I'm going to take $1,405.35 and turn it into $100,000 using stock options.

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AVclub said:
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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1) Pretty much what I was thinking. People investing into a company due to hype and inflation.

2) Reading more into the Stock Options, sounds like the premium that you have to pay is the real killer if you're playing with a small amount of money since you actually have to profit enough to make up for the premium.

Stock options sound infinitely more interesting than normal stocks.
 
watervengeance said:
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.
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Aside from the obvious answer that stocks don't always rise back up, there are also tax reasons why you would want to sell a loser. If you cashed in a bunch of positive investments during the year, you may want to sell a stock that you've lost money on to offset some of your gains and lower your tax liability.

The other main reason would be to balance a portfolio and have cash on hand to be able to purchase other investments that would be a much better use of your money.
 
watervengeance said:
1) Pretty much what I was thinking. People investing into a company due to hype and inflation.

2) Reading more into the Stock Options, sounds like the premium that you have to pay is the real killer if you're playing with a small amount of money since you actually have to profit enough to make up for the premium.

Stock options sound infinitely more interesting than normal stocks.
Click to expand...

the more subtle reason (other than that not all stocks come back up) why it doesnt make sense to hold until they come back up is that there is an opportunity cost. if you have money tied up in some crappy investment that may come back over time you would be better off selling at a loss and putting the proceeds into an investment that would return more prospectively. a gross oversimplification is that if you wouldnt buy at a price you shouldnt hold at that price.

edit: beaten
 
Sounds like my RL friend Sanglucci.com
He took 1k and is now sitting on a nice chunk of change not only from trades but from monetizing his website.

Hes done well for himself
 
Sinistar said:
Sounds like my RL friend Sanglucci.com
He took 1k and is now sitting on a nice chunk of change not only from trades but from monetizing his website.

Hes done well for himself
Click to expand...

I was going to link to SangLucci's profit.ly before as an example of someone who has done very well with options...is he still doing his Wall Street Porn videos?
 
watervengeance said:
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?
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I don't want to say "buy and hold is a crock of shit" like Mark Cuban, but there are tons of reasons to sell. Minimize losses and if you really believe in the company then buy back in lower, sometimes stocks DON'T go back up, take the loss for tax purposes like someone mentioned, something may have changed fundamentally in the company, etc.

There's a derogatory term for people who think the way you do, it's called "bagholder". There are still people holding the bag in stocks like MSFT, NFLX more recently, etc. Stocks simply don't always go back up, that is what the industry teaches lazy people and hey, it's a lot easier to just plop your money somewhere and hang on to the belief that on a long enough timeline, individual stocks just always go up, but it's not true. Nowadays, there's the internet and unlimited information for free out there, in addition to discount brokerages where it doesn't cost $100 per trade anymore, so people can do their own research and be more creative or more hands-on with their money.
 
MVP said:
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?
Click to expand...

Losses are theoretically unlimited on short calls, not on short puts (stocks cant drop below zero). I usually write OOM puts on stocks I wouldn't mind owning at a lower price, so if it gets there is no big deal. I avoid the NFLXs of the world and go more with the WMTs and MSFTs.

Since using those kind of stocks and setting a longer timeframe so I can choose a longer strike (like a year instead of the next month) I haven't had a problem with a stock going against me. When I was using the following month to sell options on crap like TPX and PPO some of them went wrong, and I just cut my losses. It still happened rarely and had way more winners than losers.

I've also tried almost every option strategy there is out there, and I wouldn't change this one for anything.

Small crumbs that consistently add up, with a lot less stress (not a lot of adrenaline rush and some people need that).
 
GuyIncognito said:
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
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greyshark said:
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.
Click to expand...

I don't think anyone is understanding. Who gets the dividend doesn't matter in my example. If the dividend goes directly to the original owner of the share, or if it goes to me in the form of a check (which the article seemed to suggest) and I have to pay that dividend money back to the original owner -- doesn't matter. The original owner of the stock gets the dividend, I get that.

BUT, the price drops by $1. You know the price is going to drop by $1 because a dividend was paid. When price drops is when you make money shorting. So completely forgetting about the dividend altogether, price drops from 100 to 99, earning you $1 on the short.

