***Official*** 2009 Stock Market Thread

[pravi333]

Originally posted by: manlymatt83



An option is just that - an option to buy an equity at a specific price OR to sell an equity at a specific price on or before the exercise date (european options only allow you to exercise at expiration). If options are in the money, they will usually be automatically exercised by your broker, but you can close them out manually the day before. I don't ever exercise options - usually just trade them out.

There is no "requirement" to buy or sell or exercise.

EDIT: and as far as Scenario 2, he could do that... if he wanted to. No one would stop him for early exercise of the options. But he'd be stupid to do that when he can buy the shares on the open market for $10.

oh, so if you're very sure that the stock price is going to go up then it looks like options gives you the best bang for buck than owning the share outright!

I also bought HGSI shares for 10k but my profit certainly was no where near that.... on the downside i could've lost all 10k if the price did not go up.....

 

[manlymatt83]

Originally posted by: pravi333

Originally posted by: manlymatt83



An option is just that - an option to buy an equity at a specific price OR to sell an equity at a specific price on or before the exercise date (european options only allow you to exercise at expiration). If options are in the money, they will usually be automatically exercised by your broker, but you can close them out manually the day before. I don't ever exercise options - usually just trade them out.

There is no "requirement" to buy or sell or exercise.

EDIT: and as far as Scenario 2, he could do that... if he wanted to. No one would stop him for early exercise of the options. But he'd be stupid to do that when he can buy the shares on the open market for $10.

oh, so if you're very sure that the stock price is going to go up then it looks like options gives you the best bang for buck than owning the share outright!

I also bought HGSI shares for 10k but my profit certainly was no where near that.... on the downside i could've lost all 10k if the price did not go up.....

Options, meet pravi333. pravi333, meet Options :0

 

[GTKeeper]

Originally posted by: manlymatt83
What brokerages do people use?

I use think or swim. I think its the best platform out there for analysis etc. Plus they will match any major brokerage rate. Right now I have their standard per share commission which is 5 bucks flat for the first 300 shares then it goes up slightly per additional shares.

My option trades are 1.5 per contract, pretty damn good.

 

[Phokus]

Is there a difference in terms of return between exercising the options and trading them away?

 

[pravi333]

I use Zecco, very cheap but there is not much analysis tools available. It servers my small time, low capital investment appetite very well.

 

[manlymatt83]

Originally posted by: Phokus
Is there a difference in terms of return between exercising the options and trading them away?

Yes.

Say that you own 10 Calls for XYZ stock @ $10/share. The market quote is currently $12/share.

So far you're in the money $2. And since you have 10 calls, and one call = 100 shares, you have control of 1000 shares @ $10/share, and since it's worth $12/share, you're about $2000 in the money.

On top of that, perhaps the option has some time value left - let's leave that out for now, but normally, the options would be worth, maybe, $2100 or something, because there's still a chance they can go up further. Also a chance they could die down.

You can do one of two things:

- Sell the 10 calls in the market, and profit your $2000 and change, or whatever the value of the options are at that point. Call writers will buy your options back to close out the calls that they have written.

- Exercise the options. You'll actually buy 1000 shares of XYZ for $2000. At that point, you own those shares. If 10 minutes later, XYZ goes bankrupt, and the stock drops to $3/share, you just lost big time.

90% of options that have value are usually traded out. Most never get exercised.

-M

 

[manlymatt83]

Originally posted by: pravi333
I use Zecco, very cheap but there is not much analysis tools available. It servers my small time, low capital investment appetite very well.

Did they fix their site yet or is it still complex as anything?

 

[manlymatt83]

Originally posted by: GTKeeper

Originally posted by: manlymatt83
What brokerages do people use?

I use think or swim. I think its the best platform out there for analysis etc. Plus they will match any major brokerage rate. Right now I have their standard per share commission which is 5 bucks flat for the first 300 shares then it goes up slightly per additional shares.

My option trades are 1.5 per contract, pretty damn good.

$1.50 per contract is actually quite expensive. TD Ameritrade/Schwab are 75 cents/trade.

How's their web based interface?

Anyone here use Chuck? What are your thoughts? I would use them and get their checking account, too.

