Investment strategies aren't just about picking the best investments you can find, but about picking investments that are more beneficial together than they are on their own.
Here are some basic strategies to build your investments.
The most common strategy is simple diversification of investments.
For bonds, this means staggering your coupon and maturity dates not only to provide consistent income but also so that you can more readily respond to changes in the market, rather than having the entirety of your bond investments tied up at the same time.
For stocks, this means picking high-quality investments which tend to fluctuate in price in opposite directions; as one stock decreases in value in the short run, another should increase, but both should appreciate over the long run.
In the same manner, including global diversification of stock investments can reduce the impact of global trends.
Diversifying into types of investment you have can help you find an appropriate balance of potential gain and risk - maintaining a percentage of your portfolio in stocks or even high-risk investments like speculative stocks or junk bonds and the remainder of your portfolio in low-risk investments.
Options
Many options make use of a combination of stocks and derivatives.
Buying stocks as well as a put option gives you the upside potential of the stock but limits your potential losses by guaranteeing you will be able to resell the stock at the price noted in the option. So long as your gains exceed the purchase cost of the put option, you will remain "in the black".
If you believe a stock will decrease in price, you can sell it short and then buy a call option, so that if you are wrong you can repurchase the stock at a guaranteed maximum price, putting a limit on the immense risk associated with shorting stock.
Buying both a call and a put option with the same strike price (the price at which you can exercise your option) means that you will make money regardless of which direction the stock moves, so long as the move is large enough that you earn more money than the cost of the options. This strategy is known as a "straddle".
In a strategy known as a "collar", you buy a stock and sell a call option on the stock , so that if the price of the stock increase, the option buyer will likely exercise their option; this creates limited upside potential, but the money from the sale of the call option can be used to fund a put option, so that you eliminate the cost of the option. The result is that you create both a "floor" and a "cap" (a maximum amount of loss and gain, respectively), functioning as a collar that limits the amount of movement in the stock price.
The strategies available to you are varied and numerous. As you get more practice using them, you can expand to develop multi-step strategies.
[Diversification: The act of investing in several different investments to reduce the potential value of loss if a single investment fails.
Buying a call option gives you the choice to purchase a given volume of something at a specified price, so long as you do so before the maturity date.
Buying a put option gives you the choice to sell a given volume of something at a specified price.
Regardless of what happens to the market price, the seller of the option is obligated to participate in the exchange if the buyer decides to exercise the option.]
Showing posts with label put options. Show all posts
Showing posts with label put options. Show all posts
Thursday, 26 November 2015
Thursday, 20 February 2014
Options, rights and warrants
Options have many uses and investors need to be aware of their ramifications in order to be able to use them.
In order to do so, investors need to familiarize themselves with knowledge about options.
Learning the Vocabulary
Options: They are stock derivative investments.
Derivative security: A financial security that derives its value from another security.
Options and futures: These are stock derivatives that offer investors some of the benefits of stocks without having to own them.
Options contract: This gives the holder the right to buy or sell shares of a particular common stock at a predetermined price (strike price) on or before a specified date (expiration date).
Option: An option is a right, not an obligation, to buy or to sell stock at a specified price before or on an expiration date.
Strike price: The price at which the holder of the option can buy or sell the stock.
Expiration date: An option expires on its expiration date.
Stock Option: This is a derivative security because its value depends on the underlying security, which is the common stock of the company.
Options market: Chicago Board Options Exchange (CBOE), New York Stock Exchange (NYSE), the American Options Exchange (AOE), the Philadelphia Exchange (PHO), and the Pacific Exchange (PSE). Options can also be traded in the over-the-counter market.
Options websites: www.cboe.com, www.nyse.com/futuresoptions/nyseamex, www.amex.com, www.phlx.com. Click on all exchanges and list all options and LEAPS. Click on Submit, and a list of options for the stock you requested will appear.
Options contracts: Calls and Puts
Call option: A call option gives the option owner the right to buy shares of the underlying company at a predetermined price (strike price) before expiration.
Put option: A put option contract gives the option owner the right to sell shares of the underlying company at the strike price before expiration.
Option holder: Option holder has the right to convert the contract at his/her discretion. It is not an obligation. Holders of the option can exercise the option when it is to their advantage and let the options contract expire if it is not advantageous.
