Stock options ?

[McMac]

So I have decided to take it upon myself to learn a bit more about the stock market and how trading options works....although I'm not sure anyone has ever really figured it out.

So my question:

Any thoughts on a good place to start? Any companion book that will help my baby steps?
Even if nothing comes of it, I at least want to understand the ticker!!

Thanks in advance.......

 

[papasmerf]

Best Advice

The best advice anyone can and will give you is: NEVER INVEST MORE THEN YOU CAN AFFORD TO LOOSE!!!!!!

You want to invest walk before you run
call a broker

 

[xarir]

Re: Best Advice

The best advice anyone can and will give you is: NEVER INVEST MORE THEN YOU CAN AFFORD TO LOOSE!!!!!!

Very true. If you're prepared to loose whatever you invest, go for it. Trading options is not for the faint of heart. You're delving into very technical territory. Options are great when you put them together properly as portfolio insurance. But if you're looking to actually make money off options trading, be prepared to loose lots before you actually make anything.

 

[xarir]

Sorry - just re-read your original messsage.

If you're looking to just learn a bit about the stock market and how it works, you can get some info from the Canadian Securities Institute.

http://www.csi.ca

They offer general info for the public and even a few courses that will be enough to get you to the starting line of a career in the investment world.

Another good thing to do is get yourself an investment advisor. These people handle other people's money for a living. They are paid to give good advice. As always, there are good ones and there are bad ones. Unfortunately there is no review board for investment advisors (hmm, maybe we should start one ...) but you can try your luck.

If you go to any bank, you'll be able to find yourself a broker through their brokerage house. These guys have the whole infrastructure of the bank behind them and thus have access to proprietary research, and generally easier access to certain types of investment vehicles. Without meaning to insult anyone on the board, you'll likely find what you're looking for if you hit the brokerage house itself (Scotia McLeod, BMO Nesbitt Burns, RBC Dominion Securities, TD Waterhouse, CIBC Wood Gundy) rather than rely on someone in the bank branch. A lot of banks now have "in-branch specialists". These guys can get you a mortgage, or a mutual fund, or a GIC or ... They're smart and they know their stuff. But what you're looking for is probably more specialized than this. A broker is trained differently, works in a different environment and ultimately can probably help you a little more than an in-branch specialist can.

An alternative is to find yourself a financial planner. These guys work for companies like Assante, Cartier Partners, Edward Jones etc. (I picked these names randomly.) The difference between a planner and a broker is largely one of level of support. Whereas a broker has a gigantic bank infrastructure available to him, a planner generally has more limited resources. That's not bad; it's just different.

 

[thecoolguyms72]

Just a bit of advice.

For someone in this business, I would echo the responses of find yourself an advisor, whether it is a bank broker, and independent broker, a planner from a large firm, or a small boutique firm, or (perish the thought) a bank branch person. In either case, piggy back on their expertise and ask them for some reading material. Oh, and xarir, Edward Jones is actually a broker, not a planner, for the most part, although I believe they do some planning for their clients.

I would recommend that you start with some basic material, go to the library, or to a book store and look for some of the Globe and Mail's Report on Business books, there is one just on the basics of the stock market. Then move up to some of the more advanced readings such as Jeremy Seigel's "Stocks for the Long Run", or Benjamin Graham's "The Intelligent Investor".

No, from your first post, you mention that you are going to "take it upon myself to learn a bit more about the stock market and how trading options works....although I'm not sure anyone has ever really figured it out............". Well, if you're going to take "baby steps" and figure out a bit more about the stock market, options is the last place I'd start. First start learning about the basics of investing before you start looking at such complex derivatives as options. Options are basically ways to leverage an investment in a company (usually), or to protect a positions (covered options). Sound confusing? Good, it's supposed to be confusing, which is why I recommend people stay away from options. If you want to invest in the market, buy the stocks of high quality companies that you and your friends and family use everyday. If you don't have enough money to buy enough of those companies to diversify yourself, then buy a good mutual fund that can do it for you.

Another quick lesson on options......basically two types.....call options and put options.........call options you are hoping the stock goes up as this gives you the option to buy the underlying stock at a specific price which is ideally lower than the current price, and put options you are hoping the stock goes down as it gives you the option to sell the underlying stock at a specific price which is ideally higher than the current market price. Easy way to remember this? The phone analogy........you pick UP the phone to CALL, and PUT DOWN the phone to hang up. Still confused? Good!

As well, I am not using this board to solicit business as I don't live in Toronto or even near it really, just visit from time to time, and I don't think this is the place to solicit business.

Hope this helps a bit.

 

[thecoolguyms72]

Addendum

Sheik, I couldn't agree more. High pressure sales in this industry isn't a good thing. You hire an advisor/broker for the long term to help you achieve your goals, not to get 'hot deals' in the market. That's not investing, that's gambling, two different things. Good move getting out of Nortel, I couldn't convince my clients to get out a few years ago. Now they know a little better.

