Somebody gave a wonderful explanation of puts and calls but I am so clueless I need a couple of examples, if that same poster would be so kind.

From what I've been reading on this board ( I've been lurking for the last 2 weeks)it would seem that to buy a put on oil might be a wise/risky thing to do. Would I, say, buy $5000 in oil futures at $18 a barrel (the present cost being about$24+/-) then sell them when the price hits $18? My profit is the spread less commission. Do I 'bet' that this will happen WITHIN a given time period? Like now till May? Can I extend that time period? Can I do this on line without paying a commission?

Sorry if this is too OT, but I wouldn't be considering this if it weren't for y2k! I'm prepped and staying that way.

-- suzan macy (suzan@monad.net), January 13, 2000

Answers

Just don't buy oily shorts

-- (short@the.sheets), January 13, 2000.

First of all, you can't buy $5000 in oil futures. One contract of oil futures on NYMEX is worth about $24,470 of 1000 barrels of crude at current levels. Perhaps, you're talking about putting $5,000 down as "margin" for purchasing that $24,470 in crude oil.

Lemme ask ya, do you feel safe with that kind of leverage? Well, do ya?

Trying to decipher your saying "buying at 18 when it is at 24" i would guess means you want to own an option at a "strike price" of 18? Hmmm, deep out of the money options have a 99% probability of expiring worthless (assuming you're talking about puts).

If I were you, I'd invest in some serious time in "How to invest" classes and books before putting a dime in stocks or commodities.

-- Sandwich (anon@anon.anon), January 13, 2000.

I BUY MY SHORTS AT K-MART!!!

-- rainman (rainm@n.com), January 13, 2000.

Why do you think oil prices may go DOWN? Many people think they may go up. Speculation on commodity prices is notoriously risky even for the experienced.

-- Lars (lars@indy.net), January 13, 2000.

Good way to lose your shorts, ..whoops I mean panties.

-- wayne (wayne@yahoo.com), January 13, 2000.

Suzan,

Futures are very risky. You can lose more, much more, than your initial investment. If you do not understand how they work, it would be doubly risky for you to trade them.

Jerry

-- Jerry B (skeptic76@erols.com), January 13, 2000.

Susan -- remember the disclaimers on TV stunts -- "don't try this at home -- professionals only." The fact that you have so many questions means you should not get involved. There is no "10-minute Commodities Expert" book. Not even "An Idiot's Guide to Commodities" or "Commodities for Dummies" book that I know of.

In commodities, there is always another train leaving the station. In commodities, it is just as easy to make money in a bear market as in a bull market, as opposed to stocks. Don't chase this train unless you have all the "baggage" (knowledge) you need for the trip. Wait until you have "your bags packed correctly" (knowledge you need), then decide what train you're going to ride. It may not be oil, then. It might be wheat, or soybean meal, or ....

And very basically, you need to know the difference between a futures contract and an option, and how options relate to the futures contracts.

Look on Amazon.com for books. Pick up "Futures" magazine on the newsstand.

-- A (A@AisA.com), January 13, 2000.

Wow! You guys are great, thanks so much for all the input. I guess I won't be hanging my hat on anyone's shorts. Just too scary...and I definately don't want to mess with the insiders.

Suzan

-- suzan (suzan@monad.net), January 13, 2000.

Hi Susan, Crude oil options are a better play. The upside to oil options are the following: risk limited to the amount of money paid for oil options(futures have unlimited risk). Also if you lose you can deduct the loss(up to $3000) from Fed. Capital gains taxes. Hopefully you don't "bet" but educate yourself before proceeding as all forms of derivitives are extremely risky. Yes, you are buying with time and price,and if you win you pocket the difference between the contract price and the amount that the contract was sold for (minus the commissions). You can purchase these up to and sometimes farther out than a year. if a person wished to purchase stock options farther out you can buy LEAPS going out 2-3 years. You cannot extend the time period but if you are "in the money" at contract expiration you can rollover into the future and take some profit. You have to pay commisions no matter if you are online or not. I myself have purchased crude oil(each contract ranging in price from $100 to $160 per contract and controlling 1000 barrels), gold(each contolling 100 ozs.),silver, platinum, palladium, etc. going in time from next month to Jan. 2001, and will keep on going forward LONG(I believe firmly that ALL commodities- my belief) will continue to rise in value and pay off big sometime in the future) If you are serious and want to learn more, post me and I will repost and give my email. I can give you info about cheapest online brokers and answer whatever questions you may have on how to get started. If you do decide to start trading, make very sure this is money you can lose and not be concerned about(like rent, food, etc.). Futures and options are NOT for the faint hearted. Hope this helped and take care.

-- (dorado@doco.com), January 13, 2000.