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So who here trades options on the market? I have opened an account and am currently researching companies. I understand the basic concepts of Call and Puts and will take positions conservatively in the beginning but I plan to become very aggressive as I continue my eduaction at the School of Hard Knocks.
Every time I have bought calls or puts I have lost; typically I would buy or short the chart, or had a buddy say "these guys are going to get bought out...just you watch." I don't do dat no mo.
It seems the money is in selling the premium, and not in buying the speculation. I do wish I had done more call writing against positions I had, as a way to lower my cost (or collect premium).
Best of luck, and be careful. 100k can become 30k in almost as quick a time as in a commodity futures trading account.
Hi Guys,
Even though I am 14 Time Zones away I am also a share (stock) person. I have been investing
in shares since 1985 when I got out of the Army. IMHO futures trading is just one step above day trading. The learning curve is steep & you will need deep pockets as well as BIG balls.
If you want to get into the market, follow the advice of Warren Buffett.......buy undervalued
shares in good companies with potential upside & WAIT.
I am currently in the process of learning about "covered" options.(not "uncovered").
If you own a stock selling at, say $40, there are people who are willing to pay you a premium to go into a contract to buy your stock if it goes to a higher price, say $46, in a specified # of months( generally 6 to 18 months). If it hits above $46 you must sell them at $46 and keep the premium. If it does not reach $46 the contract expires and you keep the premium.
Your only loss would be that you must sell at $46. Any amount over that would be your "paper" loss. Of course, if you could always buy it again on the open market.
Your job is to only go into contract with stock that you do not believe will reach the contract price within the specified time.
1. Options trading is NOT like what you see on the infomercials.
2. Options trading makes many more losers than it does winners.
3. If you insist on writing your own without any adivice from a pro, then be prepared to follow the markets every day. Following means not only what the open and close were, but all the news relative to what you have an interest in. Some people use the Ostrich approach...go figure.
4. Have plenty of antacid on hand.
5. Your testicles WILL shrink.
IF you get lucky (and that's what it is for amateurs) and hit. Take your profit and do not return.
I won't argue my points, as this topic always gets plenty of arguments and goes on for pages...
I am putting them out there for consideration. Do what you want. Caveat Emptor.
Big Al
option-al
__________________ "Pedophiles must die" - Ted Nugent
I am simply looking for other alternatives to invest less than $5k in. I have my typical portfolio of stocks including some Google I purchased a couple of months ago, Wal-Mart, Wachovia, and more recently SAIC (SAI). I think the SAIC has the potential to be $30+ by their first earnings report.
I think what Snapper is trying to convey is that Options are very volatile. I have never seen any infomercials on them, but have just been researching how thhey work.
Listen to Snapper. It is a loser's game. What you are looking to do is gamble, not invest. Options can be used for investment purposes, usually as a hedge (like insurance) or an income generator (such as selling covered calls). Take a look at www.cboe.com. This is the Chicago Board Options Exchange. There is a section called the learning center. There are downloadable spreadsheets to analyse positions. If you are going to do it with professional results, you will need to understand things like Black-Scholes formula and the Greek symbols used.
Jeff
__________________ 2003 Sea Pro 220 CC
2003 Yamaha 200 HPDI
2009 Ace Dual Axle Trailer
I will give a word or two of advice myself here, being that I am a financial advisor and manage money for my clients everyday. Mind you this is just general advice and everyone is different.
As a professional advisor I will share with you how much of my client's portfolio is in options---0%. That number has never changed in the 9 years I have been in the business. Can money be made on options? Definately. Mostly by the institutions though. I have seen far too many intelligent and studious people lose time after time trying to "make fast money" in options. I believe the odds are stacked too far against the individual investor in these markets and really equate them with trying your hand in Vegas. (except Vegas would be much more fun)
Now, having said all that, the "covered call" option mentioned earlier is generaly considered less risky than other options. It was described well in that you are selling a right to buy a stock you already own at a predetermined price higher than it's current value within a specified amount of time. Even here I find some contradictions that are hard for me to justify. In selling this call you are hoping that a stock you already own does NOT go up in value much over that time so you can just collect the premium. Does that sound wierd to anyone, hoping your stock does not go up? Yea, me too. People will say worst case scenario you have to sell your stock at the exercise price and all you lose are "paper" gains by not taking part in the stock growth. First of all, that still hurts. Secondly, dont forget the tax man has now arrived to collect his due. You just executed a stock sale, what was your cost basis in that stock? If it is a stock you have owned a while and have a low basis in, there will be a sizeable gain you now have to declare for this year, whether you want to or not. If it is a stock you have bought less that 12 months ago, well now Uncle Sam gets to forego the capital gains rate and tax you at your income rate.
Blah, blah, blah. I could go on for quite a while about this stuff, but I am even boring myself. Just let me finish by saying that options are incredibly tricky and have all sorts of implications that are not apparent on the surface many times. Unless you just want some excitement factor without the guilt of legalized gambling, I would steer clear of them. I will boil it down to this....."Options are fine for play money, but money you want to count on for your future should never touch them." At least that is my opnion, but like I said, everyone is different. If this tirade spurs any other questions, feel free to PM if you want or post them here and I will try and check back on this thread once or twice. Impressive the knowledge this board has even on a tricky subject like this though.
__________________
"Always do sober what you said you'd do drunk. That will teach you to keep your mouth shut"--Ernest Hemingway
I agree with you. From experience too. But educational tax question: SHould you write a covered call, and the stock goes up and your option is excercised, can you just buy the stock in the open market at that point and not use your much lower tax-base stock?
