Micron Technology, Inc (NASDAQ:MU)’s options the best option
New options for the 2 August expiration were traded for Micron Technology, Inc (NASDAQ:MU), on Thursday and there is one call and one put contract that is particularly an interesting one. The put contract at the strike price of $14.00 has a 63 cents current bid. If an investor were to sell-to-open that particular put contract, the commitment will be to buy the stock at $14.00 and they will collect the premium as well, which, before broker commission, puts the cost-basis of the shares at $13.37. To an investor who is already interested in buying MU shares, this may be an attractive alternative to paying $14.38 per share, today.
What are options?
Options are contracts that give the buyer the right, which is not an obligation, to either buy or sell a particular underlying asset at a certain price either on or before a set date. Like a bond or stock, an option is a security. Apart from this, it is also a binding contract that has strictly defined properties and terms.
It’s not too difficult to understand what an option is and there are several everyday situations which have similar connotations. For example, consider a situation wherein you zero-in on a property that you want to buy but do not have the funds to buy it at that point of time, but will, say two months down the line. You speak to the owner and settle on a deal that gives you the option to purchase the property in two months for a price of $100,000. The owner has agreed to this but you will have to pay a $2,000 price for it now.
Also called derivatives
This particular example demonstrates two important things. Firstly, when you purchased that option, you have the right but are not obligated to do anything. If you let the expiration date lapse, the option will be rendered worthless. In this case you stand to lose your entire investment. Secondly, an option is no more than a contract that deals with the underlying asset. This is exactly why options are called derivatives. In the case of new options that Micron Technology, Inc (NASDAQ:MU) has announced, the stock is the asset.