Is anyone trading in the options / futures market?

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freegeeks

Diamond Member
May 7, 2001
5,460
1
81
I've been investing in the stock market now for 5 years.
I'm still a very conservative investor, I firmly believe in index funds with low costs
I've done a lot of reading and self study about other financial products like options and futures

anyone has experience with stuff like that?

 
C

Carbo

Diamond Member
Aug 6, 2000
5,272
11
81
I was both a licensed commodites broker, and also traded for my own account, many moons ago in another life. I must say I have never found a more fun way to lose money in my life. Trading futures is an adrenaline rush like no other. Given the chance to do it all over again, I would be a full time futures trader.
 
nboy22

nboy22

Diamond Member
Jul 18, 2002
3,304
1
81
Originally posted by: Carbo
I was both a licensed commodites broker, and also traded for my own account, many moons ago in another life. I must say I have never found a more fun way to lose money in my life. Trading futures is an adrenaline rush like no other. Given the chance to do it all over again, I would be a full time futures trader.
Click to expand...

I like how that's put "never found a more fun way to lose money in my life" hehe.. just sounds funny
 
Zenmervolt

Zenmervolt

Elite member
Oct 22, 2000
24,514
43
91
I've done it. Moved billions around for pension funds. Boring as all hell and the expected payout isn't all that much better. In reality, futures and options are really only suited to hedging strategies.

ZV
 
D

daddyo

Senior member
Oct 9, 1999
676
0
0
Originally posted by: iversonyin
futures and options are for traders, not investors.
Click to expand...

QFT

Unless you are in those markets for hedging, you are better off going to Vegas. At least there you get free booze while they take your money.
 
IHateMyJob2004

IHateMyJob2004

Lifer
Sep 29, 2004
18,656
67
91
Originally posted by: freegeeks
I've been investing in the stock market now for 5 years.
I'm still a very conservative investor, I firmly believe in index funds with low costs
I've done a lot of reading and self study about other financial products like options and futures

anyone has experience with stuff like that?
Click to expand...


YES!

I started investing with PFe about 5 years ago. Still ahve those shares.

Anyways, I don't do indexes. I 0only do stocks. i'm a long term investor and I characterize myself as a value/income investor.

I do options.
The thing is, to do options, you really nned to understand value investing. If not, you are essetnailly gambling when you do options. Eventually the house gets everything. If you apply valuation principles to income stocks (BAC is a VERY GOOD EXAMPLE), you can find some saef bets with naked puts. Oh, I mostly do naked puts. The occasional Covered Call, but I havn't had the reason to do those lately.

Futures:
Oil futures got you? Ignore the media. It's your safest bet, especially Jim Cramer.

CONCLUSION:
Based on what you said in the OP, you are not ready for options. I can nto comment on futures, but if you are conservative, I'd guess futures are nto a good idea.
 
IHateMyJob2004

IHateMyJob2004

Lifer
Sep 29, 2004
18,656
67
91
OK, I am writing this knowing I'll have to explain myself.

I?ll do this by example.

Assume I have $100K in stock.
I have a margin account and am approved for options trading.

Consider BAC. Currently at $45.46 and has a yield of 4.40%
http://finance.yahoo.com/q?s=bac

What I do is naked puts. Consider the may 45s that are going for about $1.75:
http://finance.yahoo.com/q?s=BACQI.X

I would do say 3 of those. So, I get $1.75*3*100 up front. $525 total.

Two outcomes can occur:
1) I collect my $525
2) I am forced to buy BAC for $43.25 ($45-$1.75 premium).

For scenario (1), the conclusion is a no-brainer.
For scenario (2), that $43.25 represents a yield of 4.6%. So, I?ll get stuck with a high quality stock that has a yield of 4.6%

Currently, I might be buying some PFE for $26 mid-December even though it?s trading for $22.43. That?s the risk, but I am more than happy to take some PFE at $26.

-- Been doing this for almost 2 years now and PFE is the first time I might have stock put to me.
 
Slew Foot

Slew Foot

Lifer
Sep 22, 2005
12,379
96
86
Originally posted by: IHateMyJob2004
OK, I am writing this knowing I'll have to explain myself.

I?ll do this by example.

Assume I have $100K in stock.
I have a margin account and am approved for options trading.