 

[Phokus]

Originally posted by: manlymatt83

Originally posted by: Phokus
Is there a difference in terms of return between exercising the options and trading them away?

Yes.

Say that you own 10 Calls for XYZ stock @ $10/share. The market quote is currently $12/share.

So far you're in the money $2. And since you have 10 calls, and one call = 100 shares, you have control of 1000 shares @ $10/share, and since it's worth $12/share, you're about $2000 in the money.

On top of that, perhaps the option has some time value left - let's leave that out for now, but normally, the options would be worth, maybe, $2100 or something, because there's still a chance they can go up further. Also a chance they could die down.

You can do one of two things:

- Sell the 10 calls in the market, and profit your $2000 and change, or whatever the value of the options are at that point. Call writers will buy your options back to close out the calls that they have written.

- Exercise the options. You'll actually buy 1000 shares of XYZ for $2000. At that point, you own those shares. If 10 minutes later, XYZ goes bankrupt, and the stock drops to $3/share, you just lost big time.

90% of options that have value are usually traded out. Most never get exercised.

-M

Interesting, thanks!

 

[eLiu]

Originally posted by: pravi333

Originally posted by: manlymatt83



An option is just that - an option to buy an equity at a specific price OR to sell an equity at a specific price on or before the exercise date (european options only allow you to exercise at expiration). If options are in the money, they will usually be automatically exercised by your broker, but you can close them out manually the day before. I don't ever exercise options - usually just trade them out.

There is no "requirement" to buy or sell or exercise.

EDIT: and as far as Scenario 2, he could do that... if he wanted to. No one would stop him for early exercise of the options. But he'd be stupid to do that when he can buy the shares on the open market for $10.

oh, so if you're very sure that the stock price is going to go up then it looks like options gives you the best bang for buck than owning the share outright!

I also bought HGSI shares for 10k but my profit certainly was no where near that.... on the downside i could've lost all 10k if the price did not go up.....

That's not quite right. Yes, if you're *certain* that the price will go up, then options are the cheapest way to profit off that certainty. But you if you're 100% certain, you're probably doing something illegal

That said let's go back to HGSI 2 weeks ago. Share price in the $2 range, Aug 12.5 call around 0.05. Suppose you invested $10,000 then. If the phase3 data was positive (which it was), you would've made a much bigger profit on the aug12.5 calls than from just buying shares, no argument.

But what if the phase3 data had come out negative? Your Aug12.5 options would be worthless, but I'd bet the share price would be around $1 min. So for your initial 10k, you'd still have something to show for it: shares in a company with plenty of other drugs in the pipeline.

Also unless your money is in a tax-sheltered acct, gains on that Aug12.5 option are all short-term, which equates to higher taxes. With shares (or very long time horizon options), you can go long and wait a year, reducing the tax burden. (You can go long with the Aug12.5 as well if you choose to exercise those options, but honestly it'd be stupid to do so b/c you could've gotten in at $2/share instead!)

So options tend to be a lot more volatile. If you're right (yoxxy), you can win big. If you're wrong, you can lose the whole shebang. Which I think is why Yoxxy referred to play as a "lottery ticket."

I was recently over-eager with RMBS July options and lost most of that investment, haha oops.

 

[pravi333]

Originally posted by: manlymatt83

Originally posted by: pravi333
I use Zecco, very cheap but there is not much analysis tools available. It servers my small time, low capital investment appetite very well.

Did they fix their site yet or is it still complex as anything?

hmmm i joined last year & the layouts, design or anything for that matter haven't changed at all from the day i joined. But i did not find anything complicated or difficult, may be because this was my 1st online trading website so i did not have anything to compare it to. Also customer service is decent, any queries i emai, i get a reply back within a business day. Haven't tried calling them yet.

Originally posted by: eLiu

I agree the downside is 10k in that example & downside of owning the shares outright is recouping some or almost all of 10k depending on the timing.

I thought tax is ruled out of investment picture? unless you're just a month or two away from long term investment, tax shouldn't play a part in your investing. Am i wrong with that?

 

[eLiu]

Originally posted by: manlymatt83

Originally posted by: GTKeeper

Originally posted by: Yoxxy
wow I owned 2000 (200,000 shares exposure) contracts with a price of .05 @ 12.50 on HGSI after reading this board as a lottery ticket.

