Any good stock pick suggestions??
- Thread starter Apple15
- Start date
It is also quite easy to have a 100% loss
The primary function of an option is to reduce risk for an investor i.e buying a put to lock in a profit or to minimize a loss
A secondary function is to generate additional income ie selling a call on a position you hold
If the option is purchased or sold primarily with the hope of a significant change in the equity price, then that is a directional bet with a time limit.
There is a huge difference between investing and betting
Successful investors will tell you their secret is not to score doubles or triples, rather it is the ability to minimize losses.
There are very very few retail investors who can constantly make money betting on directional moves within time limits in the options market.
I have yet to meet one and suspect I will not.
Use options as risk management tools and you will do well, use options for directional bets and you will soon be wondering where your capital went
The great majority of options expire out of the money. Writing options is better than buying them.
The point is that poster implied that a better performance can be achieved by playing options relative to equities.
I completely disagree, as you are taking on a far greater risk due to
a) the leverage
b) the contracts expiration constraint.
Options are designed to be risk reduction tools and I can state with a high level of confidence that if you consistently play with options for the purpose of speculating on a directional move within a set time limit , you will lose money over the long haul.
This will happen despite your claim that you can suceed if you know what you are doing
Those that really understand options recognize this.
Many of the more successful long term investors place more focus on the risk, while it appears most focus more on the reward.
There is more than three components to an options play.
The premium in particular
If you have been able to use options in a speculative fashion and be successful, then all the power to you
However:
1. Taking a naked long or short position in an option is inherently more risky than taking a long or short position in the security due to
i) time to expiry,
ii) leverage. You say its a numbers game,yes it is, but it is the % loss or gain on the invested capital that is the correct comparison.
The absolute dollar amount of the investment in any one position is a question of sound capital management.
The probability of a 100% loss on the invested capital in a options position is very high and it can happen very quickly.
With an equity position the probability of a 100% loss on the invested capital is much much lower (next to zero barring a company specific event and assuming the investor pays attention to his position and reacts when it hits a loss limit).
The premium in particular is almost always loaded against retail investors by the market (ie the bank traders) relative to the fundamentals of the position
Therefore a retail investor buying an option pays more than is warranted by the risk and a retail investor selling an option receives less than is warranted by the risk of the position.
The bid-ask speed for many options (Canadian Equities) is often huge.
Take enough positions and this will eat into your capital over time
Let me qualify your last line... successful investors focus on achieving a specific level of reward relative to the risk taken
A 100% loss of capital is way too much risk to justify any expected reward
If you have been successful speculating in the options market then I tip my hat to you, however their primary function is to reduce risk, not directional speculation.
That is the message I wanted to get across when it was stated "that one can do way better in the options market than the stock market"
If a speculator does not throughly understand these instruments he will get slaughtered
The premium in particular
If you have been able to use options in a speculative fashion and be successful, then all the power to you
However:
1. Taking a naked long or short position in an option is inherently more risky than taking a long or short position in the security due to
i) time to expiry,
ii) leverage. You say its a numbers game,yes it is, but it is the % loss or gain on the invested capital that is the correct comparison.
The absolute dollar amount of the investment in any one position is a question of sound capital management.
The probability of a 100% loss on the invested capital in a options position is very high and it can happen very quickly.
With an equity position the probability of a 100% loss on the invested capital is much much lower (next to zero barring a company specific event and assuming the investor pays attention to his position and reacts when it hits a loss limit).
The premium in particular is almost always loaded against retail investors by the market (ie the bank traders) relative to the fundamentals of the position
Therefore a retail investor buying an option pays more than is warranted by the risk and a retail investor selling an option receives less than is warranted by the risk of the position.
The bid-ask speed for many options (Canadian Equities) is often huge.
Take enough positions and this will eat into your capital over time
Let me qualify your last line... successful investors focus on achieving a specific level of reward relative to the risk taken
A 100% loss of capital is way too much risk to justify any expected reward
If you have been successful speculating in the options market then I tip my hat to you, however their primary function is to reduce risk, not directional speculation.
