Depends on the option.
Im failing to see where you're almost guaranteed to win money in any sense though...
I'm going to take $1,405.35 and turn it into $100,000 using stock options.
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Depends on the option.
Im failing to see where you're almost guaranteed to win money in any sense though...
That's what a lot of people make it sound like. It also seems to be a lot riskier if your amibtions are high (like the OP's), but a lot less risky if you aim for small profits. And much of the appeal of options is the low amount you have to put in.
I would like to know how risky options are if you're well educated about the subject and your ambitions are low. No one should expect to get rich with options but it would sure be nice if it can buy you some little extras like a nice watch or quality furniture.
Well what are you comparing the risk to?
Options are riskier than buying the underlying stock.
I'm comparing the chances to winning the lottery. This seems like the only way I could have any chance of making my dreams come true which is working part time and earn the same as I would full time, even if I could only do it a few years. I'll still have very little chance of realizing this but it seems more likely this way than buying a lottery ticket every week. It's a bad comparison actually because with options I wouldn't be aiming at a similar amount of money as you'd win with the lottery.
Of course I'll be studying the stock market and options for the next few years before I start investing.
helloresolven
Member
I wouldn't really call what is going on in this thread investing. This is trading and speculating.
That's the wrong mentality to have, because after the first time you LOSE a nice watch or a quality piece of furniture, you'll feel like dying. From what I know from people who do it for a living, they don't trade to buy stuff, they trade to grow their account, and pay themselves dividends or a salary. Ask ggnoobIGN, I don't do this for a living but he seems like he does and he may have better advice.
You should start with paper trading. Whatever broker you use, see what their requirements are for a margin account, and open up one of those when you're ready to use your real money.
When people talk about their new lexus their driving around in from it, it cant be that hard to make enough money to buy a watch right?
Truthfully though, Prez, if you want to invest to make those "small" purchases, I think you would be better off not investing and just making those purchases with the money you would have invested.
The investment thread on GAF is probably a much better starting place.
People are getting way too caught up in the big numbers and have no clue the risks involved. Hell, look at the first trade in the OP...
When people talk about their new lexus their driving around in from it, it cant be that hard to make enough money to buy a watch right?
Truthfully though, Prez, if you want to invest to make those "small" purchases, I think you would be better off not investing and just making those purchases with the money you would have invested.
Ah I see what you did there...btw it's not a "new" Lexus, it's a 2002 LS430 like the one Bloomberg drives, nice and reliable. I only bought it because I needed a new car from the 1996 Corolla I was driving for years, not to just spend money. I didn't go into detail, so I guess I can see how it came off as me saying "I trade options and buy nice things".
I don't think there's anything wrong with treating yourself, but if he's doing it solely for that reason, what if his first trade is a bust, and he loses the price of a watch he could've bought had he not traded at all?
Do dividends get paid on specific known dates? If so are these dates different for different companies? Could I buy stocks with a high and predictable dividend yield a few days before it's paid, then take money out immediately after, and move on to other stocks that are about to pay dividends? Basically, is it possible to continuously "dividend snipe" on non-volatile, high paying stocks or are there certain rules in place to stop this?
Lottery and the stock-market shouldn't be compared. If you want money by blind luck, lottery is a better choice. If you want to engage yourself by investing in firms you have reason to believe are going to go well, and more reason than everyone else have, you do so. Don't invest with your heart, and realize it's about making smart decisions and being strict with yourself, and you'll get much further. And get your hand dirty. Either 1000$, or a simulator, and you'll soon figure out what you want to use the market for, and what knowledge you need. There's unlimited amount of knowledge in the field, and you don't need it all. You definitely don't need to read for 2 years.
Yes...different days for different companies. The final day to purchase a stock that pays a dividend is called the ex-dividend date. That's the last day investors who own the stock are entitled to payments for the previous year/quarter/month. Companies usually tell you which day the company plans to distribute the payments.
It doesn't make sense to buy a stock on the ex-dividend date only to sell it afterwards because you'll lose money on transaction costs. Dividend stocks are best when you BUY and HOLD them. Then you can pool the money to purchase more stocks or just automatically purchase more of the same shares without transaction fees.
The dividend is factored into the stock price, so no this wont work.
(X company pays 1$ dividend per share, on the ex-date the stock price drops 1$)
Also this. I didn't want to get too complicated.
