Exercising Stock Options, Part 4
Friday, February 1st, 2008One of two things needs to happen in this situation. Either the stock’s current market value needs to rise quickly so that your call premium will be greater than the 5 you paid, or the stock’s market value has to rise enough points by expiration to offset time value (3 points) plus grow beyond the intrinsic value level.
This shows how option buyers need to evaluate risk. In the example, time value represents three-fifths of the total premium. If expiration comes up quickly, the stock will need to increase significantly in a short period of time to produce a profit. In thinking about whether it makes sense to buy such a call, consider these alternatives, especially if you believe that the stock will rise in value:
Prevent Trading From Turning Into Gambling
Tuesday, January 29th, 2008A common view of trading is that it’s the same as gambling.
While gambling itself can be harmless when done is small doses and for harmless excitement, it becomes a problem when it’s an addiction, and causes grievous harm to a person and/or other people involved.
As a result, gambling has negative social connotations.
The actual definition of gambling is:
“Betting or staking of something of value on the outcome of a game or event.”
Trading in essence is betting or staking something of value on the outcome of a trade, but the difference is that we can take trades that place the probability of winning in our favor.
Investing Is Like Playing Tennis
Sunday, January 20th, 2008I’m not a professional tennis player. I’m not even a tennis player. The last time I touched a tennis racket was 5 years ago. But I did read about how a professional tennis player aims to hit as many balls to the opponent to make him miss, in order to win. An amateur , on the other hand, aims to try to catch as many balls as possible, aiming not to make any mistakes till his opponent eventually makes a mistake and causes himself to lose. That’s defensive playing.
Tough Trading Days
Friday, January 18th, 2008Trading is a marathon not a sprint. Often time’s new traders allow one bad day to alter not only their trading styles, but their emotions as well. In order to be a successful trader you have to learn to put tough trading days in their place. Do you think every game Michael Jordan lost; he then went home and changed his entire style of play. When Tiger Woods has an off day, do you think he immediately calls his swing coach to develop a new swing strategy? Set Daily Limits
Prioritize Your Spending
Friday, January 18th, 2008While you may be on a plan to get out of debt, it is actually good to make some purchases. You should know by now, however, that without a plan you may end up with some stuff you don’t want, need, or even enjoy. If you take a quick look around your house, you’ll soon see what I mean.
A prioritized spending plan will help you decide what is most important to purchase in your life. First, you will start by listing all the purchases you’d like to make. The time frame may be this week, month, year, or even longer.
Next Entries »