Stock Talk

[Darknight]

I see a lot of specific terms amongst the stock boy's in here.

Anyone care to explain to the lesser fortunate amongst us ?

what's going short or long in stock terms ?

stocks and derivatives?

Going short with put options?

Harmonica ? Wimpy ?

[Ajarn]

In simple terms, 'shorting' a stock means you are betting the price will go down from your purchase price. 'Going long' means you hope the price goes up from your purchase price.

The other questions can better be answered by others less clueless than me

[wimpy]

When you short a stock, you are borrowing shares from your broker and selling them in the open market. If the price drops, you buy them back and return the shares to your broker. You pocket the difference in selling and buying prices. Your potential loss is unlimited.

Instead of selling shares short, you can buy a put option. If the underlying stock drops in price, the put goes up. The most you can lose is the price of the option. The problem with options is that you pay a premium and they have expiration dates. You can be correct on the direction of the underlying stock, but if your timing is off, you can end up losing money anyway.

A derivative: A security, such as an option or futures contract, whose value depends on the performance of an underlying security or asset.

[Khun Jean]

Instead of selling shares short, you can buy a put option. If the underlying stock drops in price, the put goes up. The most you can lose is the price of the option. The problem with options is that you pay a premium and they have expiration dates. You can be correct on the direction of the underlying stock, but if your timing is off, you can end up losing money anyway.

This is the big advantage!! Because this is what most people know about options. The premium is the money you RECEIVE when you SELL an option. Never buy something when you can sell it. (But of course you keep the risk, at least you get money instead of spending it, so the risk is the same minus the received premium.

Don't buy a put option -> sell a call option.

Don't buy a call option -> sell a put option.

You use the same feeling bearish or bullish, you only change the way you want to make a profit. Selling options is when executed carefully much more profitable and less risky in the long run than buying.

If i decide to buy shares i use that decision to sell a put option. If the shares go up in price i pocket the premium, if they go down if have the premium as a buffer. -> Less risk. (That also means of course less profit) But if you look good you can balance the loss/profit percentages. Premiums on options are often higher then they "should" be. That happens a lot when there are fluctuations in the share price. That is a good moment to step in.

Problem with only investing in shares is what you do when you can make a profit and sell them. What is your next step?. Wait until this same stock is down and buy it again?. Keep it with the risk of it going down? At such a moment you can sell a call option. At least you pocket some money, and still hold on to that stock. Your risk is now lower then if you did not use an option. Unfortunately if the share price goes up like a rocket you miss that one. But who knows what will happen in the future. At least with writng an option you have cash money. That is always good.

When i am wrong i loose less, when i am right i win more. In the long run that is the difference.

Edited April 22, 2005 by Khun Jean

[wimpy]

I have sold puts and calls in the past. I agree it is not a bad strategy, but for me the upside was too limiting.

In a strong bull market, I am always in the strongest stocks in the strongest industry groups. Typically in a bull you get sector rotation. For example, the housing stocks may be hot for a while and I will ride the best of these up. When they start showing topping signs, I look for the next sector. Maybe it is the gaming stocks, and I ride them up. I have made very large annual returns doing this. When nothing is working, I just move to cash and go to the sea. If it feels like a protracted downtrend, I might do some shorting.

I was 100% in cash from April 2000 to the middle of 2003. There were a couple instances where I ventured back in during that time, but I quickly got back out again. That was a little longer vacation than I was hoping for! I did some option selling during that time, and made some money, but ultimately felt it wasn't worth the effort. After having a few back to back 100+% gains on individual stocks, option premiums just don't do it me.

I have also had some amazing gains buying puts and calls outright, but the timing had to be spot on. These days I pretty much stick to common stocks. It is what I am good at, and they are easier on the stomach.

[The_Moog]

This is the big advantage!! Because this is what most people know about options. The premium is the money you RECEIVE when you SELL an option. Never buy something when you can sell it.

I worked 10 years in the wholesale fixed income and currency derivatives markets and I saw companies wiped out by selling options. Taking risks that they did not have the mathematical skills to quantify, (apart from 'gut-feel'), in return for modest premium income.

If you sell a call option - lets say its an equity option, then you need to calculate your Beta risk. For Example: if the share price rises (making more likely your counterpart will exercise his option and take delivery of the shares) you need to buy in a certain amount of shares. That fluctuating position, (which changes from day-to-day depending on the spot share price), is your beta risk.

The exact amount is calculated on a probability basis. A Black & Scholes Computer model is one of the methods.

If you already own the shares - thats called a 'Covered Call' - your risks are less there - but you've already had an expensive capital outlay to buy the shares.

DK you need to go and talk to people in your company - they can explain the jargon to you. I realize it all sounds a bit intimidating and this topic is getting complex as people move away from definitions and start talking about their own modus operandi.

Edited April 22, 2005 by The_Moog

[wimpy]

This is the big advantage!! Because this is what most people know about options. The premium is the money you RECEIVE when you SELL an option. Never buy something when you can sell it.