 

[Beau]

market makers edge by Josh Lukeman

a fascinating book from a wall st. insider. about day trading and charting for entry and exit moments for minmum risk and maximum profit. i never understood options but futures...

maybe the george brown prep for securities class to learn the fundamentals, lingo. Follow charts, dow, nasdaq, 100's, watch CNBC and ROB if you want, its mostly noise.

Rent a Bloomberg terminal and work in realtime quotes from around the world....) (fantasy) let nothing stick except its a very emotional, captivating hobby to say the least.

reading for knowledge and gambling, I mean investing Id leave to the experts and hopefully they are sound mind and trust-worthy individuals. it's exciting times and things are cheap.

think ahead to the environment and alternative energy sources and producers, space travel, solar sails and Advanced Propulsion Technology, the issue of principles and Ethical and Balanced Funds, networking and Powerline Technology, ownership and Digital Rights Management…

i wish i was you...good luck in your ventures...beau

 

[fflowley]

options trader here

McMac, a good site to look at is the CBOE website. You will have access to an online tutorial which will teach you about options and the strategies used to trade them.

It's not clear from your post whether you have any stock trading knowledge at this point. If you don't, you need to spend time understanding how common stocks trade before you even think about the world of options.

Also, you can learn about trading common stocks using a discount online broker. Paper trade first, then use the online broker for their low commisions. If and when you then want to trade options you will want to find a full service broker. The full service broker makes a much broader range of trading strategies available to you.

A charting program can also be very useful. I use Worden Brothers; the CD is free and then you pay monthly for data.

Speaking from personal experience, this is a very time consuming and tedious process to learn. The rewards are there, but I can guarantee you will invest tremendous time and effort before you ever reach them. Think on a scale of years before you can really get good at this.


Best of luck
Flooey!

 

[McMac]

Thank you gentlemen!

Yes, I am more confused than ever, but for a "frugal" Scottish, that's probably a good thing. You are all most definitely correct...I don't believe options are where I need to begin this journey....it was the buzz word of the day I guess.

Many thanks again....I have some reading to do!!

 

[openwide]

open your eyes.........both of them

here i am my second post ever and i am defending the lunacy of illiterate stock "gurus"................just to let you know.............covered call writing actually reduces the amount of cash you need on account...................the canadian options market is very small(relatively illiquid except for a few stocks)............most investment advisors(i use the term loosely)have no clue of how to utilize an option................and if you truely want to understand the nature of the derivatives market you should learn from many different sources...............the basics are laid out for most people(just search google with the title options strategies and spend some time) ...................i would think that ....practicing with a basket of stocks and options of all sorts(fantom,fake, etc.) would offer you some insight into this(these) strategies

please do not believe the advise you have read(read this follow that....it is very pedantic).....................only walk away.................if you wish to invest using options...........................learn.......................your broker will be happy, for you will probably be educating him/her

a reluctant advisor who remains unlicensed and incensed!!!!!!

 

[train]

Originally posted by JP

i rarely talk to my IA cause its all sales, ...

I agree with you on this JP . You have to make your own decisions based on some fundamental research that they can give you . I have recently had a broker brag to me that he had out-performed the market because he had only lost half of what the TSX had lost in 2002 . Hard to imagine but he actually thought he had done well .
He was confused when I told him that my 70 yr old mother had way outperformed him by making 2 % in gic's .

Start with equities before you get into options .

 

[KBear]

Just do it!! Nothing motivates you more to learn than when you have your own money at stake. Only throw in the money you are fully prepared to loose, your education/training fund. Check to see if your trading account allows you to trade options.

The stock markets move randomly, it does not matter what you buy, or when you buy it (to a degree), the important thing is when you sell. If you are not mentally prepared to sell at a loss, don't buy!

 

[belgiumcdn]

options

I offer a very attractive options product that protects 100% of your principal and also will pay a min. of 8% simple interest over the term of the product(which is 7.5 yrs)It has been averaging 13% per yrs for the last 20yrs and has been doing very well in the last 3 yrs.
Had you gotten this product last yr at this time it is up 22%
If interested in learning more pm me

 

[train]

Re: options

I offer a very attractive options product that protects 100% of your principal and also will pay a min. of 8% simple interest over the term of the product(which is 7.5 yrs)It has been averaging 13% per yrs for the last 20yrs and has been doing very well in the last 3 yrs.
Had you gotten this product last yr at this time it is up 22%
If interested in learning more pm me

There is a reason it yields 8% . That reason is that it carries a higher level of risk than a product offering a 5% return . The statement that it protects 100% of your investment is not the entire truth . There should be a law against this type of misleading sales talk .

