How to buy options on a specific security?

Question

I want to buy a few call options, in my 401(k), for a specific security. I'm aware of the risks inherent to option trading, and this will be a small part of my overall strategy.

Here are my questions:

1. If I see in my brokerage window a call instance for a given strike price and expiration date with a volume of 0, does it mean that there is none to buy?

2. Same question for "OpenInt", which I suppose stands for open interest. If I see a number of, say, 50, does it mean that there are buyers for 50 contracts? Or is it sellers?

3. Is there a most efficient number of contracts to trade?

4. Is there a minimum amount of $ under which it makes no sense to buy calls? E.g., would it be rational to buy calls with say $1,000? How about $10,000?

5. Why do I see options (on GLD in this example) that are said to be in the money by my broker until strike price of 167, and out of the money starting at 168, when the price of gold is above $1,700? Is that net of some fees?

Thank you.

JDelage

Answer 1

Is option trading permitted in the account? Most 401(k) do not permit this.

1 - it means none traded today.

2 - there are 50 outstanding contracts. Each one has a guy who is long and a guy who is short.

3 - not really, it might depend on the stock.

4 - no. With commissions so low, and the inherent leverage of options, one contract reflecting 100 shares of the underlying stock, the minimum is what you can sleep soundly with.

5 - because GLD does not reflect precisely 1/10 oz of gold's price. If you look at the prospectus, it reads "The investment objective of the Trust is for the Shares to reflect the performance of the price of gold bullion, less the Trust’s expenses." Since there are no dividends to take expenses from, the GLD price will erode by .4% each year compared to the price of 1/10oz gold.