Actually it's not just about treating myself, it's about having a better life. I'm still in college but I know I'll have a job with a very average pay and I'll likely stay single which is a big downside financially. It would be nice to be able to rent a nice appartment, drive a nice car, sleep on a quality bed, travel a few times a year and still have some money left for my savings account! I'll always put aside money for my savings account but it will be at the expense of all those other things.
I'll gladly take risks if it can make life more comfortable. I'd invest money I can miss, so losing wouldn't affect me much but winning would really make a difference. Also I'd still have the slight chance of winning a lot more than expected which could turn my life around (it would allow me to work part-time for a while or start a business).
Err, the company itself somehow artificially inflates/deflates the price, or the market action does so, somehow so that it's the exact price of the dividend?
Yes sir. The payments deflate the price since the cash value of the company has technically decreased.
Yes to what part?
The market adjusts.
The price of the stock automatically decreases the day the payments are made.
GuyIncognito
Member
both. The company is worth less since it has less cash, and the market values it accordingly
Smashing Drive
Banned
just wondering what's the best way to get big payday. Do you guys buy out of the money options and just hope for some kind of major move in the stock price?
Buying out-of-the-money is always the biggest payday. It also carries more risk.
If the market adjusts, that brings up 2 questions:
1. Couldn't you make money very reliably by shorting right before dividends are paid, then rebuying at the new lower price afterwards?
2. All things being equal, wouldn't dividends bleed a company's stock price dry after awhile? Do they rely on the general upward trend of the market to stabilize the price?
1. Couldn't you make money very reliably by shorting right before dividends are paid, then rebuying at the new lower price afterwards?
2. All things being equal, wouldn't dividends bleed a company's stock price dry after awhile? Do they rely on the general upward trend of the market to stabilize the price?
Operations
Member
Stock price already reflects dividend payment consensus expectations. If the company announces a higher dividend that consensus, stock price should in theory go up.
bigtroyjon
Member
Lots of things go into the price of the stock, including the dividend yield. If the price drops, then the yield goes up, more people buy it and the price rises again.
I can't find find the thread you're talking about.
As long as you're fine with lighting that money on fire, then sure, learn the ropes. You may have cold water running through your veins and trading might be your calling, you'll just never know if you don't try. If you're tight on money, but still want to learn, paper trade a bit, read a lot of articles (books tend to be outdated or try to cover too wide an area of trading).
If you like it, trade insignificant amounts, maybe a couple hundred dollars, but completely disposable income. Forget about being rich, forget about making a living, just worry about making good decisions, and worry about maximizing returns, and minimizing losses. There WILL be losses. Minimizing a loss that could have been worse is almost a win. My first GOOG trade in this thread I took my $700 loss and moved on. Had I held throughout the next day and "hoped" to make it back, I would have lost the rest, but instead I came back and made $500 on the next trade. That's how it is, don't let the losses demoralize you, it happens.
After you burn through the first few hundred, and you will lose it all, there are no exceptions, then ask yourself how you feel. Do you feel like you gambled and lost, or do you feel like you're paying for an education and you're learning/getting better, and still want to learn more? If you do, then keep it up, stay home and read/study while people are out eating shit and getting wasted and blowing their paycheck throughout the weekend.
greyshark
Member
1. When you short the stock, you have to pay the dividend, so you will not be making any money by doing this.
2. This would only be true if the company's earnings did not continue to increase. When you see this happen, the company will either cut or suspend the dividend when they can no longer afford to pay it.
Thanks.
Err, I thought the brokerage is entitled to the dividend, not that you had to pay anything extra. The brokerage gets the dividend, but the stock still goes down and you can give the shares back to the brokerage at a discounted price, effectively stealing their dividend. Correct me if I have something wrong.
greyshark
Member
Everything I've read states that as long as you're shorting the stock, you're liable to pay out the dividends to the owner of the shares you're borrowing.
EDIT: Here's an investopedia article that talks about this - http://www.investopedia.com/ask/answers/03/122203.asp#axzz27znYT0Sf
Oh, I see, the short seller gets the actual check for dividends, I didn't know that, although I did know that the brokerage was entitled to dividends (thought the check would go directly to brokerage).
None of that matters though with what I'm asking. I'm talking about shorting let's say at $100, then a dividend happens, let's say $1, and the stock price falls to $99 to compensate. You buy at $99, give the stock back to the brokerage at reduced price, and retain that $1 profit from the difference in price. You have to give up the $1 dividend, but you're still making $1 from the short, essentially stealing the $1 dividend from the original owner of the stock.
Is there anything stopping someone from doing this?
I've been trading options for about a year, but mostly selling them instead of buying. I sell mostly way out-of-the-money puts, and calls ocasionally.
