Stock Options Trading

[Lux]

Looks like an interesting alternative to stock trading.

Anyone here with experiences (good, bad, indifferent) to share?

[Chaka]

Looks like an interesting alternative to stock trading.

Anyone here with experiences (good, bad, indifferent) to share?


not for the faint of heart or the newbie
if you're a woulda coulda shoulda person- this is not for you either

[Tyreds Tale]

here is a good explantion: http://biz.yahoo.com/opt/basics1.html

Cowpoke has bought options a lot, so might want to chat or PM him sometime. He was a day trader. I may try them someday, but the complexity of it is hard to overcome. Plus Im trying to do my taxes right now :( and I wouldnt know where to start.

Let us know if you try one!

[Lux]

http://school.elps.k12.mi.us/donley/classrooms/berry/sitton_spelling_activities/4thgrade_spelling/unit15/droid_with_spinning_head_problem_hg_clr.gif

[Lux]

here is a good explantion: http://biz.yahoo.com/opt/basics1.html

Cowpoke has bought options a lot, so might want to chat or PM him sometime. He was a day trader. I may try them someday, but the complexity of it is hard to overcome. Plus Im trying to do my taxes right now :( and I wouldnt know where to start.

Let us know if you try one!

Will do.

At the bottom of the link is the Optionetics site.

They have a free seminar to pitch their product in my area this week.

Anybody have any thoughts on them?

[Weston]

sounds complicated to me hah

[RogerL]

I've traded stock options to a fair degree, both in the buying and selling of them. They are completely different animals, complete with different strategies.

Buying options is useful when you don't have the money to invest in the stocks themselves. For instance, buying 100 shares of a $50 stock could cost you $5,000. But leveraging call options by buying them for $1 apiece to control 100 shares is much cheaper. The drawback in buying call options is that they're worthless if the price doesn't exceed the exercise price at the time the contract expires. And if you're looking to close out that position, the premium degrades over time, so that $1/share you paid earlier may only be $0.30 when you decide you want to close out the contract. So you basically write off the premium when you buy a call.

I've rarely bought a put option, but you're essentially hoping a stock goes down. This is pure speculation.

When selling options, brokerages will rarely let you sell put options since the losses are potentially limitless. So I won't even bother with them, especially since I've never sold those.

Selling covered call options (brokerages rarely let you sell naked call options either unless you're fabulously wealthy already), on the other hand, is one of the safest investments you can make. If you sell an out-of-the money call option, you're pretty much guaranteed not to lose money if you don't care about holding onto the stock in question. You sell the call contract for the premium price, which is yours to keep. That is your likely profit, since you're hoping the price doesn't reach the exercise price. If it doesn't reach it, the call expires worthless and you keep the premium and the stock. If the price reaches or exceeds the exercise price, you lose the stock for the amount of the exercise price. As long as the price you chose was the same or higher than the price you paid for that stock, you don't lose any money. You might even make a slight amount. But as long as you let the stock go, you cannot lose money. You just may not make as much as you could have.

The only way you can lose money selling covered calls is if you're emotionally attached to your stock and want to preserve it at all costs. If the price exceeds the exercise price, you may want to protect the stock by closing out the position. To offset a sold call, you buy exactly the same call for the premium it goes for at the time. If the price has risen dramatically, you'll likely pay a higher premium than you sold it for originally. So to protect the stock, you voluntarily lose money by paying the higher premium.

If you're attached to your stock, don't sell covered calls. If it doesn't bother you to lose your stock occasionally, this investment may be for you. I've done it myself numerous times, losing my stock only twice. Only the last time did it bother me because I lost it for $60/share and it eventually rose to the equivalent of $640/share (with two 2-1 splits in between).

A lot of people sell covered calls since they're so safe. Employees who participate in stock purchase plans often sell covered calls for those shares they purchase as an easy way to make a few bucks.

[Lux]

Thanks for the tips Roger. They were very informative.

[RogerL]

I'll ditto what you're saying here, Danno. About 15 years ago, I was trading options on nearly a daily basis and biting my fingernails constantly on the results. I was doing fairly okay, making a steady, but very small profit. That profit was nowhere near worth the time I invested in the venture.

Then came Iraq's invasion of Kuwait. I was caught in all the wrong positions and in a single day, lost everything I'd gained over the last year plus tens of thousands more. That put me off speculative trading of options permanently.

I'll still sell covered calls every once in a while, but I simply will not trade any other type. Unless it's your job, it's not worth the pain and anguish you go through.