David H. Colburn, J.D. & Robert S. Colburn
are pleased to announce the formation of

colbumcolbum

Optional Investment

INSURANCE & RISK SERVICES

Making sense of option contracts.

Could you explain
that the stock of XYX Corp. will
options?
be less than $60 per share at any
A. An equity option is a
time prior to the expiration date
contract that conveys to its holder
of the option, that investor might
the right, but not the obligation, to
be inclined to buy the May 60 put,
buy (in the case of a
depending on the current
call) or sell (in the case
price of the XYZ Corp. shares
of a put) shares of the
and the cost of the put.
underlying security,
When you buy an option,
usually a stock or ETF,
the purchase price is called
at a specified price
the premium. If you sell, the
(the strike price) on
premium is the amount you
or before a given date
receive.
(expiration day).
The premium isn't fixed
After this given date,
and changes constantly; so
the option ceases to exist.
the premium you pay today
Norton S tern
The seller of an option is,
is likely to be higher or lower
Colum nist
in turn, obligated to sell
than the premium yesterday
(in the case of a call) or buy (in the
or tomorrow.
case of a put) the shares to (or from)
If you buy options, you start out
the buyer of the option at the specified with what's known as a net debit. That
means you've spent money you might
price upon the buyer's request.
Sound confusing? It's really not as
never recover if you don't sell your
option at a profit or exercise it.
bad as it looks.
Here's an example. Let's say an
What a particular options con-
American-style XYZ Corp. May 60
tract is worth to a buyer or seller is
call entitles the buyer to purchase 100
measured by how likely it is to meet
their expecta-
tions. In the
What a particular options contract is
language of
that's
worth to a buyer or seller is measured by options,
determined
how likely it is to meet their expectations. by whether or
not the option
is, or is likely
shares of XYZ Corp. common stock
to be, in-the-money or out-of-the-
at $60 per share at any time prior to
money at expiration.
the option's expiration date in May.
A call option is in-the-money if the
Likewise, an American-style XYZ
current market value of the underly-
ing stock is above the exercise price
corp. May 60 put entitles the buyer to
sell 100 shares of XYZ Corp. common
of the option, and out-of-the-money
stock at $60 per share at any time
if the stock is below the exercise
prior to the option's expiration date in
price.
If an option is not-in-the-money at
May.
Since an option is simply a contract
expiration, the option is assumed to be
involving a buyer's willingness to pay a worthless.
price to obtain certain rights in return
An investor should never invest in
for the price, it's pretty easy to see
options without consulting a knowl-
which investor might be interested in
edgeable advisor who can explain all
owning an option in XYZ Corp.
of the costs and risks that are always
If the current price of XYZ Corp.
present in option investments.
is less than $60 per share at any time
prior to the option expiration date in
Norton Stern is a registered principal with
May, and if an investor felt that XYZ
Franklin Financial Investments, Southfield.
Corp. share price will be $60 or higher
(248) 262-8810. Investments are offered
through Wachovia Securities Financial
at any time prior to the expiration
Network, LLC. This informational material
date, that investor might be willing to
is not a solicitation of an offer to buy any
pay the purchase price to buy the May
60 call.
security or instrument or to participate in
If, however, an investor believes
any trading strategy.

We are proud to continue our family's
legacy of excellence which has spanned
two generations of leadership in the
insurance industry.

Please note our new contact
information:

121 W. Long Lake Road, Second Floor - Suite 220
Bloomfield Hills, Michigan 48304
P 248-594-6444 F 248-594-6445 colburncolburn.com

1329480

P

russell hardware maw

FINE DOOR & CABINE I" HARDWARE
PLUMBIN( & BATH ACCESSORIE.';

Since 1910

❑

BA LDWI N

ARCH ETYPES

www russellhardware.com

36280 Woodward Ave.. Bloomfield Hills, MI
(248) 644-0100 • Fax: (248) 644-6056

2605 Charlevoix Ave. (US 31), Petoskey, Ml
(231) 348-8100 • Fax: (231) 348-8118

iN

December 13 6 2007

A39