Options contract: SIX items of note in an options contract. 1. Name of the company whose shares can be bought or sold. 2. The number of shares that can be bought or sold, generally 100 shares per contract. 3. The exercise or strike price, which is the stated purchase or sale price of the shares in the contract. 4. The expiration date, which is the date when the option to buy or sell expires. 5. The settlement procedure. 6. The options exercise style.
Option buyer: The option buyer is also referred to as the option holder.
Option seller: The seller of the original contract is referred to as the option writer. In any contract, there are at least two parties: buyers and sellers.
Settlement procedure: This is stipulated for stock options, which indicates when delivery of the underlying common stock takes place after the holder exercises the option.
Options exercise style: There are two basic exercise styles that determine when the option can be exercised, namely, American style and European style.
American style: Options on individual stocks can be exercised ANY time before the expiration date.
European style: Stock index options can be exercised ONLY on expiration date.
Life of the option: The expiration date is also important, as it specifies the life of the option.
Standardized expiration dates: The expiration dates are standardized for options contracts listed on the exchanges. There are three cycles for listed option expirations, and each option is assigned to one of these cycles: January cycle: January-April-July-October; February:cycle: February-May-August-November; and March cycle: March-June-September-December.
Options Clearing Corporation (OCC): The trading of options is greatly facilitated by the Options Clearing Corporation, which, besides maintaining a liquid marketplace, also keeps track of the options and the positions of each investor. Buyers and writers of options do not deal directly with one another but instead with the OCC.
Contract period for stock options: The contract period for stock options is standardized with three-, six-, and nine-month expiration dates. Generally, two options on a stock are introduced to the market at the same time with identical terms except for the strike (exercise) price.
LEAPS (long-term equity anticipation securities): Longer-term options contracts, called LEAPS have life spans of up to three years before expiry. They have similar characteristics to the short-term options contracts but, because of their longer expiration periods, have higher premium prices.
Time value of an option: An option is a wasting asset. There is a time value to the price of an option. The more time before the option expires, the greater is the time value of the option. As the option moves closer to its expiration, so the time value of the option decreases in value. Generally, options are not normally exercised until they are close to expiry because an earlier exercise means throwing away the remaining time value. Another generalization with options (both calls and puts) is that most options are not bought with the intention of exercising them. Instead, they are bought with the intention of selling them.
Intrinsic value of the call option: The intrinsic value of a call option is the difference between the market price of the stock and the strike price. Intrinsic Value of Call Option = Market Price of the Stock - Strike Price.
In the money call option: When the market price is greater than the strike price, the call option is said to be in the money.
Out of the money call option: A call option is said to be out of the money when the market price of the stock is less than the strike price.
At the money call option: The market price of the option equals the strike price.
Time value of put option: Puts are wasting assets and have no value at expiration.
Intrinsic value of put option: The intrinsic value of the put option is determined by subtracting the market price of the stock from the strike price. Intrinsic Value of a Put Option = Strike Price - Market Price of the Stock.
Out of the money put option: If the put option has no intrinsic value, it is out of the money.
In the money put option: If the put option has intrinsic value, it is in the money; and it is profitable to exercise the put option.
At the money put option: If the strike price equals the market price of the stock, the option is at the money.
Writing options: Investors can also write or sell options, which provide additional income from the premiums received from the buyers of the option contracts. The upside potential to this strategy for option writers is limited, however, because the most money the writer can make is the amount of the option premium.
Writing covered option: A covered option is an option that is written against an underlying stock that is owned, or sold short, by the writer. The writer of the option owns the stock against which the options are written.
Writing naked option: This is the second method of writing an option. A naked option, is an option written on an underlying stock that is not owned or sold short by the writer.
Writing covered calls: A covered call limits the appreciation the writer can realize. Therefore, it is a good idea to write covered calls on the stocks you think won't rise or fall very much in price.
Writing naked call: Writing a naked call on a stock is more risky than writing a covered call because of the potential for unlimited losses. A naked call is when the writer does not own the underlying stock, which would limit the losses if the stock rocketed up in the price. Investors can profit from writing naked calls on stocks whose prices either decline or remain relatively flat below the strike price for calls.
