webelieve

google, damn, u must've had a decent amount of money urself to invest in google. if u din't sell it, maybe you should hold on to it! its looking like they have strong interest in yahoo, if microsoft doesn't give the deal, google cud make a move.

Sachmoney

How do you get call and put options? Like explain the classes of investors or whatever you were talking about.

JHS

While everyone is right to congratulate bearcats on his success here, please recognize the risk he took before you try the same thing. He invested $16,000 in Google puts and calls. If, instead of posting better-than-expected earnings (or worse-than-expected earnings), Google had merely matched expectations (which is generally the most likely thing to happen, since the people whose "expectations" count are usually smart, sophisticated, well-informed, and work hard to figure out what they think is going to happen), then he could have lost substantially all of his investment. Trading in options is a super-risky investment strategy, as you can tell by the fact that he made the kind of return that you would need to justify a super-risky investment strategy. If you do it a lot, you are going to lose more often than you are going to win, and if you keep doubling down the way he did, you could lose big. It's like going to the racetrack or the casino: exciting, great if you win, but you shouldn't do it with your rent/food/tuition money, money you can't afford to lose.

Here's how it works:

Let's say Google stock sells for $100 today. You can buy a call option to buy 1,000 shares of Google @ $100 any time in the next month for about $3,500, and a put option to sell 1,000 shares of Google @ $100 for about the same price (actually, always a little less than the call, because everything being equal stock prices for companies that don't pay dividends should rise over time). If you BOUGHT 1,000 shares of Google, it would cost you $100,000, plus commissions, but you can get the options position for $7,000 plus commissions.

If Google stock goes up to $105 next week, your call option is going to be worth about $8,000, but your put option is going to be worth maybe $1,000. Approximately the same thing, in reverse, if the stock goes to $95. You could sell both options for $9,000 combined (and pay more commissions), and you would have a pretty nice profit for a week's investment. If it went to $120, your call option would be worth about $20,500, and your put option would be worth close to $0 (and it would be the same or a little better, in reverse, if the stock went to $80). There you would have almost tripled your money.

But look what happens if Google stays around $100/share. Most stocks don't move 20%, or even 5%, over the course of a month. The "option premium" part of the value of an option -- and in this example, where the options are bought "at market", 100% of the value is option premium -- declines every day as the expiration date gets closer. (It also declines as the stock price moves farther away from the option price.) So, if Google basically stays where it is for the week, your $7,000 options investment may be worth only $5,000. If you wait until the end of the month, it will be worth nothing. Taking commissions into account, you may have lost 1/3 of your investment in a week, whereas if you had bought Google stock itself you would not have lost anything.

The more likely a stock is to jump around in price, the more expensive it will be to buy options close to market. You can get bigger bang for your buck if you buy options a little off market (in the above example, say call @ $102 and put @$98), but then of course you are increasing the likelihood that your "straddle" -- that's what the offsetting options position is called -- will decline in value. If bearcats really turned $16,000 into $400,000 with two trades, he was not buying the options at market, so he was taking pretty considerable risk.

bearcats

you lose daily depreciation. I never look to hold options more than 2 days. I buy it right before earnings day, and sell it right after. You have to follow the rules you set for yourself, no matter how painful it is or what your emotion tells you to do. You lose 20%, and you feel like you might be able to make it back holding onto them. nope, you sell it. You make 100% but you feel like if you hold onto it you might make more, doesnt matter, you still sell it.
that's how you prevent total loss.
this is not long term investment, as you said, if you hold for like a month, you might be holding worthless toilet paper, you are just hoping for a bang on earnings announcement, then sell it right after. nothing happens, you lose daily depreciation, which sometimes can go up to 20% of your original purchase price. something happen, you take the money and run as fast as possible

btw I dont buy in the market.


ps. For td ameritrade, you get 500 free trades

bearcats

btw for people who never traded options before, start by doing covered calls. You take less risks but you can actually do pretty well

mohak

is it a rocket science?? I am not getting anything you people are saying. more "commoner" language plz

dsmo

Awesome...I thought I was doing well as a student making $20k/year. Have been trying to get some money on eTrade, but that has been tough because I have been paying all of my tuition, rent, etc. out of my personal checking account. Upside though is that I have barely touched my college savings fund...that money will become mine upon graduation, it will be very nice to actually have a good amount of money and no debt right after college.

Anyways, bearcats, will you be around AA this summer? I have a good internship in the area and will have some money to throw around. If you are interested in doing a little work, I will probably have some schemes going on eBay as well - almost no-risk. Haven't really done anything on eBay in a couple months, but around the holidays was doing $2k profit/month.

Cvjn

I'm happy with my 400$ a week poker playing...

JohnDoe123

How much money do you need to start doing this? Right now I've got about $1,000 in the bank and I'll be getting some more from graduation.

Sachmoney

JHS-Thanks for the explanation.

CCRunner123

I shoulda've applied to the b school. damnit.

jnpn

Sick. I like that strategy bearcats. I wish I could throw around ideas with you, but I only just started messing with a few grand on etrade. Once I figure out what I'm doing I'll be PM'ing you. If nothing else I could teach you how to make bank from poker lol, I've been playing pro for a bit.