Guys just a friendly reminder to keep the political talk to an absolute minimum. This is kind of a tricky thread topic because it's hard to delve deep into stocks without talking about how the political environment affects the markets. With that being said please be respectful though of others. Let's try and keep the topic about what stocks you are buying, selling, etc.
Crzd can you explain the concept of puts and calls on stocks?
First of all any call and put option is based on an underlying stock. Hence as the stock price moves so does the option price.
Now there are two types there are call options which give you the right to buy the underlying stock at a specific price during a specific period or at the end of the period. With a put option being pretty much the opposite giving you the right to sell the underlying stock at a fixed price during a certain period or at the end of that period.
Now the original idea is that you can either hedge your portfolio by buying put options or you can kind of leverage it through call options. For example lets say your heavily invested in Google you fear a price drop but you don t want to sell your stake in google. A simple solution would be to buy put options that guarantee you the current price so if the price falls the gain on your put options will offset your loss on the stock so that you dont loose any money or at least way less then if you did not hedge your position. Now even if the stock moves up the loss on your put options should not hurt you too much since they usually are priced very low like 1/100th of the stock price.
(Note that 1/100 of the stock price is just a example i ll explain what influences the price of an option later. point here is if you lose the face value of your option and you hold the underlying asset in your portfolio it should not hurt you too much).
Now if you think a certain stock in your portfolio will go up you can kind of leverage it by buying cal options, you ll be able to increase your return with a relatively small investment.
Now for private investors Put and Call options are mainly bought to speculate, since you dont have to own the underlying stock in order to buy sell the options. You can buy and sell them just like stocks before their expiration day or last day of trading if it s not identical with the expiration date. Let e make an example say I think Facebook will preform great in the next couple of days so I buy a call contract.
Now this is a real example i just found this call option on Facebook:
The strike price is 130 USD (at this price i would be allowed to buy the underlying stock)
The expiration is on the 16/6/2017 ( I can exercise my right till then or trade the option till then)
Current price of the option is 7.20 USD and the current stock price of FB( The underlying) is 127.50
Now generally speaking if the stock reaches 137.2 by the expiration date i break even if the stock is higher i make a gain if the stock is lower but higher then 130 i make a loss between 7.20 and 0 if the stock is lower then 130 i ll lose the entire 7.20 usd, since remember it s a right to buy at a certain price not an obligation so the max you loose is what you put in. The beauty of this thing is you capture the whole upside potential of the stock but you only have a limited downside. Lets assume the stock goes to 150USD in this case you ll get 20USD for your option on the expiry date hence your profit would be at 177% while if you just bought the stock directly you d only have
a profit of 17.6%.
The same goes for the put option. For the same option but put hence same strike and same expiration date only difference is that it is a put i would now have to pay 9.10USD atm (Note how it s ore expensive then the call because it s already in the money). Here i profit if the stock goes lower then 120.9USD, Again if the stock is between 130and 120.9 i ll make a loss between 9.1 and 0 If the stock is higher then 130 i ll lose 9.1USD and if the stock is say 110, again you d get 20 USD on the expiration date so your profit would be 119%. And there is not really an alternative to buying put options because again short selling is not allowed for the simple investor.
I hope this helped in understanding what they are good for even though i was not able to explain it as simple as i wanted to.
Some more things to know before you guys Invest in options: They are traded like stocks so you dont have to hold them till the expiration date and you can sell them when ever you want. The option price is mainly influenced by the volatility of the underlying asset and the duration of the option usually the more volatile the underlying asset the more expensive the option also the longer the duration of the option the higher it s value. Some more terminology, if we say an option is in the money it means a call option where the underlying asset is valued higher then the strike price you have on your option, if the call option is at the money the value of the underlying and the strike price are identical if the call option is out of money it means that the strike price is higher than the current value of the underlying. Of course for put options the whole thing is reversed.
It also has to be said that the math in the above examples is simplified especially since option contracts are usually sold in 100s so if i say i buy one option contract i actually buy 100 Options and one contract does in fact not always entitle you to the rights of 100 stocks. This is also important if you give a bid on a options contract remember that the amount you put down as a bid will be counted 100 times since you are putting in what your ready to pay for 1 option and a contract includes 100 options usually.
I hope this helped a bit it s really quite simple its the right to buy or sell something at a fixed price during a certain period of time.
Which matches do you feel more, those with Juventus or Milan?
"With Milan, without doubt. And I don't like the Rossoneri fans either because they have a way of behaving, particularly when they win, that I don't appreciate."
Adriano@10 that was great but yea.... don't do it.
You can do both at the same time to hedge your bets but they are risky. No real good way to explain it easily either. For my MBA I took a investment corse that was 2 years long and we invested 500k in the university money.
I have how the professor explained it + math and stuff on a hard drive I believe. I honestly still don't know too well and I work for a hedge fund but they said never ever do it so I was like k Fk that then. If you guys PM me I can just email it to you a PDF of the notes he gave me on calls/puts and other stock related things. It also has math equations that I cant figure out how to post on this site. I also have stock pitches I did for 4-5 companies for the class. It can give you a better idea on the logic behind picking a stock. So you can get that green green paper
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This is my notes when I took a investment course in my MBA. At 1st it was great and I loved it but when it got to Hedging, Calls, Puts. But guys not to be a dick .... if you are just getting into stocks..... not the best place to start.
When to get in/out as well as what to invest in. Why you are buying/selling and the companies financials. You should know how they make money, how they will make more money as well as how well they are doing. Its like Gamestop before the Xbox 1 came out stock price tanked because Microsoft and Sony were rumored to be using diskless systems basically cutting them out of the market. Shit like that is a huge huge risk when buying something. Gamestop is basically that old music store that use to exist in the mall. Its selling out dated software that can go away at any second.
Call Options; A call option is a security that provides you with the right to buy shares of common stock of the underlying company at a specified price during a specified period of time. Since one call option allows you to buy 100 shares of the stock, the price that you pay to buy one call option contract would be 100 multiplied by the quoted call option price. The option price is referred to as the option premium, which is determined by active buyers and sellers in an auction system, and varies over time based on several factors. These factors include the current stock price, anticipated variability of the stock price, short-term interest rates, and the time remaining to expiration of the option.
Example, you can buy a call option contract for $ 620.00 (i.e., 6.20 *100). A January 115 call option refers to a call option which would expire in January (the third Friday in January), with an exercise price of $115 per share, that you would have to pay in order to buy one share of the stock. Remember that your payments must be based on 100 shares. In secondary market transactions, the holder of a call option can also trade or sell the call option to an interested buyer. If you may sell your call option at $855.00 for a profit of $235 (i.e., 855-620). If, the call option may be sold for $240 producing a loss of $380.00 (i.e., 240-620).
A put option is a security that provides you with the right to sell shares of common stock of the underlying company at a specified price during a specified period of time. Since one put option allows you to sell 100 shares of the stock, the price you pay to buy one put option contract would be 100 multiplied by the quoted put option price. The option price is referred to as the option premium, which is determined by active buyers and sellers in an auction system. Purchasing a put is similar to purchasing insurance, since it would protect you from unanticipated market losses.
Murillo you are my new Hero and you play for Inter
Target went down $10 a share because of a weak quarter it's a interesting buy opportunity right now
Murillo you are my new Hero and you play for Inter