That is the message I wanted to get across when it was stated "that one can do way better in the options market than the stock market"
If a speculator does not throughly understand these instruments he will get slaughtered
Lools like I've started something re options, I sell puts 95% of the time but I take strike prices 30 to 40% below the current stock price, the premium has to be at least 10% of the strike and I ususally cash out when I make 50% of the premium. I just started doing options for the past two years, before I was in equities and was having less success. Now I have open at any one time about 40 positions, some with over 100 contracts. I found that I have doubled my cash in the past two years even during the recent turmoil. The difficult part in doing this is to find suitable stocks that have good option prices that fit my criteria for investing. With equities, there are two difficult decisions, when to buy and when to sell. With options you only have to determine your entry point, time decay will take care of the rest in a lot of instances, and you keep your premium. If your not greedy, you can cash out earlier depending on your own criteria. So I disagree, I have found options a lot safer than equities because you can be much more diversified in your portolio. BTW I don't touch canadian stock options and trade strickly in the US market.
Also if you are willing to buy that stock anyway why not buy it at 30 or 40% below the price it is presently selling at. Your cost is even lower because you have received a premium. I have been assigned a few times but then I just sell the stock without a lost because the stock price was still above my cost taking my premium received into consideration. Even made money on GM and Citi on options before they filed for bankrupcy.
Done put and call spreads and double iron condors, etc. but found that selling regular puts was the easiest strategy to make money.
Also if you are willing to buy that stock anyway why not buy it at 30 or 40% below the price it is presently selling at. Your cost is even lower because you have received a premium. I have been assigned a few times but then I just sell the stock without a lost because the stock price was still above my cost taking my premium received into consideration. Even made money on GM and Citi on options before they filed for bankrupcy.
Done put and call spreads and double iron condors, etc. but found that selling regular puts was the easiest strategy to make money.
bought 3 1/2 years ago... not buying anymore at today's prices though.
as for an investment (not quite a stock) but an income trust that I have been speaking of for a while:
Consumers Water Heater Income Fund on the TSX: CWI.UN followed the pattern of many trusts. The public gulped it down at $10 in 2002, and the distribution was a fat C$0.0875 per month. Then, every year through 2007, the distribution increased, peaking at $0.1075 in 2007, where it stayed through most of 2009.
The unit price jumped up handsomely, touching $18.25. But in 2009, the distribution was cut in half, to $0.054 per unit. Predictably, the trading price swooned, touching a low of $3.22. Pity investors who were in for the long haul—they were in for a cold shower indeed.
Consumers currently trades around $4.75.
This income trust is now more intriguing. The distribution cut dropped the payout ratio from 117% one year ago to 52% in the most recent quarter, making it much easier to maintain. Revenues are trending upwards, hitting $51 million, from $48 million this time last year. The big negative, though, is that earnings dropped from $7.5 million to $2.3 million.
Management is looking at growth opportunities, perhaps to extend the corporation’s reach beyond its base in Ontario. Units and convertible debentures were sold, bulking up cash to $76 million from $25 million. The vast majority of the debt load has been transitioned from short to long term, but it is fairly fat at close to $600 million, given annual revenues of around $200 million. This entity would be well advised to take a firmer hand on the debt and taper expansion plans until the balance sheet is firmed up.
One key metric for this enterprise is the customer attrition rate. There are alternatives to renting a water heater—including buying one outright or installing a tankless system—and the rate at which consumers are pursuing them is increasing dramatically. Recently, the organization has been focusing on slowing this trend, and its efforts appear to be paying off. In the most recent quarter, the attrition rate was 1.6%, down from 2.4% last year.
Plans are in the works to turn Consumers [from a trust] into a corporation in the fourth quarter of this year. While the conversion itself is of minor consequence, the future dividend is significant. While a cut is a real possibility, odds are that if it happens, it will be nominal. A drop in the trading price would be expected, at least in the near term.
At this point, many investors are grabbing the distribution, knowing that in the longer term there is a realistic possibility of capital appreciation. A double wouldn’t be out of the question.
I've owned and traded in and out of CWI for a few years.
If you rent a HOT WATER HEATER, you are a customer of theirs!
