Yesterday I advised I would explain how you can make money before you buy stock or how you can make money after you own stock. Its pretty easy. Let's say you want to buy 100 shares of Tesla Motors (TSLA). This company makes electric cars and the stock has gone up a lot over the past few months. There still may be room for the stock to increase however there may be some short term downside. The price per share is currently $102.50. You can buy 100 shares right now for $10,250. Or you can use options to make money on the stock before you buy. This strategy is called selling naked puts. A put is an option that gives you the right to sell a stock for a specific price. So if you Sell a put this will give you the obligation to buy a stock for a certain price.
So, here's how it works. Let's say you want to buy the stock (TSLA) but don't want to pay more than $90 a share. You believe the stock will decrease to 90 at some point over the next few months. You can either put in an order to buy 100 shares at $90, which will make you no money while you wait. Or, you can sell one PUT contract of TSLA at a strike price of $90. Since the stock has been pretty volatile over the past few months you should be able to collect a pretty good premium. Looking at the June 21, 2013 expiration date you can sell this put contract for $2.50. This means you will immediately make $250. If the stock stays above $90 per share you pocket this $250 and can re-write the same strategy for the following week or month.
Now, if the stock decreases to $90 or below you would have the obligation to buy the stock for $90 per share, or $9,000. You still get to keep the $250 you made by selling the put. And you were able to buy the stock at the price you wanted. The risk you take by doing this is if you really want to own the stock and the stock keeps going up you won't be able to own it. But at least you made a quick $250.
You could also sell a put with a higher strike price. If you sold a $95 put expiring on June 21, 2013 you would pocket $410.
I think this is a great option strategy and should be used anytime someone wants to buy stock at a price lower than it is currently trading.
Once you own the stock, I will show you how to make money on this asset each week or month by using options. Check out my blog later for this information.
Anyone looking for some ways to get started collecting option premium please Click Here! or to find undervalued options Click Here!
Jon
Friday, May 31, 2013
Thursday, May 30, 2013
What are Options and Why should you use them?
About eight years ago and read an article that discussed stock options. I didn't know anything about options but it intrigued me. So I did some research and found that options were right for me. An option gives someone the right to buy (or sell) a stock at a certain price. You pay a premium for this right and you can exercise this right any time before the option expires.
For example, say you are thinking about buying Apple stock (AAPL). Apple is currently trading at $447 per share as of right now. Let's say you think the stock will rise in value over the next 20-30 days but you don't want to risk putting up the $44,700 to buy 100 shares today. Instead, you can buy one option contract that will give you the right to buy 100 shares of stock at a certain price. Let's say you think the stock has a good probability of going up to over $460 a share within 20 days. You are only about 60-70% confident this will happen so you wish to buy a call option with a $450 strike price and an expiration date of June 21. This gives the stock 22 days to go up. The price of this option costs $10. This means for every contract (100 shares) it will cost you $10*100 = $1,000 for the right to buy AAPL at $450. If the stock goes up to say $470 before June 13 you can buy 100 shares for $450 per share and your profit would immediately be $470 - 450 = $20 - $10 (cost to buy option) = $10 + 100 shares = $1,000. You just doubled your investment. However, you will need the stock to increase to at least $460 or you take the risk of losing money since the option costs you $10.
However, I personally wouldn't suggest doing this type of investment. You will need the stock to increase in value quickly or you take the risk of losing money. Normally people who buy options will sell the option and choose not to buy the underlying stock. For example, if you buy the $450 AAPL call option for $10 and the stock increases in value by $4 per share the day after you buy the call option the value of this option will increase to say $12. How much the option will increase depends on a few factors such has time until expiration, if the option is in the money or out of the money, etc. The delta is a key indicator of how much you can expect. For example, if the delta on our AAPL call option is .5 it means that for every $1 increase in the stock our option will increase by .5. So if AAPL goes up $4 we can expect our option to increase by $2. If this happens you just made $2 / $10 or a 20% return in one day. If you were holding the stock your increase would be $4 / $447 = 0.9% (less than 1% return in one day). So as you can see, options can give you a much better return on your investment if you believe the stock will rise or fall in a short period of time.
If you think the stock will fall you would buy a put option which gives you the right to sell a stock at a certain price before expiration.
There are a lot of different types of options strategies that I use to make money. Most of these are very low risk and I will get into some of these in some of my later posts. For example, if you are thinking about buy 100 shares of stock I can show you how you can make additional income before you buy the stock by selling puts and I can also show you how to make additional income on the stock after you own it buy selling calls. Anyone not taking advantage of these strategies are losing out on this free money.
Anyone looking for some ways to get started collecting option premium please Click Here! or to find undervalued options Click Here!
Jonny
For example, say you are thinking about buying Apple stock (AAPL). Apple is currently trading at $447 per share as of right now. Let's say you think the stock will rise in value over the next 20-30 days but you don't want to risk putting up the $44,700 to buy 100 shares today. Instead, you can buy one option contract that will give you the right to buy 100 shares of stock at a certain price. Let's say you think the stock has a good probability of going up to over $460 a share within 20 days. You are only about 60-70% confident this will happen so you wish to buy a call option with a $450 strike price and an expiration date of June 21. This gives the stock 22 days to go up. The price of this option costs $10. This means for every contract (100 shares) it will cost you $10*100 = $1,000 for the right to buy AAPL at $450. If the stock goes up to say $470 before June 13 you can buy 100 shares for $450 per share and your profit would immediately be $470 - 450 = $20 - $10 (cost to buy option) = $10 + 100 shares = $1,000. You just doubled your investment. However, you will need the stock to increase to at least $460 or you take the risk of losing money since the option costs you $10.
However, I personally wouldn't suggest doing this type of investment. You will need the stock to increase in value quickly or you take the risk of losing money. Normally people who buy options will sell the option and choose not to buy the underlying stock. For example, if you buy the $450 AAPL call option for $10 and the stock increases in value by $4 per share the day after you buy the call option the value of this option will increase to say $12. How much the option will increase depends on a few factors such has time until expiration, if the option is in the money or out of the money, etc. The delta is a key indicator of how much you can expect. For example, if the delta on our AAPL call option is .5 it means that for every $1 increase in the stock our option will increase by .5. So if AAPL goes up $4 we can expect our option to increase by $2. If this happens you just made $2 / $10 or a 20% return in one day. If you were holding the stock your increase would be $4 / $447 = 0.9% (less than 1% return in one day). So as you can see, options can give you a much better return on your investment if you believe the stock will rise or fall in a short period of time.
If you think the stock will fall you would buy a put option which gives you the right to sell a stock at a certain price before expiration.
There are a lot of different types of options strategies that I use to make money. Most of these are very low risk and I will get into some of these in some of my later posts. For example, if you are thinking about buy 100 shares of stock I can show you how you can make additional income before you buy the stock by selling puts and I can also show you how to make additional income on the stock after you own it buy selling calls. Anyone not taking advantage of these strategies are losing out on this free money.
Anyone looking for some ways to get started collecting option premium please Click Here! or to find undervalued options Click Here!
Jonny
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