Continue reading...Never buy stock again! Fortunes can be made in the securities market, but there is a better way than buying stock for the long haul. And that better way is the use of stock options, a little employed technique that is known by few, except as a speculative technique akin to gambling. The purpose of this article is to discuss some of the techniques that make the buying of stock an error.
Buying Calls, a Lower Cost Option
When stock is purchased, the investor puts up 100% of the purchase price, or 50% in a margin account and pays interest on the debit or loan balance. And an investor should only buy stock if the security is expected to rise immediately and dramatically. If the stock rises 15%, from 50 to 57 ½ for example, there is a 15% return on the cash investment, or 30% on the margin investment. The alternative is to purchase a call option. Typically, a 3 month call with a strike close to the market will cost about 7% of the stock price. If the stock rises 15%, the...
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