For gods sake, the original poster was asking about any good stock pick selections (re the title of the thread)
This is a question asked by many novice investors.
Implying to him or others that they can do much netter in the options market relative to the stock market is very bad advice if it is not accompanied by a warning of the higher inherent risk in that market.
My assumptions are not way off the mark
I did not assume that everyone knows writing naked calls is idiotic
I know this, you know this, but does the original poster who was looking for advice?
About six months ago someone else asked for investment advice on this board and some fool suggested he try his hand in the futures market
You may wish to take an more objective approach and not view it as your opinion relative to mine.
My opinion is that any options play should be for the purpose of risk management, not directional speculation with an inherent time limit & a hefty premium.
It is also my opinion that directional speculation with options is a recipe for disaster
Starting off a reply with the word "Listen" will not win you any respect.
its a bit of pet peeve with me, however it implies I was not listening before
You noticed "I have offered nothing to the original poster"
I disagree. If nothing else perhaps I made him aware that there is significant risk in derivatives (ask AIG or Lehman Bros) and he should investigate it further before he starts off the wrong way and writes a naked call because he thinks that stock is going to tank.
Often the best advice is to steer someone away from taking the wrong action. Inaction will not lose you money.
btw SPYs and most other ETFs were developed to market to the institutional investor as risk management tools (ie an alternative to futures)
The retail investor market was and still is an afterthought for these products
As for me being a mutual fund salesman
HaHa thats funny. I think mutual funds are the biggest con Wall Street ever pulled.
The MERs were ridiculously high for most funds, most of which are closet indexers and most of which do not beat the market
I could never sell Mutual funds as I do not believe in them and certainly would not be able to look a client in the eye and tell them that I honestly think this is the best investment for them
So I am afraid you have me pegged all wrong
If that was directed toward me, perhaps I can set you straight
I have a very good understanding of the options market
Are there others out there who have a more in depth understanding?
Of coarse.
However they are designed as risk management tools.
When used in this context they can prevent disastrous losses, reduce the volatility of returns and preserve your capital
When used a profit seeking tools there is a lot of risk on a percentage basis
They can be used successfully to generate profit and there are some who are able to do this on a consistent basis.
You claim you can do this, so we will include you in this very select group of successful retail options strategists.
However I would caution anyone who is considering investing in this asset class to
a) Take many courses on options
b) Real several books on the subject
c) Ensure they fully understand the inherent leverage in options, the potential for a 100% loss of the premium
d) Ensure they understand the downside of certain naked positions (potentialy huge relative losses if your wrong)
e) Ensure how a change in volatility can affect the option value
f) Have a very good understanding of what is driving the movement in the underlying stock
g) Map out the future value of the option for stock price moves up more than they expect, down for more than they expect and if it moves sideways
h) Do several phantom trades over several months before committing any capital.
i) start off very small ie one contract
j) Options positions should not result in a significant deviation from the overall portfolios asset and sector allocations or diversification level
(ie d not bet the farm on any one position)
k) Ensure a good understanding that certain options positions are a directional bet
L) Ensure a good understanding that the strategy may be correct, but the options expiation may not be correct (ie one must get the direction and timing right)
I agree with the first part of this statement, not the second.
The knowledge, experience and the amount of monitoring time required to consistently profit from the options market is very significant.
Most investors do not have this expertise or the time
The options market is no place to invest with a half assed approach
Buying and holding (5-10 years) quality dividend paying companies with good growth prospects (lots of these available) will increase wealth with minimal risk
Is it possible to achieve incremental profits on such a portfolio using options , but profit seeking options plays add risk and one ill conceived trade can wipe out a lot of capital.
Your statement inplies investors are missing out if they do not play options
Options are not for everyone, just like Futures, Art, Real Estate, gold, IPOs, convertible debt, high yield bonds etc are not for everyone
If you invest in an asset class well you do not fully understand, you will get burnt.
Im currently a uni student and made a decent amount of cash this summer from working was hoping for any advice on which stocks would be good to buy, even a 1% gain, end of the day as long as im making money im happy. Ive got about $3000 I want to invest. Any advice is apperciated thanks
Dude, you're better off to keep those money in TFSA, say online savings account option for paying the tuition down the road, assuming you do not have adequate money from the RESP to cover your tuition for 4 years.
