I can't figure this out. Everyone tells me to go read something/somewhere and I end up more confused than before. I'm going to use RH as an example just because that makes it easy to explain. Let's say ABCD is at $10 a share and I think the price will go up. So I buy the call. Low and behold, the price goes up. I'm in the money!!! Now, say I don't have the $1000 to buy those stocks. I can then sell that call to someone else. Lets say I do that, and the price goes up more. Can that person come to me and insist that I sell him those stocks at the strike price? In other words, if I buy a call and then sell it, what is my risk? Thanks
Thats the idea behind 99% of option trading, you want to buy it, then sell it without exercising the call or put. The risk is that there is a time element involved. Calls and puts expire, also the time premium makes up a huge part of the price of the option. You need to be right about the direction and the timing. You also need to be aware that there is a volatility premium. If a stock has made big moves, volatility makes the option a lot more expensive. You can be right on the price, the time and still lose money if the stock does not move fast enough! Options are way more risky than equities, when you are wrong they go to zero, but obviously pay a lot more when things go right.
So, then, my risk is only what I pay for the option? Therefore, if I buy an option for $25, that's the most I can lose?
As long as you sell it your risk is done. If you hold to expiration your platform may exercise it and take you into margin.
