Stocks

[ADG]

This sounds so cool... to bad i have know clue what ur talking about.... is there a 101 place to learn?

[ckmk47]

The thought process on the stock was mostly sound.
The price points were off.  So it didn't work as planned.
My lesson for next time:  Don't have such a small window between the cause of the stock surge and the close of the option.   I lost most of my investment.  If I had bought June calls, I would have another month to wait for a higher stock price.  I guess I was too cheap to pay the extra premium - my loss!

[ckmk47]

 yos9694.  The reason to play this through options rather than owning the stock outright.
If I bought options at $7 a piece, then I can buy 5 options - controlling a total of 500 stocks - for $3500.
If I were to use $3500 to buy the stock, at $125 each, I can buy 28 individual stocks.
So if the price went up to 135, the gain would be $10 x 28 = $280
But 5 options with a gain of $3 a stock  (125 + 7) is 500 x 3 = $1500


I didn't think about using puts as a hedge.  It's probably sometimes a better strategy.

[Mordyk]

The thought process on the stock was mostly sound.
The price points were off.  So it didn't work as planned.
My lesson for next time:  Don't have such a small window between the cause of the stock surge and the close of the option.   I lost most of my investment.  If I had bought June calls, I would have another month to wait for a higher stock price.  I guess I was too cheap to pay the extra premium - my loss!

+1 although i only lost a small part since i bought at a lower price point than you, it would be worth to have a little later expiration. as you saw Fridays action would've helped the situation

[yos9694]

yos9694.  The reason to play this through options rather than owning the stock outright.
If I bought options at $7 a piece, then I can buy 5 options - controlling a total of 500 stocks - for $3500.
If I were to use $3500 to buy the stock, at $125 each, I can buy 28 individual stocks.
So if the price went up to 135, the gain would be $10 x 28 = $280
But 5 options with a gain of $3 a stock  (125 + 7) is 500 x 3 = $1500


I didn't think about using puts as a hedge.  It's probably sometimes a better strategy.

So for leverage. See above. If used properly, the same play using margin would be more profitable.

[yos9694]

+1 although i only lost a small part since i bought at a lower price point than you, it would be worth to have a little later expiration. as you saw Fridays action would've helped the situation

Later expiration = more $$ spent on time value. Seems like a waste of money.

[Mordyk]

Later expiration = a little more $$ spent on a little more time value. Seems like a waste of money.

FTFY

just a little more would help. since there were only 2 days after the conclusion of the study.

[yos9694]

Yes, I understand. But why spend money on time value at all? I simply don't think the strategy makes sense, because you are paying for something you don't want. Options have their uses, but in your case its the stock you want, so buy the stock.

[coralsnake]

Yes, I understand. But why spend money on time value at all? I simply don't think the strategy makes sense, because you are paying for something you don't want. Options have their uses, but in your case its the stock you want, so buy the stock.

If you buy the stock you need more capital and have much more downside exposure.

[yos9694]

No you don't. And if you do invest this way, just know that every time you make money you could have made more money if you had invested properly, and every time you lose money you could have lost less money by investing properly.

[Mordyk]

Yes, I understand. But why spend money on time value at all? I simply don't think the strategy makes sense, because you are paying for something you don't want. Options have their uses, but in your case its the stock you want, so buy the stock.

there was an expected big move in the short term. We should pay for that Because we want some time for the move to happen. And now we didnt want the stock since it is very volitile  we only wanted to take advantage of the expected move. Which we needed to pay a premium for

[coralsnake]

No you don't. And if you do invest this way, just know that every time you make money you could have made more money if you had invested properly, and every time you lose money you could have lost less money by investing properly.

Assuming your comment above was made towards my previous comment- Unless something changed recently, when you buy a stock with cash or on margin your potential loss is the entire amount of the investment because the stock can go to 0.

When buying calls your potential loss is the amount paid for those calls (as they can expire worthless) which is always less that the cost of buying the underlying stock and having that stock go to 0.

If someone is looking for a decent amount of upside on a short term play with limited risk, options are safer and less costly than buying the stock outright and/or hedging the position with options.

[yuneeq]

Risk shmisk.
If you're not buying crappy stocks you're not risking everything.
Buy with a "margin of safety" as described by Benjamin Graham.

You can buy options in a terrific company and still lose the entire investment.

That won't happen to you when buying stock outright if you follow basic guidelines.

[coralsnake]

Risk shmisk.
If you're not buying crappy stocks you're not risking everything.
Buy with a "margin of safety" as described by Benjamin Graham.

You can buy options in a terrific company and still lose the entire investment.

That won't happen to you when buying stock outright if you follow basic guidelines.

You can buy stock in a "terrific" company and still lose the entire investment too.

That is a very foolish statement not supported by facts.

Ever heard of Enron, or Lehman Brothers? American Airlines went down below 15 cents. If you think it can't happen to your great stock you haven't been around long enough.

[yuneeq]

You can buy stock in a "terrific" company and still lose the entire investment too.

That is a very foolish statement not supported by facts.

Ever heard of Enron, or Lehman Brothers? American Airlines went down below 15 cents. If you think it can't happen to your great stock you haven't been around long enough.

Those stocks all had major warning signs or were just not good at all.
So no idea what you're so worried about.
Again, read up about margin of safety. If a company has significant  assets that back up their market value, going bankrupt won't mean that shareholders don't get paid.

So a one in 100,000 chande of collapse of a terrible company where you still own the underlying assets vs losing your entire investment in a 50/50 chance.

Ps. I believe Lehman shareholders ended up recovering at least 40-50% of their investment.