Put & Call Share Trading - Quick Definition Required

[Watermelon Man]

Hello,

Talking to a couple recently they spoke about being involved in Put & Call Share Trading whereby they never own any shares & receive around 15% per month return (yeah I know a lot), said something like if the market goes down they always have a buffer there so that they don't lose money, but if the market goes up - wow, they make 15-20% per month on their money. Said they were investing in the U.S. last year, but got a bit difficult to achieve the returns & now are doing it in Aust. - Sounds a bit "too good to be true", but obviously curious about it.

I know I'm being a bit vague here but didn't quite catch the whole conversation as I was confused, but has anyone else heard of this???

 

[Sunfish]

I know a little about writing covered calls but the spruker I saw only promised 3-5% per month. (not too shabby!) But those results were best achieved in a stable, range trading, market. There did not seem to be much protection in a falling market nor profit in a bull.

Those percentages were only reasonably achievable on the NYSE but could be multiplied using CFDs. and that was where it became an art.

If you are asking what puts and calls are, that's a long answer I won't make on the off chance, or tonight.

 

[The Y-man]

Here you go....
http://www.asx.com.au/investor/options/index.htm

Cheers,

The Y-man

 

[Timmy]

Watermelon Man, the people you spoke to were most likely option traders. Options are not shares (they are derivatives of shares), so it is correct in saying that these people are not share traders. (and making 15%/month on shares would be a rather difficult task)

The are two types of options, call options and put options. I'm not going to go into fine detail (that's what the internet is for). But a call option is the right to buy a share (or anything really, options also can be applied to property). And a put option is the right to sell a share.

Again, not going into too much detail, call options generally go UP when the underlying share goes UP. And put options generally go UP when the underlying share goes DOWN. This is how money can be made when the market goes both up and down. Also, it is possible for someone to not only BUY options, but to SELL options. So you sell the right for someone else to either buy or sell a share.

But this all means nothing when it comes to trading options. You can teach a 5-year-old what an option is. But actually trading for a profit is a very different kettle of fish. This is where a lot of BS gets talked. Trading is very emotional for most people. Most people don't like to lose money, and most people don't like other people to trade better than they do (does the same thing happen with PI investing I wonder?).

There are "educational resources" advertised (mainly on the internet) which I won't mention, which all claim to teach you "how to trade for a profit". Returns of 15-20% are claimed by some. I believe that these returns are possible, BUT the ability to lose more than you think is also possible. For example a market crash would completely wipe out some traders. It all comes down to knowing what you are doing (and not being scammed by the marketers).

Basically what you're talking about doesn't belong on this forum (that sounds strange coming from me). I trading know-how just isn't there. These people are property investors, and don't want to sit in front of Bourse all day watching their trades.

Remember, for every one person making a killing in the (options) market, there are at least another 10 who are being killed.

If I were you, I would speak to this couple and learn the mindset of what they do. Find out how they think, and what they do when it goes bad.

Now enough of that, let's discuss something more controversial than puts and calls.....

 

[geoffw]

Remember, for every one person making a killing in the (options) market, there are at least another 10 who are being killed.

I think the relevant term is a "zero sum game".

Unlike shares, where you profit (or lose) based on the performance of the company you have invested in, with options, you are only pitting your wits against other people who are doing the same thing.

So that the sum total is that, if you add up everybody's profits and everybody's losses, the result is zero (minus trading fees).

So to succeed, you need to do better than a lot of other people.

 

[Twitch]

So to succeed, you need to do better than a lot of other people.

And some of those other "people" are very smart, very experienced, and have very deep pockets. Personally I don't like the idea of going up against hot shot institutions in a zero sum game.

 

[alexlee]

Not until you make enough money to support a Bloomberg terminal.
Alex

 

[Simon]

and some of those people make a lot of money.

Someone told me that 5% of the players take money from the other 95%.

I have no idea how accurate that is and am quite ignorant of the fine details of option trading.

I day traded for a year and I know that it is not for me despite ****(insert expensive weekend course name here) telling me I can make a living for 20 minutes work a day from a laptop in a hotel room anywhere in the world.

They sell the dream!

 

[Kingbrown]

Wow. At 15% per month, starting with an initial investment of 100,000, reinvesting all profits:

At the end of year 1, you would have : $465,239

At the end of year 2, you would have: $2,489,145

At the end of year 3, you would have: $13,317,552

..wow I need to know this system!!!

IF YOU COULD HOLD ON UNTIL THE END OF FIVE YEARS, YOU WOULD HAVE OVER THREE HUNDRED AND EIGHTY MILLION DOLLARS!!!!!!

..DEAR LORD SOMEBODY TEACH ME THIS SYSTEM!