RMBS has been redeemed.

I'm shorting HGSI now.

Equities...
Orly? What'd you short at? You have balls dude, lol. I'm too scared to short this stock... not that I'd really want to; I'm pretty being "long" so far.

As for GERN, too bad I didn't find out about it until so late. I got in in the mid 8s and I plan on holding.

Brokerages...
Also I'm using etrade right now. I didn't really think much about which broker to use when I started. But in retrospect maybe I should have as it seems some of these other ones (zecco, think or swim) have much better transaction fees

Anyone know how hard it is to transfer from one broker to another? (Or if it's even worth the trouble...) Do zecco or thinkorswim have pre/after hours trading?

 

[Demo24]

Originally posted by: manlymatt83

Originally posted by: pravi333
I use Zecco, very cheap but there is not much analysis tools available. It servers my small time, low capital investment appetite very well.

Did they fix their site yet or is it still complex as anything?

What do you mean by complex? I use it and like it just fine. I was with Etrade but they are much too expensive. With 4.50 a trade for stocks, and then .50 an option contract it works out well.

However one that looks good is optionhouse if you are buying a lot of option contracts in one order.

 

[Demo24]

Originally posted by: eLiu

Originally posted by: manlymatt83

Originally posted by: GTKeeper

Originally posted by: Yoxxy
wow I owned 2000 (200,000 shares exposure) contracts with a price of .05 @ 12.50 on HGSI after reading this board as a lottery ticket.

RMBS has been redeemed.

I'm shorting HGSI now.

Equities...
Orly? What'd you short at? You have balls dude, lol. I'm too scared to short this stock... not that I'd really want to; I'm pretty being "long" so far.

As for GERN, too bad I didn't find out about it until so late. I got in in the mid 8s and I plan on holding.

Brokerages...
Also I'm using etrade right now. I didn't really think much about which broker to use when I started. But in retrospect maybe I should have as it seems some of these other ones (zecco, think or swim) have much better transaction fees

Anyone know how hard it is to transfer from one broker to another? (Or if it's even worth the trouble...) Do zecco or thinkorswim have pre/after hours trading?

Zecco does not do extended hours as of yet and I don't know if it's coming or not. It's actually quite easy to transfer accounts. I believe it's called an ACH transfer. However since Zecco doesn't require a opening limit you could just open the account and transfer money to it as you please.

I can't tell you much about ToS, but it seems those who use it do quite like it. I might look into them in the future.

 

[eLiu]

Originally posted by: DEMO24

Originally posted by: eLiu

Originally posted by: manlymatt83

Originally posted by: GTKeeper

Originally posted by: Yoxxy
wow I owned 2000 (200,000 shares exposure) contracts with a price of .05 @ 12.50 on HGSI after reading this board as a lottery ticket.

RMBS has been redeemed.

I'm shorting HGSI now.

Equities...
Orly? What'd you short at? You have balls dude, lol. I'm too scared to short this stock... not that I'd really want to; I'm pretty being "long" so far.

As for GERN, too bad I didn't find out about it until so late. I got in in the mid 8s and I plan on holding.

Brokerages...
Also I'm using etrade right now. I didn't really think much about which broker to use when I started. But in retrospect maybe I should have as it seems some of these other ones (zecco, think or swim) have much better transaction fees

Anyone know how hard it is to transfer from one broker to another? (Or if it's even worth the trouble...) Do zecco or thinkorswim have pre/after hours trading?

Zecco does not do extended hours as of yet and I don't know if it's coming or not. It's actually quite easy to transfer accounts. I believe it's called an ACH transfer. However since Zecco doesn't require a opening limit you could just open the account and transfer money to it as you please.

I can't tell you much about ToS, but it seems those who use it do quite like it. I might look into them in the future.

Ah, I thought ACH was a bank thing. But free transfers would be good. I'd want the transfer primarily for my RothIRA. 4.50 is a crapload cheaper than etrade's 12.99

Originally posted by: pravi333

I think you are right with your remark on taxes. I was just throwing that out there as another possible factor if it hadn't already crossed your mind.

