Options let you dip your toes in the stock market without diving all the way in. They give you the right, but not the obligation, to buy or sell stock for a predetermined price, called the strike price. Each stock has call options and put options available at various strike prices. A call option gives you the right to buy stock, while a put gives you the right to sell. For a particular strike price, you can calculate the cost to buy a call or put option and the cost to use it.
Visit any financial website that provides options quotes. Type a company’s name or its stock’s ticker symbol into the options quotes text box and click “Get Quote” to view its available options arranged in tables.
Click one of the months on the page to see the options expiring that month. You can trade or use an option up until the third Friday of the expiration month. For example, if you want to review options expiring in January of next year, click that month.
Find your desired strike price in the “Strike” column in the middle of the table. Each row contains information on the call and put options for the designated strike price. Strike prices range from less than the current stock price to greater than the stock price. In this example, assume the stock’s price is $30 and its options have strike prices ranging from $15 to $50 in $1 increments. Assume you’ll calculate an option with a $35 strike price.
Identify the amount in the “Ask” column in the row of your selected strike price. There are two different ask columns. Use the one to the left of the strike column for call options. Use the one to the right for puts. The ask price is an option’s per-share purchase price. In this example, assume you’re considering buying a call option with a $1 ask price.
Multiply the ask price by 100 to calculate the total price to buy one option contract. Each contract represents 100 shares of stock. In this example, multiply $1 by 100 to get a purchase price of $100 for one call option contract. This doesn’t get you the actual stock -- only the right to buy stock.
Multiply the strike price by 100 to calculate the additional amount you’ll pay to use the option to buy or sell stock. Concluding the example, multiply $35 by 100 to get $3,500. This means you can buy 100 shares of the stock for $3,500 before the option expires in January.
- You can also sell an option without using it before it expires. The selling price equals the “bid” price times 100. The bid column on the left side of the table refers to call options, while the one on the right refers to puts. For example, an option with a 90 cent bid price has a selling price of $90.
- Comstock/Comstock/Getty Images
- How to Trade Leveraged Stock Options
- How to Take Advantage of Theta Decay in Options
- How to Determine Strike Price for a Covered Call
- Can I Hedge a Call Option With a Put Option?
- Why Is a Call Option Called a Call?
- How to Calculate Diluted Shares from Options
- How to Trade Hourly Binary Options
- How Option Trading Stocks Work