I worked 10 years in the wholsesale fixed income and currency derivatives markets and I saw companies wiped out by selling options. Taking risks that they did not have the mathematical skills to quantify, (apart from 'gut-feel'), in return for modest premium income.

If you sell a call option - lets say its an equity option, then you need to calculate your Beta risk. For Example: if the share price rises (making more likely your counterpart will exercise his option and take delivery of the hares) you need to buy in a certain amount of shares. That fluctuating position (which changes from day-to-day is your beta risk.

The exact amount is calculated on a probability basis. A Black & Scholes Computer model is one of the methods.

If you already own the shares - thats called a 'Covered Call' - your risks are less there - but you've already had an expensive capital outlay to buy the shares.

<{POST_SNAPBACK}>

Your avatar gives me the creeps.

[Darknight]

DK you need to go and talk to people in your company - they can explain the jargon to you. I realize it all sounds a bit intimidating and this topic is getting complex as people move away from definitions and start talking about their own modus operandi.

Well you lost me just after "Beta risk"

No worries , you need money first to play anyway

I'll read it again this weekend after a good nights sleep.

I probably sound the same for some when i talk about IT stuff

Cheers guys

[samran]

When my mates and I walk into a room of full of good-looking girls, we say to each other ‘Stock!’

[~G~]

...No worries , you need money first to play anyway

<{POST_SNAPBACK}>

Actually, it becomes really dangerous when you don't need your own money to play

You can use $100 to play on $10,000. Then if your stock/currency/whatever moves 1% one way you doubled your money. If it moves 1% the other way, you lost it all.

[The_Moog]

Actually, it becomes really dangerous when you don't need your own money to play

Thats a really good way of visualizing it.

When you don't have your 'chips' on the table ....

- and you're playing with leverage, writing open derivative positions etc.

That can be when your downside risks are really high - the counterpoint for not having put any money down in the first place.

[ThaiGeared_HighThaied]

I see a lot of specific terms amongst the stock boy's in here.

Anyone care to explain to the lesser fortunate amongst us ?

what's going short or long in stock terms     ?

stocks and derivatives?

Going short with put options?

Harmonica ? Wimpy ? 

<{POST_SNAPBACK}>

Let me tell you in simple language what all these mean:

Shorting means that let say:

1-You have a new TV (worth 10,000 Baht) in your home today.

2-You "think" that in next two month price will drop to half (5,000 Baht)

what is today in market

3-You will sell your new TV today, and pocket cash (approxiate 10,000 baht).

4-In next two monthe, you will buy "2 new TV" with that 10,000 baht.

This is what traders do in financial market with shares, contracts.

Long means "Buy" and nothing else. You can't say "buy long".

Put means being short or selling shares or contracts without owning them

first (paying for them first), but borrowing and if price drops, you buy it

for less, and pay your cost of borrow to the real owner (first owner).

derivities: Stocks (equities), futures, options, CFDs, spreads.

My advice: don't get yourself hooked up in any financial market,

have some compasion for yourself , unless you love it,

and want to be part of it, not for the sake of just making money.

Edited April 22, 2005 by ThaiGeared_HighThaied

[The_Moog]

Long means "Buy" and nothing else. You can't say "buy long".

Put means being short or selling shares or contracts without owning them

first (paying for them first), but borrowing and if price drops, you buy it

for less, and pay your cost of borrow to the real owner (first owner).

derivities: Stocks (equities), futures, options, CFDs, spreads.

Complete gibberish

A derivative is a contract based on the underlying price of another financial instrument, currency, interest rate.

To be 'long' means to own an existing position.

To be 'short' means to have an pre-agreed obligation to deliver to another party.

Options are types of derivatives:-

You Buying;- ....

A 'Put Option' gives you, in return for paying a premium, the right (but not the obligation) to sell at a pre-determined price perhaps a currency or stock, at a future time

A 'Call Option' gives you, in return for paying a premium, the right (but not the obligation) to buy at a pre-determined price a currency or stock, at a future time.

You Selling.....

A 'Put Option' gives another person, in return for paying you a premium, the right (but not the obligation) to sell to you at a pre-determined price a currency or stock, at a future time

A 'Call Option' gives another person, in return for paying you a premium, the right (but not the obligation) to buy from you at a pre-determined price a currency or stock, at a future time

Edited April 22, 2005 by The_Moog

[ThaiGeared_HighThaied]

Long means "Buy" and nothing else. You can't say "buy long".

Put means being short or selling shares or contracts without owning them

first (paying for them first), but borrowing and if price drops, you buy it

for less, and pay your cost of borrow to the real owner (first owner).

derivities: Stocks (equities), futures, options, CFDs, spreads.

Complete gibberish

<{POST_SNAPBACK}>

Are you trying to teach this guy what is trading financial market is?

It could be hundreds of pages to explain it, if he/she is serious to learn

(not here) i can give He/She load of trading material for FREE

With all the Option method, I bet you still don't know where to buy/sell,

they are just good enough for guys with less deeper pocket