Writing covered puts: The writer of a covered put sells short the underlying stock and receives a premium for the covered put. If the option is exercised, the writer would buy back the stock at the strike price and use the shares to close out his short position.
Writing naked puts: The writer of a put option expects the stock to rise or at best not fall in price. If the put writer does not own the underlying stock, the contract is a naked or uncovered put, which necessitates that the writer deposits an amount of money with the brokerage firm for the required margin.Without owning the underlying stocks, the potential loss is not cushioned if the price of the stock falls rapidly.
Combination of Puts and Calls: Straddle and Spread
Straddle: A straddle is the purchase (or sale) of a put and a call with the same strike price and the same expiration date.
Spread: A spread is the purchase or sale of a combination of put and call options contracts with different strike prices.
Stock Index Options: Stock index options allow investors to take long and short positions on the market without having to buy or sell short the stocks that make up the index. A stock index option is a put or call written on a market index. With stock index options you can track the markets without having to buy or sell the stocks. Options on stock indices are valued and trade in the same way as options on individual stocks with the notable exceptions that settlement is made in cash for the former.
Rights: A right, also known as a preemptive right, is an option allowing a shareholder to by additional shares of new stock of the company at a specified price within a specified time period before the shares are offered to the public. A right allows a current shareholder to buy more common stock of the company in advance of the public at a discounted price (subscription price). Stock rights are issued to existing shareholders on a stated date. These rights give existing shareholders the opportunity to maintain their same proportionate ownership in the company after the new issue of common stock. Rights, like options, can be bought for one of two reasons: either to exercise the rights or to speculate on the rights.
Trading cum rights: To be eligible to buy these additional shares at the subscription price, the common stock of the company must be owned as of the record date set by the board of directors. Most rights offering have a short period of time (between two and six weeks) for existing shareholders to either subscribe to the new shares or sell the rights. It is during this period that the stock is said to be trading cum rights, where the value of the right is included in the market price of the stock.
Trading ex-rights date: After a specified date, known as the ex-rights date, stock transactions do not include the rights. Theoretically, the stock price goes down after this date, when the rights trade separately.
Value of a right: The value of a right depends on the market price of the stock, the subscription price of the right, and the number of rights necessary to buy each new share.
Cum Rights Value: The formula to determine the value of the rights before they trade independently of the stock is as follows: Cum Rights Value = (Market Price of Stock - Subscription Price) / (Number of Rights to Buy a Share + 1)
Ex-rights Value: After the stock trades ex-rights, its price declines by the value of the right, because rights trade separately from the stock. Investors who want to buy the rights can purchase them on the market in the same way they can purchase the stock. The ex-rights value is calculated as follows; Ex-rights Value = (Market Price of Stock - Subscription Price) / (Number of Rights Needed to Buy a Share)
Warrants: A warrant is a security that allows its owner to purchase a stated number of shares of common stock at a specified price within a specified time period. A warrant is similar to a long-term option in that it gives the owner the right to by a stated number of shares of the underlying company's stock at a specific price within a specific period of time. The differences between warrants and options are that with warrants the specified price can be fixed or it can rise at certain intervals, such as every five years, and the company can extend the expiration date. Warrants have longer lives than options. An option can have a life of nine months or less; warrants extend for years, and some companies have issued perpetual warrants. Generally, there is a waiting period before warrants can be exercised. Corporations issue warrants as sweeteners with other securities issued by the company. Warrants can be attached to bonds or preferred stocks. In some cases, warrants have been distributed to shareholders in place of stock or cash dividends. The major advantage of warrants over options is that warrants have longer lives. Warrants do well when stock prices are rising, but investors should still be selective about the warrants they buy. If the stock never goes up in price, there is little to no opportunity to profit from buying the warrants. Generally, as with options, warrants should be bought to trade and not to exercise.
Value of a warrant: When a company issues warrants, the purchase price of the stock is generally fixed at a higher price than the market price of the stock at issue. Value of a warrant = (Market price of stock - Exercise price ) x (Number of shares purchased with the warrant).
Premium of a warrant: Premium = Market price of the warrant - Value of the warrant. If the market price of the stock never rises to the strike price of the warrant during its life, the warrant is not exercised and expires.
Related:
http://www.investlah.com/forum/index.php/topic,42222.0.html
In order to do so, investors need to familiarize themselves with knowledge about options.
