A quick Preview of Seemingly Innocuous Fotos
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Tuesday, September 28, 2010
First Trade - Explained - Non-Directional Straddle
As a quick intro, just what are options?
If you found my blog randomly and your reaction is, "What the hell?!" Then this was written for you!
So you probably heard about "buying low, selling high" to make money with stocks. Some stocks even pay out money called dividends per quarter. Some stocks split in half to create more shares. Some stocks go bankrupt.
Yet overall, stocks either go Up, Down, or No Where.
Most people only know how to make money when stocks go up and that's about it. There's an entire wealth of strategies to profit healthly when the markets go sideways or no where as well as when it crashes! In fact, more money is made in really bad times of doom and gloom, *cough cough* google: Joe Kennedy *cough cough*.
Thus, options are derivatives of stock. They derive from the underlying asset of the stock shares themselves (or exchange-traded funds, explained later).
Essentially it's an agreement, that's it. Really. People buy and sell agreements all over the world at every hour of the day with stock options.
Example:
Apple stock is... at $286.86 today.
If I felt bullish about Apple and thought it would increase in value, I could buy a call option.
A call option is an agreement to purchase apple stock at a given price at a future date.
So instead of forking over two hundred something for one share, let's say I just buy the call option.
The price goes up, I sell the agreement back to the marketplace and bank the profits.
Options are controlling interests on stock without the obligation. I can own the option to execute the agreement. I can buy the shares in the future at the lower price I lock-ed in before or I can sell the agreement to someone else. It's pretty flexible. It's also CHEAPER.
On the flip side, if I expected prices to go down, I could buy a put option to benefit from dropping prices.
That said, here's what I did:
Let's say I'll be really smart (or dumb) and buy both a call and put option.
This strategy is called a "straddle" where I essentially straddle both sides of the bet.
(For all you buffs out there, this is also called a non-directional trade as it's not skewed towards a bearish or bullish from the onset.)
So Warren G, what did you straddle?
Silver!
I like silver. I like gold, I like silver a lot more. I like the government printing money like there's no tomorrow and spreading inflation throughout the world like a STD. I love the information age which means, everything from the computer you're reading this on to your cellphone, remote control, headphones, ipod, tv, or just almost any electronic item you can name--all needs SILVER.
Ag - Silver - it has the highest electrical conductivity of all metals (more than copper), shighest thermal conductivity and is one of the most reflective metals known to man.
That said, it's very valuable for electronics and the 21st century Westerners.
What you may not know is that silver is consumed all over the world in huge quantities that end up..in the landfill in microscopic amounts. For the last several years, silver has been trading below mining cost for chump change before at like $3-4 bucks an ounce. In high school I could've literally walked off campus to a coin store and bought silver with my lunch money.
If I did that then, I wouldn't have to write this now and you wouldn't have to read it. My apologies, back to options!
So silver prices have been blowing up the last few weeks and I expect more volaltility. I don't want to play a guessing game so I'm playing both ends of the bet with a call and a put option for a combined straddle play.
Yes, this is more expensive as one side will obviously lose hopefully. This also sucks if the price goes no where with this specific strategy.
So Warren, how's it working out so far?
Since Sept 17th when I bought it, why look yourself:
| Description | Qty | Price | Mkt Value | Cost/Basis | Gain/Loss | Pos Dly Chg | Pos Val Chg |
| SLV Nov 10 20.00 Call | 1 | $1.70 | $169.50 | $121.00 | $48.50 | $0.19 | $19.00 |
| SLV Nov 10 20.00 Put | 1 | $0.41 | $41.00 | $82.00 | -$41.00 | -$0.09 | -$8.50 |
Account Value: $510.18
Daily P/L: $10.50 [+2.1%]
Year to Date: $9.82 [-1.89%]
The slight loss on the YTD is due to commission costs to execute the trade.
What's the exit strategy?
Well as we near the break-even point here, I'm hoping for the bull run to continue. I still have over a month to go before the life of the option expires.
I'll keep you posted!
I'm a newb, but hey, we'll keep learning in real-time as this progresses.
Thanks for reading!
Godfather recipe =D
Pour ingredients into an old-fashioned glass over ice and serve.
First Trade!
First Trade Options Trade Executed!
| SLV Nov 10 20.00 Put | NBBO | ||||||||||||||||||
|
|
| Fills | Fill Time | Fill Price | Bid Size | Bid | Ask | Ask Size |
| 1.0 | 2010-09-17 13:55:26.115905 | $.82 | 10 | $.81 | $.82 | 709 |
| SLV Nov 10 20.00 Call | NBBO | ||||||||||||||||||
|
|
| Fills | Fill Time | Fill Price | Bid Size | Bid | Ask | Ask Size |
| 1.0 | 2010-09-17 13:55:55.148692 | $1.21 | 288 | $1.19 | $1.21 | 20 |
Thursday, September 16, 2010
Finally, my account is setup!
After much research, I chose OptionsHouse over OptionsExpress for it's far more competitive pricing structure.
From screenshots, I thought both services had mediocre platforms with OptionsHouse maybe a little better.
Would I plan to stick with OptionsHouse forever as my premier broker for options? Possibly, they have a very competitive and aggressive pricing structure whether you're a small options player at 5 or fewer contracts as well as for more than that.
I would definitely look into ThinkOrSwim's brokering service as the software of their trading platform is pretty awesome from testing it out. They have a minimum balance of 2.5 or 3k which prices me out at this point. But perhaps in the future I'll setup an account with them as well.
For a long ridiculously thorough discussion on brokers, check out:
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