I am not a tax guru and when things get complicated my clients get referred to a good CPA/Tax Attorney I know. However what you suggest at is possible, or at least it used to be. I have not come up against this in quite a while but I dont think the tax law changes a couple years ago did anything in this field. However, it does mean you have to have enough spare cash on hand to essentially double your holding in that stock for a brief time due to settlement laws on trading. Yes you could do it on margin assuming you are set up that way, but that will incur an addtional charge. All this for a premium that I often find less than substantial. Hence why I avoid options like the plague.
__________________
"Always do sober what you said you'd do drunk. That will teach you to keep your mouth shut"--Ernest Hemingway
I am simply looking for other alternatives to invest less than $5k in. I have my typical portfolio of stocks including some Google I purchased a couple of months ago, Wal-Mart, Wachovia, and more recently SAIC (SAI). I think the SAIC has the potential to be $30+ by their first earnings report.
I think what Snapper is trying to convey is that Options are very volatile. I have never seen any infomercials on them, but have just been researching how thhey work.
You may want to consider buying deep in the money long term call options, instead of stocks. You can tailor your leverage, limit your risk and therefore more comfortably ride out shorter term declines in the underlying stock while fully participating in any upside move.
Options are a great investing tool, most people just use them incorrectly.
There's an old joke about how you make a million dollars in the option market. The answer is start with 2 million dollars.
Having said that, I've been living off my option investing for the last 12 years. It does require full time participation. It's not something you can do in a couple hours a day or in your spare time. My recomendation is set up a sample portfolio for yourself and operate it for a year or more, don't cheat, and see how you do. That will tell you if you have the time, skill and luck to trade options.
Well the way I see it, option trading allows me to purchase the right to excercise a particular stock without owning the stock. I like this since I am only 33 years old and have some money to play with, I can always make it back. Secondly, it allows me to purchase the right to excercise at a discount. For example, how many people can afford Google right now trading at $476. If I were to buy a block of 100 shares of stock (not options) right now the initial investment of $47600 is more than some people have in equity in their homes. I can buy the right to excercise it in a pre-determined time-span (30days+ depending when you pruchase the call/put) for dang near less than 10% depending on what call/put you purchase.
Is it a gamble, aren't all stocks a gamble? They are all what-ifs! becuase you are betting on how well a company's earnings are going to be in the future; now add the human factor in that and I consider this a bigger gamble than roulette in Vegas. At least in vegas the odds of winning roulette have been computed prior to me placing chips on numbers, red. or black.
I'm still trying to learn this stock trading. I am trying to teach myself so that I can augment my current salary and earnings. I have yet to place in money in options, I only own stocks right now.
Pelag, the problem with this is that as the exercise date approaches MOST of the value for "out of the money" options, and some for "in the money" ones, is in time value and it disappears!
So you have to cover that PLUS make money.
There are circumstances where this is worthwhile to do. For example, if you're reasonably sure Haliburton is going to go up $20, and you want maximum return if it does, AND you are willing to lose the entire bet if you're wrong, you can buy a CALL on HAL.
A call that is out of the money will be cheap relative to the underlying price. BUT - if the stock doesn't go where you think it will, your purchase is worth ZERO!
Lots of money can be made this way but you will take plenty of 100% losses. I do occasionally play options and have a positive score over time, but trying to live off it is another matter. That is like playing Texas Hold-Em with the rent money - it only takes one "bad beat" to screw you and HARD.
Do a little more research before jumping in. Its not as easy or as simple as many will lend you to believe. Some very basics may turn you off to participating in this game. To me, roulette odds are better than pure options trading.
What you said is partially true. Its a right, but a right to buy or sell at a predetermined price, not at the current market. Many more options expire than are typically exercised. Mainly the rights are bought and sold prior to expiration and the last one holding the bag "looses". Its referred to as a zero sum game because in the end, zero "value" is created-money is just redistributed. Ideally and simplistically, a stock price rises as the "value" of the company increases. So for every story you heard about someone making a "killing" in options, someone, or some people somewhere else, lost that "killing".
Remember, the option derrives its price basically from three components: volatility, time, and the underlying stock. One of these components(time) is racing to zero every second you own the right, so that's a hard thing to overcome. Now if you are writing the option, time is your friend, but if its covered, that's a lot of captial to have tied up and the return won't be so great. Most people I knew who play options (years ago) write them naked, but from the amount of money you are discussing, I doubt you would meet the brokerage's capital requirement to do so.
There is a lot more out there than just stocks and options. I feel your looking at the two ends of the specturm. And look to how the market was doing before the great dot.com bubble and enron - very different.
Now, having said all that, the "covered call" option mentioned earlier is generaly considered less risky than other options. It was described well in that you are selling a right to buy a stock you already own at a predetermined price higher than it's current value within a specified amount of time. Even here I find some contradictions that are hard for me to justify. In selling this call you are hoping that a stock you already own does NOT go up in value much over that time so you can just collect the premium. Does that sound wierd to anyone, hoping your stock does not go up? Yea, me too. People will say worst case scenario you have to sell your stock at the exercise price and all you lose are "paper" gains by not taking part in the stock growth. First of all, that still hurts. Secondly, dont forget the tax man has now arrived to collect his due. You just executed a stock sale, what was your cost basis in that stock? If it is a stock you have owned a while and have a low basis in, there will be a sizeable gain you now have to declare for this year, whether you want to or not. If it is a stock you have bought less that 12 months ago, well now Uncle Sam gets to forego the capital gains rate and tax you at your income rate.
All good points! If I were to do it( jury's out) it would be with value stocks that I do not believe will increase significantly in the near future( 10- 15% in 6-12 months) and would bet(yup,bet) against someone who thinks they will. Taxes are important to consider unless you have some off- setting losses or carry forward losses( remember the tech bubble?)
I agree with most of the others that options are not where most people should be.
Options Trading 