Learning the Vocabulary
Options: They are stock derivative investments.
Derivative security: A financial security that derives its value from another security.
Options and futures: These are stock derivatives that offer investors some of the benefits of stocks without having to own them.
Options contract: This gives the holder the right to buy or sell shares of a particular common stock at a predetermined price (strike price) on or before a specified date (expiration date).
Option: An option is a right, not an obligation, to buy or to sell stock at a specified price before or on an expiration date.
Strike price: The price at which the holder of the option can buy or sell the stock.
Expiration date: An option expires on its expiration date.
Stock Option: This is a derivative security because its value depends on the underlying security, which is the common stock of the company.
Options market: Chicago Board Options Exchange (CBOE), New York Stock Exchange (NYSE), the American Options Exchange (AOE), the Philadelphia Exchange (PHO), and the Pacific Exchange (PSE). Options can also be traded in the over-the-counter market.
Options websites: www.cboe.com, www.nyse.com/futuresoptions/nyseamex, www.amex.com, www.phlx.com. Click on all exchanges and list all options and LEAPS. Click on Submit, and a list of options for the stock you requested will appear.
Options contracts: Calls and Puts
Call option: A call option gives the option owner the right to buy shares of the underlying company at a predetermined price (strike price) before expiration.
Put option: A put option contract gives the option owner the right to sell shares of the underlying company at the strike price before expiration.
Option holder: Option holder has the right to convert the contract at his/her discretion. It is not an obligation. Holders of the option can exercise the option when it is to their advantage and let the options contract expire if it is not advantageous.
Options contract: SIX items of note in an options contract. 1. Name of the company whose shares can be bought or sold. 2. The number of shares that can be bought or sold, generally 100 shares per contract. 3. The exercise or strike price, which is the stated purchase or sale price of the shares in the contract. 4. The expiration date, which is the date when the option to buy or sell expires. 5. The settlement procedure. 6. The options exercise style.
Option buyer: The option buyer is also referred to as the option holder.
Option seller: The seller of the original contract is referred to as the option writer. In any contract, there are at least two parties: buyers and sellers.
Settlement procedure: This is stipulated for stock options, which indicates when delivery of the underlying common stock takes place after the holder exercises the option.
Options exercise style: There are two basic exercise styles that determine when the option can be exercised, namely, American style and European style.
American style: Options on individual stocks can be exercised ANY time before the expiration date.
European style: Stock index options can be exercised ONLY on expiration date.
Life of the option: The expiration date is also important, as it specifies the life of the option.
Standardized expiration dates: The expiration dates are standardized for options contracts listed on the exchanges. There are three cycles for listed option expirations, and each option is assigned to one of these cycles: January cycle: January-April-July-October; February:cycle: February-May-August-November; and March cycle: March-June-September-December.
Options Clearing Corporation (OCC): The trading of options is greatly facilitated by the Options Clearing Corporation, which, besides maintaining a liquid marketplace, also keeps track of the options and the positions of each investor. Buyers and writers of options do not deal directly with one another but instead with the OCC.
Contract period for stock options: The contract period for stock options is standardized with three-, six-, and nine-month expiration dates. Generally, two options on a stock are introduced to the market at the same time with identical terms except for the strike (exercise) price.
LEAPS (long-term equity anticipation securities): Longer-term options contracts, called LEAPS have life spans of up to three years before expiry. They have similar characteristics to the short-term options contracts but, because of their longer expiration periods, have higher premium prices.
Time value of an option: An option is a wasting asset. There is a time value to the price of an option. The more time before the option expires, the greater is the time value of the option. As the option moves closer to its expiration, so the time value of the option decreases in value. Generally, options are not normally exercised until they are close to expiry because an earlier exercise means throwing away the remaining time value. Another generalization with options (both calls and puts) is that most options are not bought with the intention of exercising them. Instead, they are bought with the intention of selling them.
Intrinsic value of the call option: The intrinsic value of a call option is the difference between the market price of the stock and the strike price. Intrinsic Value of Call Option = Market Price of the Stock - Strike Price.
In the money call option: When the market price is greater than the strike price, the call option is said to be in the money.
Out of the money call option: A call option is said to be out of the money when the market price of the stock is less than the strike price.
