Voiceover: Here are some
option quotes from CNBC.com and my goal here is to
really just familiarize you with the quote, so you know
what you're looking at. So the first thing to
realize is that options are categorized by expiration dates. So these options that
I've listed right here are expiring in April 2011
and options expire or they usually expire on the
third Friday of any month or I guess to be exact, the
third Friday of the month is the last day that you could trade them. They officially expire
the Saturday after that. And these are options on
GE, the last stock quote. It last traded at $18.95 and the way that that's listed on CNBC.com,
and it tends to be listed this way pretty much anywhere
that you look at option quotes, is that they list the calls
on one side and then the puts on the other side and these
are obviously calls and puts on General Electric and then
they write the strike prices down the middle in increasing order. So the first column, this is just the
symbol for that particular option. This is the last trading price. This
is how much it's changed that day. The low and the high
give the range of trading that day on that option. Volume tells us how many
options actually traded that day and open interest, which is
something that you're probably not familiar with if you've
only looked at stock quotes, tells us how many actual, open
options contracts of that type are actually in existence. So
if you look right over here, this tells us that there are
399 open con ... open call options with a $14 stock ...
strike price at an April 2011 expiration on General Electric. And it tells us that none
of those 399 open options actually traded that day. If any of these 399 options get
exercised, then it'll go down to 398. If someone writes a new option,
then it'll go up to 400. And the way it's listed here
is that the "in the money" options are listed in this
light blue color and that the "out of the money" options
don't get the light blue color. And so you can see the "in the
money" call options are the ones that have the strike price
below ... below today's current strike price. Because
if you had a call option for $17 that gives you the right to buy GE for $17 and if you exercise it
today, you'd buy it at $17 and you could immediately
sell that stock for $18.95. So you would immediately
make $1.95 profit. And you could see right here
that the stock is or the option I should say, is actually
trading a little bit above that and that's because it has the optionality. You can definitely make $1.95 on it, but you might want to keep it around because you can potentially
get the upside on GE stock, up to the third Friday
of April 2011 while having a limited downside. The most you
could lose here is the price that you paid for your option. And then you can see the put
options that are in the money, are the ones that have a strike price
above the current trading price. If I had a $20 ... If I had a
put option with a $20 strike or a $20 exercise price, that
means that I could go out in the market today,
buy the stock for $18.95 and then immediately sell it for $20. So I would make an immediate $1.05 profit and you could see here
that the option is trading for a little bit more than $1.05
because of the optionality.