Maybe I'm n00bing out on some aspect of shorting? I'll try to explain it again with step by step logic so whatever part I'm getting wrong can be pointed out:

1. Sell original owner's shares at 100
2. Dividend of $1 gets paid on the stock -- this profit goes to original owner, has no good or bad effect on you, you simply sold the shares and hope for them to go down
3. Stock price drops to $99 -- you want this to happen
4. You rebuy stock at $99 and give it back to original owner, making a profit of $1 because you sold it for higher during the first part of the shorting transaction

When I said "stealing the dividend" I didn't mean anything actually happened to the actual dividend itself. Just that you would make a profit equal to the price of the dividend.
 
No no no Timedog. The $1 for the dividend gets automatically deducted form your account. So

$100 to $99 = you make $1

$1 dividend = your are deducted $1

Result: you are still even.

It is even worse because stocks tend to recover their dividend drops quickly, but you would have still paid out the dividend in cash.

If it was so easy, everyone would have been doing it as an arbitrage opportunity.
 
AVclub said:
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.
Click to expand...

If you look at Dow jones or Nasdaq, they have been consistently rising since the beginning. This to me means that if I have diversified portfolio, I will make money in the long run no matter what.
 
Anaslex said:
If you look at Dow jones or Nasdaq, they have been consistently rising since the beginning. This to me means that if I have diversified portfolio, I will make money in the long run no matter what.
Click to expand...

That's exactly what a hedge fund is. The idea, I guess, is that only big, collective pools (like hedge funds) have the capital to adequately hedge by getting into all the different markets and industries. If you have the capital to do that independently then you'll save money on hedge fund fees.
 
Rubenov said:
No no no Timedog. The $1 for the dividend gets automatically deducted form your account. So

$100 to $99 = you make $1

$1 dividend = your are deducted $1

Result: you are still even.

It is even worse because stocks tend to recover their dividend drops quickly, but you would have still paid out the dividend in cash.

If it was so easy, everyone would have been doing it as an arbitrage opportunity.
Click to expand...

What part of my logic is incorrect? I made steps so it would be easy to point out exactly where I'm getting this wrong. Again the dividend has nothing to do with anything when shorting. The dividend comes from company earnings, the dividend itself doesn't lower market value directly (as far as I was told on the last page), investors selling stock lower market value.

If after a dividend was paid out, demand for the stock remained exactly the same, would the market price stay the same? According to the answers I got on the last page, the answer would be yes. And it makes sense to me that whatever the company decides to do with it's earnings wouldn't affect the market price unless demand in the market changed on account of this news. Whether they invested the earnings, gave it away (to investors, or charity, or a homeless guy), or pissed it down the toilet, if demand in the market isn't affected, the stock price isn't affected.

So as I see it, market price and earnings are two distinct entities, only connected insomuch as earnings can have a probable affect on demand. Correct me if I'm wrong.

Again, correct me if I'm wrong, but the after giving a dividend of $1, the stock price lowers by $1 -- not because some agency has a rule that states "you gave away $1 in earnings, we're going to artificially lower your stock price by $1 before the market opens", but it lowered by $1 because demand changed/people sold.

The $1 in dividend goes to the original owner of the stock. The dividend is deducted from my account by the original owner, but then I receive the check for the dividend later. It all balances out. I am not losing money from the dividend, that makes no sense.

To me, since I don't see a dividend, the stock behaves exactly as any other stock that doesn't pay dividends behaves. Thus, when I'm shorting it, and it loses money, that is a good thing, that means that I earn money.

So, I am not losing money from the dividend, it goes to the original owner, leaving me in a neutral position (all other things being equal).

I am not losing money from the stock going down, I am gaining money from it, because the stock is shorted.

So, unless the market price for the stock is artificially adjusted by $1 by some official body, my logic is correct, and I would make $1.

Edit: Actually, even an artificial price change wouldn't have an affect, cause I can still buy the stock for a cheaper price than I sold it for.
 
Now that Q3 is over, earnings season will soon be on us. You can make a lot by buying weekly calls or puts (risky since they expire after a week) depending on whether you think the stock will outperform (calls) or not (puts)!
 
Timedog said:
The $1 in dividend goes to the original owner of the stock. The dividend is deducted from my account by the original owner, but then I receive the check for the dividend later. It all balances out. I am not losing money from the dividend, that makes no sense.

To me, since I don't see a dividend, the stock behaves exactly as any other stock that doesn't pay dividends behaves. Thus, when I'm shorting it, and it loses money, that is a good thing, that means that I earn money.
Click to expand...