Though if you're like me (bottom income bracket), it the tax difference hardly matters, haha. Granted if I'd made 470k, I wouldn't be bottom anymore!

edit: whoa, a lot of posting action in this thread today

 

[ahurtt]

Originally posted by: pravi333

Originally posted by: manlymatt83



An option is just that - an option to buy an equity at a specific price OR to sell an equity at a specific price on or before the exercise date (european options only allow you to exercise at expiration). If options are in the money, they will usually be automatically exercised by your broker, but you can close them out manually the day before. I don't ever exercise options - usually just trade them out.

There is no "requirement" to buy or sell or exercise.

EDIT: and as far as Scenario 2, he could do that... if he wanted to. No one would stop him for early exercise of the options. But he'd be stupid to do that when he can buy the shares on the open market for $10.

oh, so if you're very sure that the stock price is going to go up then it looks like options gives you the best bang for buck than owning the share outright!

I also bought HGSI shares for 10k but my profit certainly was no where near that.... on the downside i could've lost all 10k if the price did not go up.....

The thing about options is, yes, they can be more capital efficient than owning shares. But for them to be of any value at all you have to buy the right option. For an option to be worth anything, the price of the underlying security must surpass the strike price of the option contract you bought by at least as much as the contract price and it must do this on or before the strike date of the contract.

Example, say you buy 1 call contract on stock X (just picking a random letter, not U.S. Steel) for $.25 with a strike date of say September 1, 09 at a strike price of $10. X is currently trading at $5.

Your initial outlay is 1 call = (100 x .25) = $25.

Now lets say that on September 1, 09, the price of X is $10.25.
You exercise your option and buy 100 shares at $10 and then turn around and sell them at market price of $10.25. You've made no money. You've broken even. All you did was make back your initial capital. If you exercised your option at a price of say $10.10, you'd have actually lost $15 (which you should do because losing $15 is better than losing your whole $25). So it is very important to take this into account when dealing with options. Your option won't net you a profit until the price of the equity the contract is based on exceeds the strike price + cost of option per share. The thing that makes options so tricky is getting the timing right for the price. Any investment advisor will tell you that timing the market is one of the hardest things to do and get right but yet options trading relies on just that to a great degree. . .timing the market. This is why options are considered high risk investments. However, that being said, a common use of options is as a "hedge" or insurance policy against losses on long or short positions. Say you had shorted X and you want to protect yourself in case the price of X goes up instead of down like you had expected. You can buy some X call options to cover any losses you might incur in case you were wrong about the direction of X and it goes up. Or vice versa, suppose you bought a long position in X but you want to protect yourself against significant losses if the stock price tanks. Then you could buy some X put options to hedge your long position. Yes options are more capital efficient when they are in the money but they have a higher likelihood of expiring worthless leaving you with nothing at all to show for the capital you put up. That is why you should only trade options if you really can afford to lose the money you are investing because there is a good probability that you will. You also have to take any brokerage fees into account when buying options just as you would in normal share purchases.

 

[Demo24]

Doh! Yes, it's called an ACAT transfer. However I have never used one. The whole reason I went because I figured if I had to break even, $9 for the transfer was a lot easier to swallow than $26.

 

[marketquotes]

Originally posted by: manlymatt83

I'm shorting HGSI now.

Ouch. Why did you do that? It's got a floor of $14 now and it's future is looking quiet solid with 3 drugs likely coming to the market next year. ABhtrax (anthrax), Albuferon (hepatitis), BENLYSTA (lupus).

 

[Phokus]

Originally posted by: ahurtt

Example, say you buy 1 call contract on stock X (just picking a random letter, not U.S. Steel) for $.25 with a strike date of say September 1, 09 at a strike price of $10. X is currently trading at $5.

Your initial outlay is 1 call = (100 x .25) = $25.

Wait, i thought the initial outlay for 1 call would be .25 for the right to buy 100 shares later

 

[eLiu]

Originally posted by: Phokus

Originally posted by: ahurtt

Example, say you buy 1 call contract on stock X (just picking a random letter, not U.S. Steel) for $.25 with a strike date of say September 1, 09 at a strike price of $10. X is currently trading at $5.