Consider BAC. Currently at $45.46 and has a yield of 4.40%
http://finance.yahoo.com/q?s=bac

What I do is naked puts. Consider the may 45s that are going for about $1.75:
http://finance.yahoo.com/q?s=BACQI.X

I would do say 3 of those. So, I get $1.75*3*100 up front. $525 total.

Two outcomes can occur:
1) I collect my $525
2) I am forced to buy BAC for $43.25 ($45-$1.75 premium).

For scenario (1), the conclusion is a no-brainer.
For scenario (2), that $43.25 represents a yield of 4.6%. So, I?ll get stuck with a high quality stock that has a yield of 4.6%

Currently, I might be buying some PFE for $26 mid-December even though it?s trading for $22.43. That?s the risk, but I am more than happy to take some PFE at $26.

-- Been doing this for almost 2 years now and PFE is the first time I might have stock put to me.
Click to expand...


I still dont get it. What determines whther or not scenario 1 or 2 will take place?
My general investment strategy is to buy big companies that pay nice dividends. WOrks wel so far, though this year I changed and bought a bunch of oil stocks, made a ton. Currently in Citigroup (18% profit margin FTW!), SBC, and JP Morgan, as well as some mutual funds. Doing pretty wellI must say.
 
Slew Foot

Slew Foot

Lifer
Sep 22, 2005
12,379
96
86
Oh this is a good website.

Text

Example: Jane wants to buy a house. After a few weeks of searching, she discovers one she really likes. Unfortunately, she won't have enough money for a substantial down payment for another six months. So, she approaches the owner of the house and negotiates an option to buy the house within 6 months for $100,000. The owner agrees to sell her the option for $2,000.

Scenario 1: During this 6-month period, Jane discovers an oil field underneath the property. The value of the house shoots up to $1,000,000. However, the writer of the option (the owner) is obligated to sell the house to Jane for $100,000. Jan e buys the house for a total cost of $102,000-$100,000 for the house plus the $2,000 premium paid for the option. She promptly turns around and sells it for a million dollars for huge profit of $898,000 and lives happily ever after.

Scenario 2: Jane discovers a toxic waste dump on the property. Now the value of the house drops to zero and she obviously decides not to exercise the option to buy the house. In this case, Jane loses the $2,000 premium paid for the option to the owner of the property.

 
IHateMyJob2004

IHateMyJob2004

Lifer
Sep 29, 2004
18,656
67
91
Originally posted by: Slew Foot
Originally posted by: IHateMyJob2004
OK, I am writing this knowing I'll have to explain myself.

I?ll do this by example.

Assume I have $100K in stock.
I have a margin account and am approved for options trading.

Consider BAC. Currently at $45.46 and has a yield of 4.40%
http://finance.yahoo.com/q?s=bac

What I do is naked puts. Consider the may 45s that are going for about $1.75:
http://finance.yahoo.com/q?s=BACQI.X

I would do say 3 of those. So, I get $1.75*3*100 up front. $525 total.

Two outcomes can occur:
1) I collect my $525
2) I am forced to buy BAC for $43.25 ($45-$1.75 premium).

For scenario (1), the conclusion is a no-brainer.
For scenario (2), that $43.25 represents a yield of 4.6%. So, I?ll get stuck with a high quality stock that has a yield of 4.6%

Currently, I might be buying some PFE for $26 mid-December even though it?s trading for $22.43. That?s the risk, but I am more than happy to take some PFE at $26.

-- Been doing this for almost 2 years now and PFE is the first time I might have stock put to me.
Click to expand...


I still dont get it. What determines whther or not scenario 1 or 2 will take place?
My general investment strategy is to buy big companies that pay nice dividends. WOrks wel so far, though this year I changed and bought a bunch of oil stocks, made a ton. Currently in Citigroup (18% profit margin FTW!), SBC, and JP Morgan, as well as some mutual funds. Doing pretty wellI must say.
Click to expand...

Your follow up post seems to be alright. Nopt sure if they are in line with what I'm doing. Seems like a basic explanation of options though. Sounds like jane is "buying calls".

To answer your question.
NOTE 1: Naked puts are selling puts. A bullish strategy.

NOTE 2: Well, the buyer of the puts (the person I sold the puts to) can force me to buy the stock for $45 at anytime between now and experation. This is not a common occurance

99% of the time, these are the scenerios (see the above note 2 for the rare scenerio):
(1) Experation day comes (May 2006). If the stock closes above $45, I simple collect my premium ($1.75).
(2) Experation day comes (May 2006). If the stock closes below $45, I typically will have the stock "put to me". I will be buying BAC for $45 even if it's selling for $35. But I also get the premium of $1.75, so I am actually paying $43.25($45-$1.75)

-----
your stocks:
JPM :thumbsup:
The others I won't comment on unless you ask.