No stock returns could ever match the double digit interest rate charged on your credit card outstanding balance or high single digit interest rate charged on outstanding student loans.
First of all, what is your time frame for this investment. If you are looking less than 2 year, I would not buy stocks because the risk/rewards are too high. If you are looking 2 years or more, I recommend that you open a Tax Free Saving Plan and buy a moderate Mutual Fund product. Monthly income funds would be a good fund to start. ie RBC Monthly Income fund. It pays a monthly yield and you also can look forward to unit value appreciation. Good luck.
Lighten up genius.
Lets be clear on a few things
1.. I never put the challenge to you to "show how to mitigate the risk of derivative trading."
I do not need you to do that.
I have taken many options courses and I have used them on occasion to reduce risk
At no point did I challenge you to show me anything
2. What I stated is not crap, rather its a list of some of the risks involved.
If you know as much about options as you claim you should recognize these as kind of important to know and understand
It is very sound advice to some novice investor such as the original poster.
It is also a hell of a lot more appropriate than suggesting he should take a course and then wade hip deep into leveraged options plays like the one you described.
3. You talk about "high and mightily crap"
WTF
Where do you get off urging a strategy on an individual when you have no idea if this strategy is appropriate for him.
Better that someone points out the risks after you point out the rewards.
4, No I have not pointed out any stocks to pick.
I have been too fucking busy pointing out the risks of the options market because you tout it as a path to riches
If it will make you happy, here are a few
3M CAMECO Paychex Alimentation Couche Tard Canadian National Railway Power Financial
Johnson & Johnson Amphenol Corp Quest Diagnostics Inc Anixter International Inc Cenovus
Research In Motion Apple Encana Rogers Comunications Monsanto Archer Daniels Midland Royal Bank Sysco Corp Astral Media Google Schlumberger Ltd Teck Cominco AstraZenica Inter Pipe
Stryer Education Telefonoca ADR Iunits Cdn Dividend ETF Stryker TEVA Baxter International Iunits Energy Suncor Thomson Corp Oceaneering International Walgreen Co Toronto Dominion Oracle Iunits Materials Sector Index
5. As for competing with you, no thanks!
a) you are a vastly superior investor as you no doubt tell your self every day
b) For me its not about just return its the return relative to the risk taken, so it is an inappropriate comparison
c) I have no desire to hear you brag about your winners and I suspect I would never hear about the ones that went south
d) I do not really care to deal with you on an ongoing basis.
Up until now I have been polite.
You have a opinion, I have a different opinion
I suggest you respect that and respect that I am just attempting to point out there are risks which anyone who plays the options market should know.
Again options are not appropriate for everyone and if you do not recognise that you should not be giving any advice at all
Here is my take on Options. I started trading Options about 2 years ago. Before that, whenever someone mentioned Options, I was automatically think " high risk ". I am a growth investor that invests primarily in dividend paying stocks. I trade Options that are risk adverse such as covered call, sell put options but only with large cap stocks. Option trading does not necessarily have to be risky. You need to educate yourself and be open minded. Whenever I tell my friend to trade options for "extra income", they automatically assume that this is a risky venture. Option trading is the best thing that has happened to me when it comes to investing. I wish I started doing this 10 years ago. Kingfisher and JohnL, you both are very investment savy dudes and don't need to criticize one another.
Happy option trading to you all.
Happy option trading to you all.
Again I need to clairify things for you
You did not say pick a stock that will move
What you did say was
So I offered up a number of companies with above average growth potential , most of which pay dividends from the TSX, S&P and Nasdaq
Have you heard of the concept of diversification?
Any idiot can plunk down money on a leveragd bet a single stock will move
It takes a bit more in terms of time, patience and homework to build a well diversified portfolio which will reduce risk.
I suggest you rethink the name calling, take TheyCallMeBruce's advice and just respect that my opinion differs from yours.
I have conceed that you are able to trade options sucessful & I hope you make a ton of money.
