Please help I am confused.?Trading Stocks?Suppose a company maybe bought out. The share price is say 30. The buyout will come at 40. You want to be call option in January cause the merger will be done in the fall. You buy 30 contracts or the right to 3000 shares? Then strike the options after the merger is announced. So you strike the options at 10 per share profit aka 30 grand right? Isnt the best way to play a takeover stratgey? Obiosuly minus the cost to buy the options say roughly around 3000 for the calls. And lets assume I have heard something. I just am not sure the right way to play the stratgey. You stike the calls once the price jumps, with no money envolved. Earning the per share price profit of 10? Minus commisions and costs of course.

Warren Buffet once said that option contracts should be outlawed. I tried to invest in options once and my broker was very opposed to my getting involved in them. I respect his opinion. If memory serves me correctly Peter Lynch from the Fidelity Magellan Fund feels very much the same way. There is a big difference between stocks and options. Be careful.

What is the price of the option when bought? Say $1.50 , 30*100*1.50=$4500 + commission $20= $4520. After the merger the the call 30 goes to $5.00. 30*100*5.00 = $15000 + commission $20 = 15020. $15020 - 4520 = $10500 profit.How about you exercise the option. 3000 * $30 = $90,000then sell the stock 3000 * $40 = 120,000.120,000 - 90,000= $30,000 profit.If you are pretty sure about the increase in priece, why not, I would.

It depends on who you are and where you are in the equation. The rumor might already be priced into the options and therefore you may or may not get the value you are seeking. Options are an indicator of the feeling the market has about a given stock in the future. What is the price for the option you are looking at versus the price you are expecting the stock to trade at during the term of the contract and the price the stock currently trades at? If you have really good information and the options are really attractive according to the information, you might be getting inside information which may or may not be legal for you to have. Be careful of what you act on if that is the case.