I’ll be honest, a lot of that is like a 2nd language to me, and I just don’t have that much time to sit and learn all of it, as it seems rather in depth.
I hold 50 shares in AAPL, for over a year now, so that alone is bringing nice returns, and I don’t see it changing anytime soon either.
I’ll need to learn how price calls work, because this doesn’t make much sense at this point.
[quote]RSGZ wrote:
I’ll be honest, a lot of that is like a 2nd language to me, and I just don’t have that much time to sit and learn all of it, as it seems rather in depth.
I hold 50 shares in AAPL, for over a year now, so that alone is bringing nice returns, and I don’t see it changing anytime soon either.
I’ll need to learn how price calls work, because this doesn’t make much sense at this point. (Paying $56.55 a share when the price is $455?)[/quote]
You pay a premium for the right to buy a stock (or any security) at a certain price before a certain date. If you guess right, you cash in. If you guess wrong, you only lose the premium.
But I agree with the guy who said most people have no business dabbling in the stock market. Put your money in a 401(k) and let professionals handle it.
I see apple anywhere from 550-750 next 24 months, a lot will hinge on the sucess of the iphone 5 ipad 3 and the new apple tv.
In short, there are two options, calls and puts
Put is a right to sell at a certain price or strike price
Call is a right to buy at a certain price or strike price
If you believe the stock is going to fall, you buy a put, ie stock is currently trading for $100/share, you believe it is overvalued relative to its peers or something along those lines, you could say buy a put option to sell it at $95/share. You will pay a premium to own the put rights to the share, premium price is based on how close it is to the actual share price as well as the time horizon, puts for 2013 and 2014 are going to be substantially more than puts due in a couple months. Assume you pay $7 per put option.
Assume you are correct in your assumptions, stock price drops %20, Stock is now trading at $80 a share. Your put option will now be worth at minimum $15. $95(strike price you bought it at)less $80(current price) = $15.
Calls are essentially the opposite, you are speculating the stock is going to go higher. You would buy calls that are higher than the price of the security and pay some same sort of premium, as the share price rises, your call option per share rises.
Options allow you to have bit more leverage and your gains are bigger than owning the individual shares. Your risk is also potentially %100.
In the above topic example, 10k worth of apple shares at $370 would be 27 shares. Current price of $456*27 shares= $12312 Upside can be a lot more profound with options but also a ton more volatile.
Don’t know if that sheds any more light on the subject.
[quote]Hubbend wrote:
I see apple anywhere from 550-750 next 24 months, a lot will hinge on the sucess of the iphone 5 ipad 3 and the new apple tv.
In short, there are two options, calls and puts
Put is a right to sell at a certain price or strike price
Call is a right to buy at a certain price or strike price
If you believe the stock is going to fall, you buy a put, ie stock is currently trading for $100/share, you believe it is overvalued relative to its peers or something along those lines, you could say buy a put option to sell it at $95/share. You will pay a premium to own the put rights to the share, premium price is based on how close it is to the actual share price as well as the time horizon, puts for 2013 and 2014 are going to be substantially more than puts due in a couple months. Assume you pay $7 per put option.
Assume you are correct in your assumptions, stock price drops %20, Stock is now trading at $80 a share. Your put option will now be worth at minimum $15. $95(strike price you bought it at)less $80(current price) = $15.
Calls are essentially the opposite, you are speculating the stock is going to go higher. You would buy calls that are higher than the price of the security and pay some same sort of premium, as the share price rises, your call option per share rises.
Options allow you to have bit more leverage and your gains are bigger than owning the individual shares. Your risk is also potentially %100.
In the above topic example, 10k worth of apple shares at $370 would be 27 shares. Current price of $456*27 shares= $12312 Upside can be a lot more profound with options but also a ton more volatile.
Don’t know if that sheds any more light on the subject.
[/quote]
That does actually make sense, thanks for taking the time to write it up.
Something crazy like 75% of hedgefunds fail to outperform the S & P index, and they are the (self proclaimed) masters of the universe.