At the money call option: The market price of the option equals the strike price.
Time value of put option: Puts are wasting assets and have no value at expiration.
Intrinsic value of put option: The intrinsic value of the put option is determined by subtracting the market price of the stock from the strike price. Intrinsic Value of a Put Option = Strike Price - Market Price of the Stock.
Out of the money put option: If the put option has no intrinsic value, it is out of the money.
In the money put option: If the put option has intrinsic value, it is in the money; and it is profitable to exercise the put option.
At the money put option: If the strike price equals the market price of the stock, the option is at the money.
Writing options: Investors can also write or sell options, which provide additional income from the premiums received from the buyers of the option contracts. The upside potential to this strategy for option writers is limited, however, because the most money the writer can make is the amount of the option premium.
Writing covered option: A covered option is an option that is written against an underlying stock that is owned, or sold short, by the writer. The writer of the option owns the stock against which the options are written.
Writing naked option: This is the second method of writing an option. A naked option, is an option written on an underlying stock that is not owned or sold short by the writer.
Writing covered calls: A covered call limits the appreciation the writer can realize. Therefore, it is a good idea to write covered calls on the stocks you think won't rise or fall very much in price.
Writing naked call: Writing a naked call on a stock is more risky than writing a covered call because of the potential for unlimited losses. A naked call is when the writer does not own the underlying stock, which would limit the losses if the stock rocketed up in the price. Investors can profit from writing naked calls on stocks whose prices either decline or remain relatively flat below the strike price for calls.
Writing covered puts: The writer of a covered put sells short the underlying stock and receives a premium for the covered put. If the option is exercised, the writer would buy back the stock at the strike price and use the shares to close out his short position.
Writing naked puts: The writer of a put option expects the stock to rise or at best not fall in price. If the put writer does not own the underlying stock, the contract is a naked or uncovered put, which necessitates that the writer deposits an amount of money with the brokerage firm for the required margin.Without owning the underlying stocks, the potential loss is not cushioned if the price of the stock falls rapidly.
Combination of Puts and Calls: Straddle and Spread
Straddle: A straddle is the purchase (or sale) of a put and a call with the same strike price and the same expiration date.
Spread: A spread is the purchase or sale of a combination of put and call options contracts with different strike prices.
Stock Index Options: Stock index options allow investors to take long and short positions on the market without having to buy or sell short the stocks that make up the index. A stock index option is a put or call written on a market index. With stock index options you can track the markets without having to buy or sell the stocks. Options on stock indices are valued and trade in the same way as options on individual stocks with the notable exceptions that settlement is made in cash for the former.
Rights: A right, also known as a preemptive right, is an option allowing a shareholder to by additional shares of new stock of the company at a specified price within a specified time period before the shares are offered to the public. A right allows a current shareholder to buy more common stock of the company in advance of the public at a discounted price (subscription price). Stock rights are issued to existing shareholders on a stated date. These rights give existing shareholders the opportunity to maintain their same proportionate ownership in the company after the new issue of common stock. Rights, like options, can be bought for one of two reasons: either to exercise the rights or to speculate on the rights.
Trading cum rights: To be eligible to buy these additional shares at the subscription price, the common stock of the company must be owned as of the record date set by the board of directors. Most rights offering have a short period of time (between two and six weeks) for existing shareholders to either subscribe to the new shares or sell the rights. It is during this period that the stock is said to be trading cum rights, where the value of the right is included in the market price of the stock.
Trading ex-rights date: After a specified date, known as the ex-rights date, stock transactions do not include the rights. Theoretically, the stock price goes down after this date, when the rights trade separately.
Value of a right: The value of a right depends on the market price of the stock, the subscription price of the right, and the number of rights necessary to buy each new share.