 

[belgiumcdn]

Principal is 100% protected by the bank of Canada. The only catch to this is you must hold it for it's full term 7yrs 6mth for the principal protection to take place
So if the market drops by 50% and stays that way your principal is 100% protected if you hold on to this product for the full term
If the market goes up by 50% and you wish to sell and secure your profits there is a 2yrs hold period
I can understand why some people have a hard to time grasping this product as it does sound to good to be true......
And the intrest is not compunded, it is simple interest over the term of the product.
So worse case, the market drops and stays down for the term of 7yrs 6mth
$10,000.00 invested(min. is $2,000.00)
At end of term you would get $10,800.00 dollars that is the worse thing that could happen
This product has a 13% average return, so if it maintains its average that same investment could return you $23,000.00

 

[train]

What you are saying is that the range of possible returns is between a little over 1% to whatever . This makes more sense as there is some risk in the returns obviously . I am curious as to what kind of financial instrument other than a bank deposit ( to a max of $60,000 , i think ) is guaranteed by the Bank of Canada ( I guess CSB's may be one ) .

Next financial scandal waiting to happen ? Income trusts - be very , very aware of the underlying value of the assets/businesses of these investments if you have bought any and monitor them regularly . The concept has been oversold and very few companies actually fit the model of generating cash with no need to reinvest in capital equipment etc .

 

[belgiumcdn]

This one is

this one is to a max of 2 million dollars, it has a higher credit rating than the banks.
income trust I agree can be very scary

 

[gala]

zero sum

The only thing you really need to know about options is that it's a "zero sum game": that means every dollar that you earn is a dollar that somebody else lost.

Stocks are different: it's possible for both the buyer and the seller to make a profit. That's because the underlying company hopefully makes a profit, and over time that drives up the price of the stock so that everybody wins.

Speculating on options basically means that you think you've found a sucker who will agree to sell tommorow at todays price when obviously the price is going up; or a sucker who will buy that right from you on a stock that is obviously about to crash.

Just remember that he thinks you're the sucker.

The one real value of options is that you can use them as a kind of insurance. Say your business would crash if the price of oil doubled: you could buy options to buy oil in six months at todays price. If the cost of oil doubles your business will crash, but by cashing in those oil options for a hefty profit you'll be able to avoid bankruptcy.

Buying and selling options because you think you might get rich is alright--you might. Just think of it as an online casino, and have some fun. Don't put any more money into it than you would take to the casino though--just like the casino the house is on the take: I said it's a zero sum game, and it is, but that's pretending your broker isn't charging you for every trade.

My advice to you would be don't bother with any books. Any book that tells you how to get rich trading options is full of it. It's gambling, and gambling can be fun--so come up with some throw-away money, open a trading account, and have a blast.

 

[train]

Option Product offered by BelgiumCdn

This gentleman was kind enough to send me the details of what he was talking about which are as follows :

1) The investment is in Notes issued by BDC [ Business Development Bank of Canada ( note: not the Bank of Canada ) ];

2) They have been doing this since 2000 and they are currently selling series #7 at a price of $102.4 ( ie 2.4% is taken off the top - I assume this goes to the vendor as a commision but I may be wrong on this );

3) the funds are invested by an outside manager in 'Managed Futures ' which appear to be futures contracts in commodities , currencies and financial instruments ( read derivatives ). The note holder is cut in on any profits of this derivative trading after management fees;

4) derivatives can be some of the most risky instruments out there , however these are in fact guaranteed ( for $108 at the end of 7.5 years ) by the BDC which has a Standard and Poor's credit rating of AAA . The investors' downside risk appears to be limited to making $8 less $2.40 per $100 invested after 7.5 years or an annual return of 0.75 % ;

5) the series 6 fund has earned 4% in aprox 6 months , less the upfront fees ( past performance is not a guarantee of future performance );

7) BDC can discontinue the trading in futures if the series #7 fund loses more than 22.5% and hold onto your money for the 7.5 years before paying you out as noted above ;

Not for me - but it would appear to be as safe a way as you are going to find to play the Futures/derivatives game . If you are interested - out of fairness you should contact Belgium Cdn .

Now that is done ..... WHAT THE HELL IS BDC DOING ? I thought that the BDC was a crown corporation created to stimulate small business growth ie. funded to provide financing to small businesses where the risk was maybe a little higher than what was needed for traditional bank financing ? This has the potential to be another anti-government rant so I had better stop now - lol .

 

[xarir]

Re: Option Product offered by BelgiumCdn

I thought that the BDC was a crown corporation created to stimulate small business growth

BDC does provide funds to small businesses. But where do you think this money comes from? In this case BDC is borrowing money from normal investors. They take that money and loan it out to small business. In the meantime, they charge interest on the loans they make, and need to pay interest on the money they've borrowed from their investors. The trick of course is to charge more for the loans then what they pay to the investors.

It's not a big deal - every financial institution does this to a certain extent.