by GinnyTosken 40 Replies latest jw friends
Amazing,
> Also, the best way to make money in Options is to buy the stock and sell the Options rather than buy them. That way, no matter which way the market goes, you make money.
Not always. What happens if the stock price goes down by more than the profit you make from writing the calls?
T.
Hi Trilo: If I own stock, and then sell a "Call" option, I get a premium similar to earnest money, that I get to keep. If the price goes up, the buyer exercises his Call, and buys the stock at the lower price. But I still made money adding the p[rice of the stock plus the Option money.
If the market stays flat, or goes down, the buyer likely will not exercise the Call and I keep the option money. If the buyer exercises his call anyway, then I still make money because I sell at the higher price plus keep my option money.
If I sell a "Put" Option all this works in reverse, but I still make moeny, because I sell the stock at a set price plus keep my option money. If the Put Buyer fails to exercise his Option, because the market is falt, again, I keep the stock, but I also keep the Option money. I make a profit either way.
The Option buyer (Puts or Calls) carries the risk, but they are leveraged and have less at stake than if they were the Seller. So, if there is significant movement in the market, they stand to make a greater profit against their leveraged position. But they stand a greater chance of losing their Option premium. So, they need to buy wisely to overcome this risk.
The Option Seller is secured by the underlying stock and the Option money. Where the Seller may lose is still holding stock where the value of the stock declines and Dividends decline. But he can make much of this up or make a profit in selling more and more Otpions as each unexercised Option period ends. - Amazing
Isn't this what's also known as a 'paperless transaction?' I KNOW there is some other colloquial name for it.
Employees are often able to do something similar before the company they work for goes public, no? When they don't have the cash to finance the actual purchase of stock, but have the opportunity to buy it.
Maybe I'm thinking of a 'reverse paper transaction.'
Damn, what's the word guys?
Amazing,
>If I own stock, and then sell a "Call" option, I get a premium similar to earnest money, that I get to keep. If the price goes up, the buyer exercises his Call, and buys the stock at the lower price. But I still made money adding the p[rice of the stock plus the Option money.
So far so good.
> If the market stays flat, or goes down, the buyer likely will not exercise the Call and I keep the option money. If the buyer exercises his call anyway, then I still make money because I sell at the higher price plus keep my option money.
The call buyer would be nuts to exercise if the price went down. The scenario you have not addressed so far is the one that I asked (rhetorically) about; what happens if the underlying stock goes down by more than you make from writing the call? Then you lose money. Ergo, your statement that you make money whichever way the market goes is incorrect.
> The Option Seller is secured by the underlying stock and the Option money. Where the Seller may lose is still
>holding stock where the value of the stock declines and Dividends decline. But he can make much of this up or
> make a profit in selling more and more Otpions as each unexercised Option period ends.
The flaw is this; if the stock goes down and you have written a call you can't just sell the stock; otherwise you'd have a naked short call position which carries infinite risk. So you must hold on to the stock as it goes down or close the position altogether. If you do (wisely) decide to sell the underlying then you also have to repurchase your calls which eats into what you made from writing them in the first place and may result in an outright loss, depending on when you sell. To argue that you can make much of any loss up by doing what you suggest is incorrect. If you sold more options then you'd have to buy more stock to cover it. That's a good way to go broke in a down market. Actually, a lot of people tried this with tech stocks starting in March 2000. All the covered call writing in the world couldn't make up for the losses that many stocks suffered. Every time you sell a call you must buy the underlying (with your strategy) so you may end up just making your losses worse. That is, it's not a sure thing as you stated. It's throwing good money after bad.
T.
ps: Amazing,
If you just sell another call after each expiration then, in principle, you could watch your stock go to zero. Again you'd not make any money although you would lose less then if you simply held the stock outright.
T.
Ginny,
Do you share Bigboi's Machiavellian outlook? Do the ends justify the means?
I'm not sure I know Bigboi's view on this and will not assume. Otherwise, yes, the ends do sometimes justify the means. Everyone knows that.
Does the designation "terrorist" or "freedom fighter" depend on one's perspective?
Of course. Duuuhh.
Is bin Laden's reasoning sound...
Absoulutely. He would have made a great Early American patriot! And a great American of the 21st century, too!! Were he an American citizen, there's no telling how far he could have gone in corporate America -- probably would've been one of Bush's chief advisors. Alas, he was born in Arabia and has decided to speak and act for his people against a powerful enemy.
