Hi, I appreciate the civility. However, I'm not clear why I would do that? ... give anyone a trading strategy or strategies to help
them make money?
My partial interest in the New Comer thread, was for someone like the person whose post I replied to. A novice looking for investment "options" for lack of a better word.
I have always been amazed at the misinformation surrounding this market. Options are available for all areas, stocks, commodities, currencies...
For a new person who probably has been told by a broker, this or that companies' stock is worth buying ...but if it starts to lose value..."...hold it..." because it's a good company, has good fundamentals blah blah blah...it will recover it's losses and make you a profit. Without going into the basis of any buy recommendation, or again discussing how it is impossible to recover a loss, why should a client hold a stock that is losing value?? They should not. If it was a good buy at $50 for example, then it's a better buy at a lower price..protect your customer, at the least sell it and buy it back...but don't just take the loss as it slides.. ...again not going into the basis of the buy recommendation in the first place.
Thats a different subject(...listen...if having the biggest company in your market had anything to do with the price of a stock, McDonalds, Walmart etc,. would have the highest priced stocks. The fact that they don't....even to a novice..should make you do a double-take...and see that their is something else that drives valuations. )
My suggestion to a novice is simply get an education on Options especially if you are risk averse, i.e. want to protect your principal. This the area where fixed income investors (risk averse) can still benefit from trading gains. Options are like insurance, car, life,...you pay a premium for protection. In it's simplest form you can 'GUARANTEE' the value of your stock portfolio by buying insurance in the form of Options. If you buy XYZ at $50 you can guarantee that price or a lower price...at a cost, just like insurance. If you are willing to take a $5 loss, then buy insurance at $45 etc . The fun comes in lowering the cost if that insurance, and then earning a profit. Yes their are risky areas, (Naked..i.e. selling shares you don't own), but that is not intent of the Options Market per se...
Options are the management of risk. Instead of being exposed to unlimited losses, option provide a way to limit that exposure. Guaranteed! It provides a mechanism for generating cashflow....guaranteed...
how much depends on what you are doing....Options will limit your upside potential...but thats part of the give and take...you can prevent losses and make some profit. It's a way to be the "house" at the casino that is the markets.
I've raised institutional sized capital for movie guys, who where hell bent on not taking advantage of ways to protect/recoup the negative cost by doing presales...especially foreign. They would say if we presell then we won't get all of the money when the movie makes $100M...I would ask....can you guarantee that this film will make $100M(not going into whether that amount is an accurate breakeven figure), they would say no.....then do the presale! If the film cost $50M and you can get $25M now..take it.
This is similar to the Options market, you buy a stock then you can pre-sell that stock if it falls below your pricepoint. I'm sorry...but that pre-sell is Guaranteed. There is no renege or default....you buy at $50 and pre-sell it at $45...if it drops to $45 pr lower.....it's sold! Your losses can be capped. Guaranteed!
That's all I have to say on the subject.
Best of Luck!
This is no way indicates my personal opinion about owning any stock. (I would not and do not...no experienced Options trader would own a share of anything??)
But simply, for new investor, take the time to learn about the subject and if it fits your investment risk profile, ( I mean the market is full of gamblers..if you are a cowboy...then by all means come out shooting ), then take advantage of the protection and cash-flow opportunities Options accords.
If you are a new investor, and are risk averse, segregate your capital. Do not give it to a broker. They know they don't have to maintain custody of your funds to 'manage' your account. Make them agree to a "Non-Depletion Clause", in your investment mandate so you are not taking losses. Only Options can provide that kind of protection. There is no way to remove market risk by investing directly in the stock market. You need to buy insurance....how much that insurance cost...or if it cost anything at all.....well....thats a different matter....
If you broker says he knows options but doesn't want to guarantee your principal...move on. If your broker wants you to open a account at his firm, move on....you can open a Trust Account with a major bank and your account can be managed remotely. Give them trading authority...but that's it.
In addition,once you become proficient enough to actively trade your account, then you will entitled to, (in the US), tremendous tax advantages..e.g. no limits on losses, etc. should you have them. Options enhance those tax benefits as well.
Let me make clear references to Guarantees. If you own a share of Options authorized stock....yes, you can guarantee/protect the value of those shares. Their is a cost, like insurance, you pay a premium for it. However, it is the structural management of those cost that separate a experienced Options Trader from a novice and create cash-flow opportunities.
For someone to arbitrarily dismiss the Options market as a compliment to market risk, is reckless to say the least. There is obvious risk in buying a stock...Options provide a way to hedge/eliminate that risk.
fair do's
so - to the humbly uninitiated of us here at T2W
please illuminate us with some education on options with some charts and comments and live calls .....
N