Cum Rights Value: The formula to determine the value of the rights before they trade independently of the stock is as follows: Cum Rights Value = (Market Price of Stock - Subscription Price) / (Number of Rights to Buy a Share + 1)
Ex-rights Value: After the stock trades ex-rights, its price declines by the value of the right, because rights trade separately from the stock. Investors who want to buy the rights can purchase them on the market in the same way they can purchase the stock. The ex-rights value is calculated as follows; Ex-rights Value = (Market Price of Stock - Subscription Price) / (Number of Rights Needed to Buy a Share)
Warrants: A warrant is a security that allows its owner to purchase a stated number of shares of common stock at a specified price within a specified time period. A warrant is similar to a long-term option in that it gives the owner the right to by a stated number of shares of the underlying company's stock at a specific price within a specific period of time. The differences between warrants and options are that with warrants the specified price can be fixed or it can rise at certain intervals, such as every five years, and the company can extend the expiration date. Warrants have longer lives than options. An option can have a life of nine months or less; warrants extend for years, and some companies have issued perpetual warrants. Generally, there is a waiting period before warrants can be exercised. Corporations issue warrants as sweeteners with other securities issued by the company. Warrants can be attached to bonds or preferred stocks. In some cases, warrants have been distributed to shareholders in place of stock or cash dividends. The major advantage of warrants over options is that warrants have longer lives. Warrants do well when stock prices are rising, but investors should still be selective about the warrants they buy. If the stock never goes up in price, there is little to no opportunity to profit from buying the warrants. Generally, as with options, warrants should be bought to trade and not to exercise.
Value of a warrant: When a company issues warrants, the purchase price of the stock is generally fixed at a higher price than the market price of the stock at issue. Value of a warrant = (Market price of stock - Exercise price ) x (Number of shares purchased with the warrant).
Premium of a warrant: Premium = Market price of the warrant - Value of the warrant. If the market price of the stock never rises to the strike price of the warrant during its life, the warrant is not exercised and expires.
Related:
http://www.investlah.com/forum/index.php/topic,42222.0.html
Thursday, 4 October 2012
A look at the Options table
Let's take a look at the Options table:
Column 1: Strike Price. This is the stated price per share for which underlying stock may be purchased (for a call) or sold (for a put) by the option holder upon exercise of the option contract. When you exercise a call option, this is the value for which you purchase the shares. Option strike prices typically move in increments of $2.50 or $5. In the example above, the strike price moves in $2 increments.
Column 2: Expiry Date. This shows the end of the life of an options contract. Options expire on the third Friday of the expiry month.
Column 3: Call or Put. This column refers to whether the option is a call or a put. A call is the option to purchase, whereas a put is the option to sell.
Column 4: Volume. This indicates the total number of options contracts traded for the day. The total volume of all contracts is listed at the bottom of each table.
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Column 1: Strike Price. This is the stated price per share for which underlying stock may be purchased (for a call) or sold (for a put) by the option holder upon exercise of the option contract. When you exercise a call option, this is the value for which you purchase the shares. Option strike prices typically move in increments of $2.50 or $5. In the example above, the strike price moves in $2 increments.
Column 2: Expiry Date. This shows the end of the life of an options contract. Options expire on the third Friday of the expiry month.
Column 3: Call or Put. This column refers to whether the option is a call or a put. A call is the option to purchase, whereas a put is the option to sell.
Column 4: Volume. This indicates the total number of options contracts traded for the day. The total volume of all contracts is listed at the bottom of each table.
Column 5: Bid. The price someone is willing to pay for the options contract. To get the cost of one contract you need to multiply the price by 100.
Column 6: Ask. The price for which someone is willing to sell an options contract. To get the cost of one contract you need to multiply the price by 100.
Column 7: Open Interest. Open interest is the number of options contracts that are open. These are contracts that have not expired or have not been exercised.
Column 6: Ask. The price for which someone is willing to sell an options contract. To get the cost of one contract you need to multiply the price by 100.
Column 7: Open Interest. Open interest is the number of options contracts that are open. These are contracts that have not expired or have not been exercised.
Read more: http://www.investopedia.com/university/tables/tables6.asp#ixzz28JFzYsK6
Wednesday, 24 August 2011
Intrinsic Value – Stock Options
Intrinsic Value of a Stock Option
Intrinsic value is one of the factors – along with time value – that contribute to the value of a stock option. For an in-the-money stock option, intrinsic value is the difference between the strike price and the price of the underlying stock. For an option that is at-the-money or out-of-the-money, the intrinsic value is zero. An option’s intrinsic value cannot be negative, because if the option is not worth anything, the option holder would not exercise it.