Also read up on ‘The Efficient Market Hypothesis’ and Malkiel’s ‘Random Walk’ theory, enlightening.
Best to try simulation games to see just how hard it is to make consistent above average returns factoring in the risk
If you want to invest in anything, invest in gold/palladium/oil futures with all the tension in the middle east
[quote]Hubbend wrote:
In short, there are two options, calls and puts
Put is a right to sell at a certain price or strike price
Call is a right to buy at a certain price or strike price
If you believe the stock is going to fall, you buy a put…
[/quote]
To add on to what Hubbend said, you can also sell a call. If you buy a put, you pay for the right (but not the obligation) to sell at the strike price at expiration. However, when you buy a put you pay a premium to the seller. The seller collects the premium, but agrees to purchase the stock from you upon expiration at the strike if you choose to exercise. If you were to sell a call, you’d also profit if the stock went down because you’d keep the premium you collected.
When you trade options, essentially you’re trading volatility. When vol is high, you want to be a seller of puts and calls because you pocket more premium. When vol is low, you can purchase the options without having to pay as much (although I’m still a seller when vol is low).
Thats all very interesting. I never could find a good resource that discusses options trading. I tend to invest in stocks with my discretionary money only, so I figure the upside of options with those funds is worth the increased risk for me.
Any recommendations?
This book is one of the best, but some familiarity with markets and financial instruments would help.
Keep in mind, options get very complex, very quickly. Options are to stock trading as chess is to tic-tac-toe. Wait until you’re up at 3 AM pounding Red Bulls because your gamma scalps need to pay for your theta. Fun times.
666
Seekingalpha, read the long/short ideas.
I started with around $500 and now am trading close to $5000 in under a year, not big money, but throwing it in a buy and hold strategy would not return like that unless you rigged a penny stock.
This year,
I am long Sirius (SIRI), ZAGG(ZAGG), short Netflix(NFLX)
Somewhat want to dabble in overstock, I think it will see bankruptcy in the next 24 months, same with CRM(salesforce.com)
It is going to be interesting to see what kind of effect, facebooks IPO has on a lot of the other social media sites. Could see a spike in linkedin and some of the chineese social media sites like renren(RENN). Google may even get a little bump, as it has taken a bit of a hit this year.
In addition to seeking alpha, check out investopedia for definitions and an introduction to a lot of the basics and some intermediate trading. There are some pretty good articles over there on options and option strategies if that is what you are interested in.
I would also recommend opening an account with one of the major online brokers right away. Just put some money into the account but don’t actually invest in anything until you are ready. This way you get access to all of the information, screeners, charts, etc. and can really start learning a lot. You also get free stock reports. I use scottrade and they provide you S&P, reuters, and second opinion weekly reports.
I think I approach my account similar to some of the other posters here. I fund my retirement accounts before anything else and leave them in index and target retirement funds with low fees and basically don’t touch them. I’m willing to take on much more risk with my taxable accounts and have outperformed the market without ever holding more than 4 or 5 stocks every year except last, but I was still down less than 1% on the year. Options trading is a bit too risky for my taste, but to each his own. There’s definitely plenty of money to be made there.
Right now I am long Sprint (S) and JP Morgan (JPM). Sprint has quite a bit of risk to it, but arguably more upside than anything else in the S&P 500. I’ve been bullish on many financials for a while. I bought a block of JPM last spring in the 40’s and that accounted for most of the reason I posted a loss last year, but managed to add quite a few more shares over the fall for under $30. Instead of boring you on the finances of either company I’ll let you do your own research.
I’ve also been keeping a close eye on the dry bulk shipping industry. Namely GNK, DRYS, and NM. The entire industry is saddled in debt and has just been hammered since 2008 with no rebound like the rest of the market. Somebody will prevail and there is very likely a 10 bagger in the group, but many others are serious bankruptcy threats so I haven’t pulled the trigger on anything yet. I would say that GNK is most likey the best long term play, but fully admit it’s really a crapshoot.