My stocks:
WM
TJX
PFE
MRK (not recomended by me anymore)
ACAS
LLTC
JP
O
CAG (not recomended by me anymore)

Other than the noted, all A++ stocks. The other wo have "frozen" their dividend.



 
IHateMyJob2004

IHateMyJob2004

Lifer
Sep 29, 2004
18,656
67
91
Originally posted by: Slew Foot
Oh this is a good website.

Text

Example: Jane wants to buy a house. After a few weeks of searching, she discovers one she really likes. Unfortunately, she won't have enough money for a substantial down payment for another six months. So, she approaches the owner of the house and negotiates an option to buy the house within 6 months for $100,000. The owner agrees to sell her the option for $2,000.

Scenario 1: During this 6-month period, Jane discovers an oil field underneath the property. The value of the house shoots up to $1,000,000. However, the writer of the option (the owner) is obligated to sell the house to Jane for $100,000. Jan e buys the house for a total cost of $102,000-$100,000 for the house plus the $2,000 premium paid for the option. She promptly turns around and sells it for a million dollars for huge profit of $898,000 and lives happily ever after.

Scenario 2: Jane discovers a toxic waste dump on the property. Now the value of the house drops to zero and she obviously decides not to exercise the option to buy the house. In this case, Jane loses the $2,000 premium paid for the option to the owner of the property.
Click to expand...

I guess my point is that a high waulity stock like BAC probably won't turn into sludge (scenerio 2) At worst, that $100,000 in BAC might end up being worth only $90,000. Oh wel!
 
iversonyin

iversonyin

Diamond Member
Aug 12, 2004
3,303
0
76
Originally posted by: IHateMyJob2004
OK, I am writing this knowing I'll have to explain myself.

I?ll do this by example.

Assume I have $100K in stock.
I have a margin account and am approved for options trading.

Consider BAC. Currently at $45.46 and has a yield of 4.40%
http://finance.yahoo.com/q?s=bac

What I do is naked puts. Consider the may 45s that are going for about $1.75:
http://finance.yahoo.com/q?s=BACQI.X

I would do say 3 of those. So, I get $1.75*3*100 up front. $525 total.

Two outcomes can occur:
1) I collect my $525
2) I am forced to buy BAC for $43.25 ($45-$1.75 premium).

For scenario (1), the conclusion is a no-brainer.
For scenario (2), that $43.25 represents a yield of 4.6%. So, I?ll get stuck with a high quality stock that has a yield of 4.6%

Currently, I might be buying some PFE for $26 mid-December even though it?s trading for $22.43. That?s the risk, but I am more than happy to take some PFE at $26.

-- Been doing this for almost 2 years now and PFE is the first time I might have stock put to me.
Click to expand...

I'm thinking he's(OP) going to buy or sell options for money. That's not bad of a strategy you listed. Only problem you might encounter is that the stock tank and you force to buy garbage. But thats just the risk we all take for participating in the market.
 
R

rahvin

Elite Member
Oct 10, 1999
8,475
1
0
Originally posted by: freegeeks
I've been investing in the stock market now for 5 years.
I'm still a very conservative investor, I firmly believe in index funds with low costs
I've done a lot of reading and self study about other financial products like options and futures

anyone has experience with stuff like that?
Click to expand...

If I'm going to gamble instead of invest strategically for the long term I go to vegas, at least I get to drink free there. Options and Futures is gambling, nothing more. Sure the odds may at least be somewhat favorable with intense knowledge and research but the risks are tremendous.
 
Miramonti

Miramonti

Lifer
Aug 26, 2000
28,653
100
106
Index and currency option arbitrage trading used to be my career, but now its just stocks.

Stocks are far easier to trade imo because their risk is always linear to the underlying's movement, whereas option positions have dynamically different levels of risk depending on how close and far they are from the underlying instrument.

Some inexperienced traders like options because they seem cheap and the returns can be high, but that's very deceiving. Overall the maximum size of position that you take should depend on how much money you're willing to lose if you're wrong vs. how much money you have, and not how much risk your broker allows you to take based on your account. Usually naive option traders bite off more than they can and should chew, which is a big reason why so many lose so much so fast.
 
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