I however, wanted to get the point across that options can be very risky if the trader does not fully understand them and that options are not for everyone.
I do not understand why you take such offense to such a well intended and responsibel warning to the OP
If you do not agree, fine.
But I will not stand for insults.
So make sure you know what your getting into if you continue down that road
I have been watching this thread with a little amusement for the past while. Not once have I seen kingfisher recommend “options” as an investment strategy to the OP or any other novice for that matter.. He/she originally responded to the other member who talked about options, and John Larue took over from there trying to scare the bejesus re options and all kinfisher seemed to be doing is saying they have a purpose and that investors should educate themselves about them.
I took it upon myself to copy kf's trade and I made money on it albeit a little more as I came into it shortly after, when the stock had dropped in price
I can understand Kf being a little rude/frustrated here to an arrogant member like John Larue who is accusing him of things he never said and/or taking things out of context. I just don't read it that way.
Btw, John Larue half of your stock picks? I wouldn't touch with your money lol! You clearly don't understand derivative markets by throwing AIG and Lehmans into the mix as examples of the pitfalls of trading. Those were insurance derivatives not run of mill stock puts/call. Insurance derivatives are inherently riskier especially when they were used without the proper capital reserves for normal insurance product.
Perhaps Kf would be good enough to give us his next option trade.
I took it upon myself to copy kf's trade and I made money on it albeit a little more as I came into it shortly after, when the stock had dropped in price
I can understand Kf being a little rude/frustrated here to an arrogant member like John Larue who is accusing him of things he never said and/or taking things out of context. I just don't read it that way.
Btw, John Larue half of your stock picks? I wouldn't touch with your money lol! You clearly don't understand derivative markets by throwing AIG and Lehmans into the mix as examples of the pitfalls of trading. Those were insurance derivatives not run of mill stock puts/call. Insurance derivatives are inherently riskier especially when they were used without the proper capital reserves for normal insurance product.
Perhaps Kf would be good enough to give us his next option trade.
B
burt-oh-my!
Right now a better deal than options are some split shares. You get the leverage at a DISCOUNT, not a premium.
So you have picked a side in this debate have you?
Fair enough, I will respect your opinion
However
1. What specifically did I accuse KF of saying?
I pointed out that he recommended the OP get into the options market which may not be appropriate for him
2. Glad you liked (or disliked) the stock picks.
Some have worked very well , others not so well, however I am pleased with the over-all performance
(BTW there are more)
If they are not for you, thats fine. Do not invest in them, however if you are going to second guess them, perhaps you would be brave enough to put your picks out there.
BTW I would be a bit more gracious if I disagreed with their merit as long term low risk investments.
Any reasons why you would not touch half of these companies?
Please be specific if you are going to be critical, perhaps you can enlighten me with your wisdom
3. I clearly do not understand derivatives?
Thats a pretty bold statement.
Perhaps you have far more extensive experience and education. I do know you so I can not say how much you know, however I do know a fair amount on the subject.
Oh Bye the way, AIG and Lehmans downfall was caused by credit default swaps, which last time I looked were covered in several books on Derivatives, Options and Futures
You are correct that they are OTC and differ from exchange traded options, however they are good examples of how improper use of derivatives can lead to huge losses.
4. My object was not to scare anyone, rather point out there is risk in these securities and that options are not for everyone.
An aquantaince of mine (who took a lot of courses) made $1,3 MM in one year day trading equity options, unfortunatly the next year he lost $1.6 MM day trading equity options the next year
The only way he could do that was by taking leveraged directional positions.
So there is risk
So I will looking forward to reading your suggestions for good investments at this point, if you have the confidence to back up your words
I already mentioned above that nowhere does KF recommend options to the the OP. He responded to another member who introduced options into this thread. I guess your reading comprehension is compromised at best. Or perhaps you feel that if you repeat a lie enough times, it becomes fact. Doesn't work that way son. I repeat, nowhere does kf reco options to the op. So all your long winded babble is for no reason.
As far as your acquaintance and his "day trading" bad luck; I doubt the veracity of this claim. It seems to me it is nothing more than your feeble attempt to illustrate your point; that is - to continue to scare monger regarding options.