Bolded: I think that is where you're wrong. If you short a stock before it gives dividend, you don't receive dividend. Instead, you have to PAY the portion of dividend on the stock you sold, once you buy it :

1. Sell original owner's shares at 100
2. Dividend of $1 gets paid (BY YOU, I don't know exactly when though :P) on the stock -- this profit goes to original owner, has no good or bad effect on you, you simply sold the shares and hope for them to go down --> yeah but you actually sold it for 99$
3. Stock price drops to $99 -- you want this to happen
4. You rebuy stock at $99 and give it back to original owner, making a profit of $1 because you sold it for higher during the first part of the shorting transaction --> Nop

you gainned nothing. The buyer paid 100 and got 1$ in dividend.
everything's fine.
 
Hydderf said:
Bolded: I think that is where you're wrong. If you short a stock before it gives dividend, you don't receive dividend. Instead, you have to PAY the portion of dividend on the stock you sold, once you buy it :

1. Sell original owner's shares at 100
2. Dividend of $1 gets paid (BY YOU, I don't know exactly when though :P) on the stock -- this profit goes to original owner, has no good or bad effect on you, you simply sold the shares and hope for them to go down --> yeah but you actually sold it for 99$
3. Stock price drops to $99 -- you want this to happen
4. You rebuy stock at $99 and give it back to original owner, making a profit of $1 because you sold it for higher during the first part of the shorting transaction

you gain nothing. The buyer paid 100 and got 1$ in dividend.
everything's fine.
Click to expand...

So the company I have the stock in doesn't give out any dividends to stocks that are being shorted?

Let's say they have 1,000 stocks in the market, 300 of those stocks are being shorted, and 700 of those stocks are held by normal presumably long term stockholders. The company is giving out dividends of $1 per stock. They only give out a total of $700 in $1 dividends on those 1000 stocks?

--also, why would I have sold it for 99? The price was 100 when I began the short. There's no reason why I would have sold it for less than market value.
 
Timedog said:
So the company I have the stock in doesn't give out any dividends to stocks that are being shorted?

Let's say they have 1,000 stocks in the market, 300 of those stocks are being shorted, and 700 of those stocks are held by normal presumably long term stockholders. The company is giving out dividends of $1 per stock. They only give out a total of $700 in $1 dividends on those 1000 stocks?

--also, why would I have sold it for 99? The price was 100 when I began the short. There's no reason why I would have sold it for less than market value.
Click to expand...

You can't be given any dividend because you obviously don't have the stock when the dividend is paid.
Once you finally buy the stock, it's after the dividend got paid, so you don't receive any either.
But the guy who you sold the stock to (before dividend day) want his stock + dividend : after all, he bought it before dividends get paid for a reason! . So you have to pay it. :D

For your second question, you sold it at 100$ but gave 1$ in dividend. that means you really sold it 99$.

My knowledge on the subject is really low and I could easily make mistakes. It is how I understand it anyway. I hope someone can clear this up :D
 
Hydderf said:
You can't be given any dividend because you obviously don't have the stock when the dividend is paid.
Once you finally buy the stock, it's after the dividend got paid, so you don't receive any either.
But the guy who you sold the stock to (before dividend day) want his stock + dividend : after all, he bought it before dividends get paid for a reason! . So you have to pay it. :D

For your second question, you sold it at 100$ but gave 1$ in dividend. that means you really sold it 99$.

My knowledge on the subject is really low and I could easily make mistakes. It is how I understand it anyway. I hope someone can clear this up :D
Click to expand...

Ohhhhhh shiiiiit. Okay, I'm a dumbass :X
 
CyclopsRock said:
That's exactly what a hedge fund is. The idea, I guess, is that only big, collective pools (like hedge funds) have the capital to adequately hedge by getting into all the different markets and industries. If you have the capital to do that independently then you'll save money on hedge fund fees.
Click to expand...

this is not what a hedge fund is. you, as a retail investor, have access to the dow jones or the nasdaq for far less than hedge fund fees. etfs and indexed mutual funds will give you that exposure for a fraction of 1 percent in fees.

in general, hedge fund strategies are more sophisticated than buying and holding an index.
 
arglebargle said:
this is not what a hedge fund is. you, as a retail investor, have access to the dow jones or the nasdaq for far less than hedge fund fees. etfs and indexed mutual funds will give you that exposure for a fraction of 1 percent in fees.

in general, hedge fund strategies are more sophisticated than buying and holding an index.
Click to expand...

