OPTIONS

A Brief Introduction

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For the Week of 9/25/97 to 10/2/97

Options are contracts that give you the Right to Buy or Sell a Specific Stock at a Specific Price (called the Strike Price).

All I will be including here are just the Very Basics of Options (I'm not going to get into Naked versus Covered, or Straddles and Spreads).

A Brief "Commercial" Word:

General Terminology

Strike Price - the Price at which the Stock may be Bought or Sold

Expiration Date - the date that this right expires. Options expire on the 3rd Friday of each month.

Time Value Value of the contract will also change with time. That is why if the price stays "stalled" it can start to cost you money.

Contract - Options contracts represent 100 shares. If the price of the option is listed in the paper at 2 1/2 , the actual amount of money needed to buy 1 contract would be $250.00 (Plus commission)

Example Order 2 MMM Nov 95 Calls You want contracts on 200 shares of MMM that will expire on the 3rd Friday in November and you think the price will be at or above 95 within that time period.

PUTS

A PUT is a right to SELL a Specific Stock at a Specific Price and in a Specific Period of Time. You would Buy a PUT if you expect the price of the underlying stock to go DOWN.

CALLS

A CALL is a right to BUY a Specific Stock at a Specific Price and in a Specific Period of Time. You would Buy a CALL if you expect the price of the underlying stock to go UP.

Again, this is all just a very simplistic explanation of options - there are also very complex strategies of buying and selling in combinations and also relating to whether you own the underlying stock. For the STOCK SPLIT STRATEGY using OPTIONS though these basics should help.

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Last revised: June 27, 1998.