I've been playing this Investopedia.com Stock simulator...to learn more about trading stocks. So far all I have learned is to buy low and sell high ...lol....it's been working out ok, but I want to know more. One question I have is what is an options portfolio? And other little tips or info would be great too! THanks!
Oh...and keep in mind that I am not too fluent in the "stock market lingo."
2007-08-21 16:57:34 · 5 answers · asked by learningbusiness 2 in Business & Finance ➔ Investing
An options portfolio would basically be a portfolio of options contracts.
An option is a contractual agreement you make with another investor to buy or sell shares of a stock at a certain price.
For example, yesterday I bought an options contract that allows me to buy 100 shares of Apple stock for $180/share at any point between now and January 2009. If Apple's stock price goes up significantly to (say) $250 by the time the contract expires then I will be able to buy $25,000 worth of stock for $18,000 (and if I don't have 18k sitting around I can sell the contract to someone who does for $7000.) Since the contract only cost me about $1200 to buy that's a nearly 600% return. By comparison if I had bought Apple stock at its current price (about $125/share) I would have made only a 100% return. This is the upside-- options allow you to own very significant stakes in companies for relatively little money. The downside is that if Apple doesn't close above $180 the contract is worthless. You can make a huge amount of money with options but there's a very good chance that you'll lose every penny you invest in the option. They are an order of magnitude riskier than stocks.
Note that for a lot of investors it makes more sense to sell the contracts to other investors. For example say I have 100 shares of Apple. I can sell an options contract allowing an investor to buy my stock at a price of $140/share between now and Sept 21st for $210. If Apple (again trading around $125 at the moment) goes up to that price or above, I'll have made about $17/share ($15 in capital gains $2.10 per share for the contract) a 13.6% return in a month-- not half bad. If the stock doesn't go above $140 then I can pocket the $210 and sell another contract on the shares. In a nutshell this is a good way to earn income off of stock holdings, even if they don't pay a dividend.
You will need to get approved by your broker to buy or sell options contracts, and generally they'll require you to have at least some experience investing before they'll let you buy options.
2007-08-21 18:15:02 · answer #1 · answered by Adam J 6 · 0⤊ 0⤋
Having a professional work a portfolio will be more expensive that owning mutual funds. The professionals who would be handling your account will charge you fees. Sometimes, they charge fees to buy or sell stock in your portfolio. They do not charge fees based on how much you make. Therefore, they have motivation to churn your portfolio by buying and selling often. This is not in your best interest. There are some mutual funds out there that charge a lot as well. You need to research your funds before you buy into them. You need to see how they charge their fees and what their fees are. There are some mutual funds that you should just plain leave alone. Another difference is that many mutual funds have way more diversity than a person could manage in your personal portfolio. The person managing your portfolio is also doing the same on a few others. The person does not have time to research and keep track of thousands of different stocks to see if they are worthy of your money. They usually limit themselves to a few favorites and go from that. Mutual fund managers (most of them) try to make money and keep diversified. In fact, there are laws that prevent a mutual fund from overinvesting in any particular stock.
2016-05-19 05:18:15 · answer #2 · answered by ? 3 · 0⤊ 0⤋
As the first answerer said, options mean risk. Options are an example of derivatives, a security that is derived from an asset, in this case, a share of stock in a company. When you buy an option, you aren't buying a stock, you're buying the *option* to buy the stock at a certain price. Options trade a much lower than the share price of the security they follow, and have much more volativity- that is, they go up and down much more than a stock does. For instance, Google (GOOG) is trading at around $500/share right now. An option for GOOG will be one tenth of that, or less
Also, options expire at a certain date. So you buy an option to buy GOOG at $510, and the stock goes up to $520, woohoo, you're in the money! But if the option expires next month, it's going to be much less expensive because there's so little time for the stock to go up. If the stock doesn't go up, and the option expires, you lose everything- everything you paid for the option.
There's a lot of different ways to trade options, and it's really easy to lose your money. I would only recommend it organically- that is, if you are comfortable trading stocks, and are looking for more risk in your portfolio. With options, a fool and his money are soon parted. Even an expert and his money are often parted when it comes to options trading.
2007-08-21 17:24:55 · answer #3 · answered by MEP_at_work 2 · 0⤊ 0⤋
If you would like to learn more about option trading you can download a FREE E-Book which explains option trading a little easier.
The book is by self made millionaire, Jamie McIntyre, who made his millions by trading options, investing in property and starting up online businesses. Great read, you will enjoy it.
request your free e-book here
http://www.thewealthage.com
Best of luck!
2007-08-21 18:52:29 · answer #4 · answered by Anonymous · 0⤊ 0⤋
the best trading software http://tradingsolution.info
i have attended a lot of seminars, read counless books on forex trading and it all cost me thousands of dollars. the worst thing was i blew up my first account. after that i opened another account and the same thing happened again. i started to wonder why i couldn,t make any money in forex trading. at first i thought i knew everything about trading. finally i found that the main problem i have was i did not have the right mental in trading. as we know that psychology has great impact on our trading result. apart from psychology issue, there is another problem that we have to address. they are money management, market analysis, and entry/exit rules. to me money management is important in trading. i opened another account and start to trade profitably after i learnt from my past mistake. i don't trade emotionally anymore.
if you are serious about trading you need to address your weakness and try to fix it. no forex guru can make you Professional trader unless you want to learn from your mistake.
2014-12-18 14:32:26 · answer #5 · answered by HEDGECOCK 3 · 0⤊ 0⤋
Risk......
90% of all options expire worthless.
2007-08-21 17:09:18 · answer #6 · answered by Common Sense 7 · 0⤊ 0⤋