I liken people's current, media-shaped opinion of him to when the NY Yankees were asked about pitcher Roger Clemens (paraphrasing):
"When he pitched against us, he was a cheatin', lyin', son-of-a-bitch. Now that he's on our side, he's one of the greatest pitchers ever... a great guy!"
Hey... it's the American Way!!
Hi Trilo: I am not sure why we are debating anything here. I do not disagree with you. I was talking about generalities as it may have applied to Bin Laden per some news reports. I will provide an example, and see what you think. Your expertise will be helpful here.
you said,
"The call buyer would be nuts to exercise if the price went down."
I agree. My point was that I would rather be the stockholder who writes the Call, then the Buyer who loses his Option money. That is all I meant.
You continued,
"The scenario you have not addressed so far is the one that I asked (rhetorically) about; what happens if the underlying stock goes down by more than you make from writing the call? Then you lose money. Ergo, your statement that you make money whichever way the market goes is incorrect."
Call Option: I am truly not following you. Example: I buy stock at $10/Share. Later, the stock moves up a little to $11/share. I sell a Call Option for $1/Share on my stock. The stock moves to $14/share and the Buyer in this example can either sell his Option, as is often done on the CBOE, or he can buy the Stock at $11. Or hold for the Option to continue to move up. There is limited time, so he must evetually make some choices, and the market trend for this stock will determine what a Buyer will do.
I still have my $1 no matter what he does. If the Buyer exercises the Call, I sell my stock at $11, plus I still have the $1 Option premium. I made 20% on my stock. I don't share in the higher gain at $14 or more, because I basically hedged my position for greater security.
Now, what if the stock goes down to $8/share or less. The Option period expires. Okay, I have the $1 Otpion premium. I have my stock that I paid $10.share. The Call Option actually hedged some of my original capital investment. The stock is now selling for $8/share - So what! I still own it and get the dividends. Unless I sell at a loss, I simply hold my position. Yes, the Buyer is nuts, as you correctly say, were he to exercise his Option. But either way, I still lose nothing. For in that case, I would get the $11 contract price. But that is not a likely scenario.
What if the Stock goes down to $1/share? I have lost nothing until I sell for less than I paid, that is $10/share. But if I hold the stock in the hopes it recovers, then if I sell when it returns to $10/share, I make money because I still have the previous Option premium.
Rate of Return? The rate of return will be dictated by the time involved. Lets say I buy a stock at $10/share. I sell a Call Option for $1/share. The Option is not exercised. And the stock goes into the tank for a while, but recovers. 6 months elapses. Here is what I make:
Buy: $10/share
Option: $1/share
2 Div: 50 cents each quarter/ total $1/share
Sell in 6 months: $10/share (not change from original purchase)
Gain: $2/share, 20% increase
Rate: about 40% APR
Not bad. There's enough to pay the broker fees too.
Again, back to your scenario: If the value of the stock drops below the Call, say from $11 to $8, with a $1/Option premium. So what? I don't have to sell the stock on a Call Option for the new lower value, because the contract price is for $11. I can't lose.
If I am missing something, then let me know. I am not an expert in this aspect of the financial markets. I work in the financial markets in mortgage money, private notes, and related paper. As I stated above, I have bought and sold Options years ago on the CBOE. So, I may be missing something. If I have erred, then I stand corrected. - Amazing
Don't know how this thread turned into a Wade Cook seminar, but the original subject deserves consideration. What defines a terrorist act as opposed to an act of patriotism?
What defines a terrorist act as opposed to an act of patriotism?
In my opinion, Was -- point of view. Period. If you're a citizen of the Middle East and because of the daring, life-taking acts of a group of fellow citizens you and your people got some relief, or your life improved, or had the chance of improving, you'd probably consider your coutrymen's act as "patriotic."
If you lived in the country where said act caused suffering, you'd probably consider the act one of "terrorism."
Insert the country of your choice instead of "Middle East" and this definition holds.
imo.
tj
What defines a terrorist act as opposed to an act of patriotism?
Actually the question should be "who defines.....". History is written by the victors. In this case, a dominant and independent America. Therefore the Tea Party was an act of patriotism, a blow for freedom. If the revolution had failed and America was still under British rulership, no doubt the Tea Partiers would be recorded as traitorous villains.
Imo, the Boston Tea Party was not a terrorist act, since no-one died or was injured. A lot of good tea was wasted, which is always a shame. It was merely an act of rebellion.
Having said that, my identity is now a little confused, since apparently English people are not the bloodthirsty bastards that Hollywood and Mel Gibson say we are. Damn. Tea anyone?
Expatbrit
