Day Trading

Question: "Assume I purchased call options with a strike price of 105 rs when a stock was at 100 rs per share. If the stock goes to 106 rs can I sell the option at that time?"

Answer: Yes. You can sell the option any time prior to expiration. It does not matter if the stock is (or ever has been) above the strike price.

Question: "It the stock goes up to 106 then comes back down to 99 can I say it reached the strike price?"

Answer: Yes, it reached the strike price, but that makes no difference whatsoever. The price of the option depends upon several factors, one of which is the current price of the stock. Any previous price at which the stock traded is not a factor.

Question: "Should I have sold the option when the stock was at 106 rs?"

Answer: You would get more money by selling the option when the stock was at the higher price, but at the time the stock was at 106 rs you had no way of knowing if the stock would keep going up or if it would go down. Consequently, when the stock was at 106 rs you had no way of knowing that it would be better to sell it at that time.

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From your question I strongly encourage you to learn more about options trading before investing any real money in options.

As for sources, check with your brokerage. Many of them make learning tools available to their clients.

Best of success.

http://888options.com

You can also find out a lot more info about trading and options on these free sites which are recognized by Y! A as "Knowledge Contributors"

http://investopedia.com

AND

http://yahoofinance.com

As far as "day trading" is concerned:

THE BIGGEST challenge is having $25,000 CASH on-hand in a trading account at all times. This does not include any trades or positions. This is cold, hard cash.

Once the balance goes below this, certain restrictions are instituted.

Thanks for asking your Q! I enjoyed answering it!

VTY,
Ron Berue
Yes, that is my real last name!

1) Get cash up front.
2) Will make money beyond the cash you get up front if the option is actually excercised (assuming the strike price of the option you sell is greater than the current price of the stock your selling.)
3) Aren't taking any big risks that you wouldn't be taking anyway by holding the stock.

Of course you risk making less money that you'd otherwise make if you simply held the stock and it goes well above the strike price. But most options expire worthless, and quite a few of the ones that don't probably still don't make enough to cover the contract price (ie your still better off).

How much you can make doing this depends on the stocks you invest in and the manner in which you do it. Not shockingly people are willing to pay more for options on a hot growth stock like Apple (a Sept 140 call contract trades for $420, slightly more than a 3% yield) than they are for a value stock like Walmart (a Sept 45 trades at $45, a 1% yield). Also the closer the strike price is to the stock's current price the more its worth but the more likely it is that the contract will be excercised (an Apple Sept 140 contract is worth $420, a 150 is worth $140, a 160 $45, etc). I generally sell contracts that are short term and fairly far out of the money (as far as I can go while still making a decent return).

Okay, that was a lot…

Buying calls or puts is obviously far riskier. My advice would be that you should only buy options rarely, if at all, and look for options that don't expire for at least a year (more time is relatively cheap when buying options–the first month is the most expensive, as is the first year, etc).

And to answer your originial question– unless you are VERY lucky (and have taken a huge amount of risk) I doubt you could make a living in the short term off of options. But you should be able to augment your returns by selling calls and over the long term that can help the 20k grow.

Good luck.

Here's how it works:

Before you can trade options, you have to apply for options trading.

Most applications are reviewed and approved within 5 business days.

After being approved, decide whether you want to write a covered call, or trade calls or puts.

Options Strategies

* Covered Calls
Sell a covered call to generate income on a stock position you already own. This strategy is designed for conservative investors who are neutral to moderately bullish on a stock currently owned and are willing to sell the stock at a pre-determined price in exchange for receiving a premium for selling the call option.
* Trading Calls & Puts
Buy calls and puts to speculate on the price of a stock. Investors can buy long call options when they feel the price of the underlying stock will increase, or buy long put options when they feel the price will decrease.

Back to your example. Please consider another theory. You didn't capture the 5 point "discrepancy". You might have been profitable because there was a big follow thru when the primary market opened and you caught some of that move. I have done this, and when it works, it works well, but sometimes there is no follow thru, or worse, there is a backlash, so being ready to exit promptly when the trade is not forming is crucial to success.