I'm playing this stock simulation game for my class and we can purchase stocks and options. I know how to purchase stocks, but options seem to be harder.Let me take the following scenario. Google is trading at $693. Let's say I believe Google is going up. In that case I would buy a call option. But at what price do I choose the call option? At $690, $700 etc.? Also, one contract equals 100 shares as far as I know. But how do you derive the profit from options? It seems that you can both gain and lose a lot more money with options than with stocks.Thanks for all answers!

Options and option strategies are very complex.The biggest issue isnt neccessarily the strike price of the option, but the time.Options prices are composed of two factors.Intrinsic Value and time value.(and not to get overaly cvomplex, but there's also a beta factorwhich is the volatility of the stock)Intrinsic value of an option, is only greater than zero, if the option is "in the money" otherwiseits time value. The problem with options, is you may be right on direction, but wrong on time. In other words you buy an April 700 call on google, and come April google is at 699. Bust, you loose.But... Lets say in the meanswhile, google goesto 750, you call has 50$ intrinsic value, and"x" on time value. As an option trades deeper in themoney, time value decreases and it starts to trade closer to dollar for dollar.Maybe that option you bought for 60$ goes to 100$ when google spikes to 750? that option could be 80-100$ depending on the amount of time left in the option. If so sold, great, if you wated, google pulls back, and eventually your optionis worthless.Good traders set goals. I have a fast rule on options, double my money and I get out, period.(Ok, not always so fast), sometimesI use trailing stops.Now if you really want to get complex, you can short options.Example, you buy your google 700 call, (lets say April) and short a 750 call for January.This does two things. One good, one bad.Good, you get cash back if google never gets to750 buy 3rd friday of January. Bad if google goes to 800$ by January, as you are locked in at 750.Options can be used to purchase stock at a lowerprice.This would be shorting puts, and is longer than I can spend the time explaining.Options and option strategies are complex. They can be good and bad.Most brokers dont understand options and will tell you to stay away from them. Change brokers.A good broker can help you use options to hedge your stocks.

You can get part of the questions answered at http://answers.yahoo.com/question/index;_ylt=AjrQZMfOurEGRhWCS4uPepXsy6IX;_ylv=3?qid =20071201081919AAc2SrA&show=7#profile-info-466f438cb4ffe4f3667ac22a616eef19aaFor the second part of the question, you should choose the strike price at 700 cause you don't need to pay intrinsic value. You only pay the time value.One more consideration you have to take is the expiry month. I would advise you to buy at least 30days expiry because you will have more time to exit and to avoid the 'waterfall effect' of the premium paid.On the third question, if you purchase a GOOG Jan 700 Call @ 37.80, and let's say next week friday the stock price rise to 725. Your estimated premium will rise to approximately range from 50 to 55. In this scenario, you would have profited about 40-50%.If the stock price fall to 675, your premium will fall to the approximate range of 20-25. In this case your loss will be 30-40% of your capital. Please bear in mind that the premium will loose it's value as the day to expiry draws near. If the stock price remains at 693 until your options expiry, your 37.80 premium will expire worthless and your loss will be 37.80.

If you go to Yahoo Finance it will explain most of what you need to know. When buying options they are good for hedging against a stock moving against you, however you can buy them on their own as an investment strategy although it is riskier. When you buy an option you have to look at a couple of things, buy the options that have a delta between 70 & 90, and don't buy an option if the time value is more than the intrinsic value. The reasons are simple, the market makers can suck the time value out as soon as you buy it. Google is all time value so it is very risky. Usually you can figure your profit from the delta as an estimate, ie. if the delta is 70 your option should go up .70 cents for every dollar the stock moves. Very volatile stocks like Google can move in the opposite direction if the market maker has time and volatility to play with so that's why you must be very careful on those stocks. Look for better stocks with a volatility around 40 or lower. Happy trading.

well with an option, you have 2 things. You have the underlying price, and then you have a range of strike prices.Now if your shares are 693 and you thing think they are going UP then you buy a call. SO if you buy a call option at$690..that option is said to be IN THE MONEY already!!!so you will pay a much higher premium than to to buy an option with a strike price of $ 700.If you buy an option that is in the money, if the price goes up...your profits will increase at a faster rate than the optionyou bought that was out of the money!!!Eg lets say you bought an in the money option at 690 for $1.00 permium. so you would PAY $100. Now lets say theprice of the stock goes up by $1. Then the option will typically go up by $1. So now the option is at $2 so now your investment is worth $200so with the out of the money option.say a strike price of 700..if the stock price goes up by $1...the option is not in the money yet, so there won't be as much of an increase in the option price.I think the best strategy is to buy an option that is slightly OUT of the money..That way, you pay a lower premium, and if the price moves in your direction then you will make a good return.so if the stock price is 693..buy the $700 Call, or if there is one, a $695 call.Options are 10x riskier than stocks :) if the stock doesn;t move in the direction you need it to, your investment will expire worthless. If a stock you own doesn't move..well then you still own the stock for what you bought it at.