direction of the stock or index, and also on the timing of the move.

Here is an example how a put option on a stock might work. Suppose NVT Co. is trading at $25 a share and you think the market will sell off. You buy put options, or the right to sell 100 shares of NVT at $22.50 a share. Perhaps you pay $2.50 a share or $250 for the option. If NVT stays at $25 or goes up, you lose your $250. If it falls to $22.50, your option is now worth $5 a share (the $2.50 you paid plus the $2.50 difference between the stock price and the strike price of the option.)

You could buy “puts” on NVT Co. if you own the stock as a sort of insurance policy. This is called a "covered option," because you own the underlying security. "Covered options are a way to establish a position to protect your downside in case the market drops." You could also buy puts on a broad index, like the S&P 500, which would be a way of betting against the entire market of big-cap stocks.

Options trading has taken off over the past decade and there are hundreds of options available in today's market.

 

OPTION TOOLS
Symbol:   market:    apply to:     
 
Covered Call Writing - Rates of Return
This calculator will automatically calculate the date of expiration, assuming the expiration date is on the third Friday of the month.
 
Inputs

* Required Fields

Stock Price *   Shares Bought * *
Commission in $, or % (eg. 5.5 for 5.5%)
Note: entry of a percentage in tenths (e.g. .055) will cause an error. 
Option Price * Options Sold *
Strike Price * Dividends/share thru expiration
Commission in $, or % (eg. 5.5 for 5.5%)
Exp Year * enter "2004" for the year 2004
Exp Month * enter a number 1 through 12
Margin Interest Rate if any (eg. 10 for 10%)
 
Results

Expiration Date Days to Expiration
Cash Returns (No Margin Used)
Net Investment
Return if exercised % Return if unchanged %
Downside Break-Even Pt. % Downside Protection %
Margin Returns
Net  Investment
Net Investment
Return if Exercised % Return if Unchanged %
Downside Break-Even Pt. % Downside Protection %