Quote:
Originally Posted by Tyga11
I just assumed I'd be in the money once I hit the strike price...to me this sounds like a system rigged against investors. Hit the strike price and still don't make money.
I'm long quite a bit of funds so not exactly a newbie...
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Not a rigged system at all. Options are derivative instruments that carry more price volatility and no dividend than their underlying stock. They also have a specific time to expiration. There is a premium that erodes over time; roughly this equates to the probability the option strike price (for a call) will be lower than the stock price at any time during the life of the option. As the life gets shorter (closer to expiration), that premium dissipates. On the expiration day, the option is worth the stock price less the strike price (not below zero), because there is no remaining time value. Nothing rigged about that, just math and statistics.
You should really get some options education, whether good books or online, and do some of the math by hand/calculator (Black-Scholes for example) to get a feel for it all.