May 30, 2005

Okay… so here’s what I’ve done. I just purchased a couple of options. Both were options for the stocks that I just mentioned. This allows me to leverage the amount of money that I actually invest. I can have the purchase power of a lot stocks, without the actual investment of a lot of money.

So, I’ve purchased a stock option of JP Morgan (JPM) for $37.50. The option was an order for 1 contract (100 shares) and the order price was $0.15 per contract ($15.00 for the 100 shares) plus commission. All options are exercisable until the third Friday of the month. I purchased mine to expire on the third Friday of June… June 17, 2005. That means if the stock gets to $45.00 I can purchase the shares at a discounted rate of $37.50.

To make this purchase I:

1. Went to my online broker and chose “Buy to Open”
2. Chose the number of contract I wanted to purchase (1 contract = 100 shares)
3. looked up the symbol for the exercise price and expiration date that I wanted
4. chose a limit order
5. gave the limit price that I was willing to pay for the contract
6. Chose the duration to be “Good until Cancelled”

It was actually quite simple. Now, I just have to make sure that the stock price rises past the actual break even point (all expenses divided by 100). My break even point is calculated by looking at all of my expenses.

Cost to purchase the option: $15.00
Cost of commission for purchasing the option: $8.25
Cost to Buy the entire contract: $3750.00 (exercise price * shares)
Cost of commission to buy the entire contract: $7.00
Cost to sell the entire contract: $7.00
—————————–
Total expenses of: $3787.25

Meaning that to break even, the stock must raise above $37.88.

The other option that I purchased was an option to buy Cimarex Energy for $40.00 before the end of the third Friday of June. I purchased one contract for $0.25 per share and total expenses will exceed $4047. So to break even, the stock must rise above $40.48.

Now, we did our research, chose our best players, and set them in the market. We can now hope the market treats them good! We’ll see in a month.