The poster I quoted didn't appear to be talking about indices, though. They specifically referenced a diverse portfolio in and unto itself.
 
Has anyone thought of buying stock/options in Activision? With Black Ops 2 about a month away, wouldn't the price see a decent spike post-release? I am really interested in getting into this, but I have no idea what a realistic price jump the stocks would see.

Currently the stock is worth about $11/share. It seems to me you would have to buy a large amount to make a decent profit, especially if the stock only rises a few dollars.
 
MR BLACKMAGIK said:
Has anyone thought of buying stock/options in Activision? With Black Ops 2 about a month away, wouldn't the price see a decent spike post-release? I am really interested in getting into this, but I have no idea what a realistic price jump the stocks would see.
Click to expand...

look at the chart and see what the stock did last time they had a big release
 
Look at a chart: It seems like the lowest the stock dropped in 2011 was $10.50 and in 2012 about $11.30. In November 2011 the stock went up to $13.25. So I guess I was right, you would have to buy a huge amount of shares to make any decent amount of profit.

Sucks. Sounded like a good plan.
 
Where is a good place to read up on this stuff? I was given some money by my family to try investing, but don't know anything about it, really. What's the best place to do fake/practice stock trading?
 
fPmca.png
 
arglebargle said:
The poster you quoted mentioned the Dow Jones and Nasdaq which are indices.
Click to expand...

They also said "This to me means that if I have diversified portfolio, I will make money in the long run no matter what." You can't really have a 'diversified portfolio' of two indices. Whatever man, who cares - either of us could be right, and at any rate, it doesn't matter a jot does it?
 
CyclopsRock said:
They also said "This to me means that if I have diversified portfolio, I will make money in the long run no matter what." You can't really have a 'diversified portfolio' of two indices. Whatever man, who cares - either of us could be right, and at any rate, it doesn't matter a jot does it?
Click to expand...

right, my point was that by owning those two indices you are automatically diversified since qqq (nasdaq etf) comprises 100 stocks and DIA (dow jones) comprises 30. so by owning those two indices (which wouldnt actually be the indices i would recommend, for different reasons) you have a diversified portfolio of 130 stocks (maybe something like 125, there will be some overlap but not much).

and sure, i guess it doesnt matter. this is a thread where financial advice* is being given and received and conversations on finance are happening so i chose to correct something i consider incorrect. lots of stuff doesnt matter, but that doesnt stop people from arguing on the internet. this seems like a more valid disagreement than many, since it could result in this guy actually making investment decisions.

*not actual advice, i dont know anything, not a licensed professional disclaimer, disclaimer.
 
MR BLACKMAGIK said:
Has anyone thought of buying stock/options in Activision? With Black Ops 2 about a month away, wouldn't the price see a decent spike post-release? I am really interested in getting into this, but I have no idea what a realistic price jump the stocks would see.

Currently the stock is worth about $11/share. It seems to me you would have to buy a large amount to make a decent profit, especially if the stock only rises a few dollars.
Click to expand...

I wouldn't bother. Every other big COD release has not seen any significant gains in its stock price. Also, we all know its coming out, and therefore the potential revenue that will be generated by COD has been taken into consideration and already factored in to the current price of ATVI. If anything, there will be astronimical sales targets set and if it fails to reach them... I wouldn't want to be long the stock.
 
chrisisawesome said:
I wouldn't bother. Every other big COD release has not seen any significant gains in its stock price. Also, we all know its coming out, and therefore the potential revenue that will be generated by COD has been taken into consideration and already factored in to the current price of ATVI. If anything, there will be astronimical sales targets set and if it fails to reach them... I wouldn't want to be long the stock.
Click to expand...

I was just going to make this point. The only way you will cash in is if the release far exceeds market expectations. The release of the game and its potential revenue would have been factored into the share price long ago.

Also great thread! Studied accounting and finance 5 years ago but realised how much I had forgotten!
 
Someone told me to buy $13 Oct PCS puts yesterday based off shitty merger deal, and I trust him, so I had to close out INTC position at a loss...he couldn't have been more right today, still bought the puts too high at .60 though
 
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