Intrinsic Value – Call Option
For an in-the-money call option, the intrinsic value equals the price of the underlying stock minus the option’s strike price. (If the stock option is at-the-money or out-of-the-money, the intrinsic value is always zero.)
Call Option Intrinsic Value = Stock Price – Strike Price
Intrinsic Value – Put Option
For an in-the-money put option, the intrinsic value equals the stock option’s strike price minus the price of the underlying stock. (If the option is at-the-money or out-of-the-money, the intrinsic value is always zero.)
Put Option Intrinsic Value = Strike Price – Stock Price
http://www.wikicfo.com/Wiki/Intrinsic%20Value%20Stock%20Options.ashx
Intrinsic value is one of the factors – along with time value – that contribute to the value of a stock option. For an in-the-money stock option, intrinsic value is the difference between the strike price and the price of the underlying stock. For an option that is at-the-money or out-of-the-money, the intrinsic value is zero. An option’s intrinsic value cannot be negative, because if the option is not worth anything, the option holder would not exercise it.
Intrinsic Value – Call Option
For an in-the-money call option, the intrinsic value equals the price of the underlying stock minus the option’s strike price. (If the stock option is at-the-money or out-of-the-money, the intrinsic value is always zero.)
Call Option Intrinsic Value = Stock Price – Strike Price
Intrinsic Value – Put Option
For an in-the-money put option, the intrinsic value equals the stock option’s strike price minus the price of the underlying stock. (If the option is at-the-money or out-of-the-money, the intrinsic value is always zero.)
Put Option Intrinsic Value = Strike Price – Stock Price
http://www.wikicfo.com/Wiki/Intrinsic%20Value%20Stock%20Options.ashx
Tuesday, 25 November 2008
Educational experience with an outcome other than expected
During bull markets owning stocks and calls on underpriced stocks should increase the value of the portfolio.
Bear markets should benefit positions in your portfolio that are either short overpriced companies or own puts on the overpriced stock.
Income may be generated by selling covered calls or credit spreads during a neutral market.
Please note that I have made extensive use of the words "should" and "may". Please do not invest any money that you can not afford to lose. Everyone has a different tolerance for risk. It is important that you do your own homework and take responsibility for any decisions that you make.
When investing, it doesn't take very long to have an educational experience with an outcome other than expected.
http://hyperdiversification.com/default.aspx
Bear markets should benefit positions in your portfolio that are either short overpriced companies or own puts on the overpriced stock.
Income may be generated by selling covered calls or credit spreads during a neutral market.
Please note that I have made extensive use of the words "should" and "may". Please do not invest any money that you can not afford to lose. Everyone has a different tolerance for risk. It is important that you do your own homework and take responsibility for any decisions that you make.
When investing, it doesn't take very long to have an educational experience with an outcome other than expected.
http://hyperdiversification.com/default.aspx
In Warren Buffet's 1992 letter to the share holders he discussed the following:
- During 1992, their Book Value had increased by 20.3%
- Between 1964 and 1992 book value per share (BVPS) had increased from $19 to $7745 resulting in a CAGR of 23.6%.
- Used book value for intrinsic value.
- CAGR goal 15%
- The number of outstanding shares has changed very little between 1964 and 1992 (1,137,778 vs. 1,152,547 respectively)
- Requiring a significant Margin of Safety (MOS) when purchasing stock in another company as a cornerstone of Berkshire Hathaway's success
My mom bought her first new car back in 1965. It was a Ford Falcon. She really liked the car. I wonder how much higher her networth would be if she would have bought a used car and invested the difference in Berkshire Hathaway. ;) Of course BH is the exception and not the norm. :))
http://hyperdiversification.com/cagr_main.aspx
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Our focus is to protect and accumulate wealth for our clients. To do that, we are guided by one core principal. DON'T LOSE MONEY. It seems simple, but is by far one of the most challenging endeavors an investor can undertake.
In order to achieve the goal of capital preservation, the Strategy must protect previously earned gains while allowing an investor to profit from a market rebound after a substantial market decline. In other words, the Strategy wants to profit from bull markets and protect the portfolio in bear markets. http://www.swaninvesting.com/home
High-net-worth Investors & Listed Options
Portfolio Management Strategies for Affluent Investors, Family Offices, and Trust Companies http://www.swaninvesting.com/HighNetWorthInvestors.pdf
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