Make money with stock investing


atlthnl.com keyword stats



Most current MSN search phrases:

stock taxes

The Joy of Options

Owning stock has only two, maybe three,cost you more than what you pay for the
possibilities. The stock goes up. Or theoption. Selling an option can cost you
stock goes down. Or, as a thirdfar more than what you receive for
possibility, it does a little of both.selling the option.
If you buy a stock, all you want it toLet's examine the terminology of calls
do is go up.and puts. The underlying is the actual
If you sell a stock short or close ainstrument such as a stock or commodity
position (or consider buying it and thenthat is being represented by the options
decide not to ;), all you want it to docontract. In the real estate example,
is go down. I call this one-dimensionalthe house would be the underlying.
trading. You're long, you're short, orOptions are said to be derivatives
you're flat. Your gains and lossesbecause their value is directly tied to
travel up and down the number line youor derived from that of the underlying.
may remember from elementary school inAn option has no meaning without an
lock step with the movement of theactual asset underlying it. It is the
stock. Not only that, but it takes a bigright to buy or sell that underlying
move to make a big profit. And a bigasset that gives the option a reason for
move against you can mean a big loss.being and some value.
Potentially all the way down to zero.The strike price is the agreed upon
You need to add a second dimension toprice for which the underlying can be
your trading. You need more choices thanbought or sold under the terms of the
picking a direction and hoping you areoption contract. In the real estate
right. You need to limit your losses,example, the strike price was $100,000.
improve your returns, and increase yourThe expiration date, obviously, is the
flexibility. You need options.date when the option expires. The day
For many people, options are somethingafter expiration, an option is
to avoid, being dangerous, complex, andworthless. This is the single most
scary. I would like to introduce you toimportant fact about options that you
the joy of options. Any time you thinkmust remember. This is why your friends
you want to buy a stock, I'd like to getthink you are crazy for your interest in
you in the habit of first looking at howoptions. Unlike a stock, which you can
you could do more with less usinghold forever, an option has a clearly
options.defined shelf life.
In the stock and commodities markets,One term remains, and that is the
the type of option we just describedpremium. The premium is what you pay for
would be known as a call. A callthe option, when you are the buyer. Or
typically represents 100 shares of awhat you receive for an option, when you
stock. In the commodities markets, aare the seller. In our real estate
single option contract represents aexample, the premium was $500. That's
single futures contract. (Forwhat it cost you to hold the right to
simplicity, from this point forward, Ibuy the house any time in that
will talk about options on stock. Justthirty-day period. The last day of the
remember that the same discussionthirty-day period would, again, be the
applies to options on futures.)expiration date.
Owning a call gives the owner the rightWe have barely scratched the surface. I
to buy 100 shares (usually) of thesay that not to intimidate you, but to
underlying stock at the agreed uponmake you realize that you only have
strike price at or before the expirationenough knowledge to be dangerous to
date. (I say "usually" 100 sharesyourself. Please do not think that you
because, due to splits or acquisitions,are ready to go out and buy calls or
there are times when an options contractplace spread trades. You are not. You
may represent something other than 100don't know how an option moves relative
shares.) Selling a call gives the sellerto moves in the price of the underlying.
the obligation to sell, if asked, 100You don't know what time does to the
shares of the underlying stock at thevalue of an option. You don't know what
agreed upon strike price any time upvolatility is or how it plays into
until the expiration date.option prices. You don't know the types
The other kind of option is called aof spreads or what they are used for.
put, and it is exactly the same as aPlease, please get yourself better
call with one simple difference. A puteducated before you start putting money
gives the owner the right to sell 100into option trades. Resist the
shares (again, usually) of thetemptation to buy some cheap options,
underlying stock at the agreed uponjust to try it out. This is expensive
strike price at or before the expirationeducation. There are plenty of
date. You can think of a put asadvantages to trading options, but it's
insurance. No matter how badly the stockstill a ruthless market, happy to take
price crashes, having a put means thatyour money, your wallet, and your hand
you can sell your stock for the strikeif you give it an opportunity. Learn the
price. On the flip side, selling thatrules of the game before you put money
put means you may be obliged to buyon the line.
stock at far more than its currentTrading options can be satisfying,
market price.rewarding, stimulating, and fun. I
An important distinction to always keepinvite you to add another dimension to
in mind: Buying an option gives youyour trading by including options to
rights. Selling an option gives youyour repertoire.
obligations. Buying an option cannot



1 A B C D 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98