IN FACT, IF YOU COULD DO IT SEVEN MORE MONTHS, YOU WOULD HAVE OVER A BILLION DOLLARS!! A BILLION!

IN FACT, IF YOU JUST DID IT FOR 100 MONTHS, WHICH IS LESS THAN 10 YEARS, YOU WOULD HAVE OVER 100 BILLION DOLLARS, AND BE THE RICHEST PERSON ON EARTH!!!!!!!!!!

Could somebody please share this secret???

 

[alexlee]

If it sounds too good to be true......

 

[super_sam]

If you are interested in 5%+ p/m returns and are looking to do something outside of the norm whilst still accepting a certain degree of risk, why dont u look at lending? Caveat loan lenders charge upwards of 5% p/m and your money is always secured by property. Typical caveat loan seems to be around the $50K mark so it's definately not out of reach for some of the more well off investors to dabble in

 

[Kingbrown]

WOW!!!

At % Per month, starting with 50,000, if you reinvest, you are looking at ... get ready for it....

..after just ten years, your 50,000 will have grown to:

OVER SIXTEEN AND A HALF MILLION DOLLARS!!!!!!!!!!!!

Please, if soemone could tell me how this works, I have calculated that if I sell my PPOR/IP's, and invest in this plan, after ten years I will have nearly 700 billion dollars!

I will then not be sure whether to:

a) Buy BHP, Carlton United, Victoria, and a large part of the North Island of New Zealand.

or

b) Reinvest for another ten years, and then buy the entire planet.

If anyone could tell me whether buying the whole planet would be a good investment, please let me know, as this is a real possibility for me, now that I know these investment systems exist.

k thx

 

[Watermelon Man]

If anyone could tell me whether buying the whole planet would be a good investment, please let me know, as this is a real possibility for me, now that I know these investment systems exist.

k thx

Thanks everyone for the great information & to Kingbrown for the tongue-in-cheek comments

Personally I found it very hard to believe the returns being achieved - like 15% per month (alarm bells of being scammed started to ring loudly ); but I was just curious to know what Put & Call Options were. Thanks for the info!

 

[The Y-man]

Just as an aside, 15% per month for options trading is not particularly difficult (returns up to 30%-60% per month are plausible) - HOWEVER maintaining it month after month - well now, that's the hard bit

For me, 2 months of 30%+ gains seems to always be followed by a month of 80%+ losses......

Cheers,

The Y-man

 

[Sunfish]

Will you settle for 2-4% per month?

Here's how it is being done:

Open an account with Sonray or Tricom with a 50K bank and another with optionsXpress and a charting program such as Sharechart.

The third Thursday of each month is options settlement day so on the next day you use a filter program (forget the name but will let you know) to throw up a list of NYSE companies which meet a number of criteria, one of which, for example, is a US$1 billion min market cap.

There are a few obvious reasons to trade the NYSE. One is to get liquidity (BHP and NAB are just about the only stocks liquid enough on the ASX) another is because an options parcel is 100 shares in the US and 1000 here. Our 50k bank would allow only one trade a month here. And they have wonderful indexes you can trade such as QQQQ.

You run through this list on your chart program. The seminar I did had a rigid selection protocol which basically selected stocks in a longer term bull and undergoing a recent upturn after a small reversal.

You buy shares in lots of 100 and immediately write calls on these shares with the strike price next above your buy price. For this you will be paid a premium in the range stated. As greater than 80% of options expire worthless you have a good chance that the buyer of your option will not exercise his right to buy your shares, in which case you do the same again next month.

If the share price falls you lose on the value but still have the shares and profit on the sale of the call. If it rises above the strike price you sell the shares to the buyer, keeping the option premium and a small profit on the shares.

But the two brokers mentioned above allow you to buy CFDs on the US markets (Americans can't do so.) so there is a theoretical X10 leverage available so the 15%/month is not as absurd as it sounds.

I am not advising this strategy because without money management and hedging strategies with puts etc it becomes dangerous. I also believe they only really work in relatively stable, long term bull markets which we have enjoyed for years now, not the volatile times we are in now.

This is called writing covered calls and is the most basic of the options strategies and where most traders start.

I did an expensive three day course and although I have not started the programme the new knowledge I picked up nearly justified the price.

Disclaimer: I am not endorsing the brokers or programs mentioned nor do I recommend this strategy in general.

 

[The Y-man]

This is called writing covered calls and is the most basic of the options strategies and where most traders start.

...and if you didn't want to do it yourself, and were willing to pay someone to do it, you could put money intosomething like:
http://www.macquarie.com.au/emg/mq/mq_specialist_funds/mq_buy_write_fund.htm

...or if you wanted to gear it....

http://www.macquarie.com.au/emg/mq/mq_specialist_funds/mq_geared_equity_income_fund.htm

Cheers,

The Y-man