Your initial outlay is 1 call = (100 x .25) = $25.

Wait, i thought the initial outlay for 1 call would be .25 for the right to buy 100 shares later

Nope. If you go back a couple of pages, I made the same mistake and Azurik corrected me, haha. I was like "oh I can buy a few thousand contracts for just 600 bucks! awesome!" But no, that would've been 60000.

Options contracts typically correspond to 100 shares. But the price you see is "per share." So when you buy an options contract you need to multiply the price by the number of shares in the contract (in this case, 1 contract->100 shares, so cost 0.25*100).

It is possible that options contracts will correspond to more/less than 100 shares; I think this happens through splits/reverse splits.

 

[ahurtt]

Originally posted by: Phokus

Originally posted by: ahurtt

Example, say you buy 1 call contract on stock X (just picking a random letter, not U.S. Steel) for $.25 with a strike date of say September 1, 09 at a strike price of $10. X is currently trading at $5.

Your initial outlay is 1 call = (100 x .25) = $25.

Wait, i thought the initial outlay for 1 call would be .25 for the right to buy 100 shares later

Options are generally the right to buy or sell 100 shares of the underlying security. So you have to remember to multiply the option price by the number of option contracts by the number of shares. So if you buy 3 call options you're buying the right to purchase 300 shares of a given stock at a given price by a certain date. If the option price is $.10 that comes out to 100 shares per contract x 3 contracts x $.10 per share = $30. The common option types are call and put. A call is the right to BUY a security at the strike price on or before the strike date. A put is the right to SELL a security at the strike price on or before the strike date. 1 option = 100 shares. I know it's confusing because the option price you are given reflects the price PER SHARE even though an option is typically 100 shares. It'd be much easier if they'd just give the final price of the option contract when quoting option prices rather than the price per share but I guess they assume that if you are advanced enough in trading to be doing options trading you know to do the simple math yourself.


EDIT: Yeah, what eLiu said up above.

 

[Phokus]

edit: nevermind

 

[Phokus]

Originally posted by: ahurtt

Originally posted by: Phokus

Originally posted by: ahurtt

Example, say you buy 1 call contract on stock X (just picking a random letter, not U.S. Steel) for $.25 with a strike date of say September 1, 09 at a strike price of $10. X is currently trading at $5.

Your initial outlay is 1 call = (100 x .25) = $25.

Wait, i thought the initial outlay for 1 call would be .25 for the right to buy 100 shares later

Options are generally the right to buy or sell 100 shares of the underlying security. So you have to remember to multiply the option price by the number of option contracts by the number of shares. So if you buy 3 call options you're buying the right to purchase 300 shares of a given stock at a given price by a certain date. If the option price is $.10 that comes out to 100 shares per contract x 3 contracts x .10 per share = $30. The common option types are call and put. A call is the right to BUY a security at the strike price on or before the strike date. A put is the right to SELL a security at the strike price on or before the strike date. 1 option = 100 shares. I know it's confusing because the option price you are given reflects the price PER SHARE even though an option is typically 100 shares. It'd be much easier if they'd just give the final price of the option contract when quoting option prices rather than the price per share but I guess they assume that if you are advanced enough in trading to be doing options trading you know to do the simple math yourself.

Ack, ok, i understand now, but when i read something like this, i'm confused:

http://finance.yahoo.com/q/op?s=RMBS&m=2010-01

so to buy ONE Jan 10 Rambus call option @ a strike price of 22.50, 1 option (100 shares) would cost 2.05? or 205? (i'm guessing the former)

 

[ahurtt]

The latter, $205 unless I'm mistaken. If you paid $2.05 I believe you'd be buying 1/100th of an option if that were possible. Or the right to purchase 1 share of RMBS for 22.50 on or before Jan 10. Which actually means for you to make a profit, the stock price must clear 22.50 (strike price) + 2.05 (your initial capital outlay) = $24.55 on or before the strike date. If it never makes it to $22.50 you've lost $2.05. If it comes in somewhere between $22.50 and $24.55 you've still lost some fraction of your initial capital but not all of it. Only once it hits 24.56 on or before the strike date do you make any money.

 

[The-Noid]

Latter. 1 option per share 100 shares per contract.