I keep the premium that is paid to me as long as the stock doesn't make a large move. I choose mostly large caps and well- established companies to prevent that.
I wont get rich overnight or turn 2k into a 100k, but my portfolio has been growing steadily.
I keep the premium that is paid to me as long as the stock doesn't make a large move. I choose mostly large caps and well- established companies to prevent that.
I wont get rich overnight or turn 2k into a 100k, but my portfolio has been growing steadily.
Slayer-33
Liverpool-2
I remember last year I threw in about 10k (real money lol) or so into a penny stock, completely noob (although I researched a little beforehand) and at one point I was about $5k in the green but held on too long and ended up losing $1200 when I got to sell after the dump...
I played with fire. I should have sold early, lesson learned. Also never again will I do something as insane as this when it comes to "investing" lol...
-edit: Found the page on this story..
I don't really know anything about options
I played with fire. I should have sold early, lesson learned. Also never again will I do something as insane as this when it comes to "investing" lol...
-edit: Found the page on this story..
I don't really know anything about options
GuyIncognito
Member
you dont give up the dividend, you pay the dividend. So you make $1 from the price move but have to pay $1 in dividends
MR BLACKMAGIK
Member
This really makes me want to invest in stocks now. Only problem, I have no idea where to start.
http://www.optionshouse.com/virtual/
Just fill out the first page when you create an account to get started. Use Investopedia and other online resources to explain what things mean like a call option.
Option writing is surprisingly steady, I'm just afraid of some freak occurrence wiping out my net worth since losses are pretty much unlimited...have you ever had an out of the money option you wrote go deep into the money before, and what did you do? Just buy it back before expiry?
greyshark
Member
Read the article again - when you do a short sale, you're borrowing shares of stock you don't own and selling them to someone else. When the dividend dates happen, you don't get a dividend payout from anyone because you don't own the stock - the guy you sold it to does. But the original owner is still entitled to a dividend payment since he just loaned his shares to you. You have to pay those dividends out of your own account until you close the position. So in your example, you'd sell at $100, pay the original owner the $1 dividend, and then sell him his share back at $99. Everything would be even except you had to pay transaction fees for everything you did.
That most of probably know little to nothing about.
As usual, people get pulled to the thread talking about big money rather than the thread that exists that is actually about investing.
If this thread is getting you all fired up about making big money speculating in options, you may have a better chance at making it big at the poker tables.
watervengeance
Member
There's a few things that I don't really understand about stocks. I tried looking it up, but my google-fu is weak. All I can find are a bunch of random generic stock advice.
I don't understand why in the real world, you wouldn't just keep the stocks until they rise back up. Is it simply a psychological reaction to losing a ton of money, and selling to avoid further loses? Or is there another monetary reason to sell? It just seems like theoretically, you could let the stocks sit there until it climbs again (and then sell) assuming the company is just going through the normal fluctuations everyday.
Also, is there a reason to still go through brokers if everything is done electronically these days?
I don't understand why in the real world, you wouldn't just keep the stocks until they rise back up. Is it simply a psychological reaction to losing a ton of money, and selling to avoid further loses? Or is there another monetary reason to sell? It just seems like theoretically, you could let the stocks sit there until it climbs again (and then sell) assuming the company is just going through the normal fluctuations everyday.
Also, is there a reason to still go through brokers if everything is done electronically these days?
Assuming they do rise up, that's what I would do. Unless I think the payoff isn't worth it or my money would be better used elsewhere.
Online brokers are still brokers. I use them because they quickly exercise my orders and give me useful info and tools (like trade generators). Trades don't cost that much for me anyways.
Former registered representative here: To answer your first question, yes you can hold on to a stock if it's a solid company and chances are that it will eventually rebound. However, often times the price of stocks is greatly inflated compared to what shares of the company are actually worth. And hype tends to drive the prices as more people want a piece of the company. So when prices start dropping that means the interest in that company is waning. Despite how good the fundamentals might be, that interest is a fickle thing on Wall Street and it may never return again. So you may be left with a bit of the company that continues to lose value even if the company does well. That's stocks though.
The discussion in this thread is about options to buy stocks. Those have a very short life span. They expire and become worthless very quickly so that you can realistically only get a single good trade out of each one if your timing is right. Usually options don't fluctuate too wildly.
To answer your second question, you no longer need stock brokers if you're doing your own research and are comfortable managing your own portfolio. They have become glorified secretaries and used car salesmen in today's environment. That's why I don't do it anymore.
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