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Tuesday, October 24, 2006

Stock Market Top

Here I go again...not believing the market can go higher with the Fed scaring tomorrow.

Yes..I bought some 640 Puts on the OEX (S&P 100 index).

It would be really great to find some other people that understand options, daytrading or swingtrading.

9 Comments:

Blogger meblogin said...

Ouch....wrong side...smile

October 26, 2006 at 9:19 AM  
Blogger bubba said...

"Yes..I bought some 640 Puts on the OEX"

Most of your readers will think you're speaking greek. you should probably explain.

October 26, 2006 at 3:24 PM  
Blogger bubba said...

You may also want to explain the concepts of "long" and "short".

October 26, 2006 at 3:27 PM  
Blogger meblogin said...

Bubba makes a great point as to readers and their understanding of options.

Bubba...help... I feel like I will write for hours.

October 26, 2006 at 8:53 PM  
Blogger bubba said...

From investor words.com.

put
Definition 1

An option contract that gives the holder the right to sell a certain quantity of an underlying security to the writer of the option, at a specified price (strike price) up to a specified date (expiration date); here also called put option.

Definition 2

The act of exercising a put option. opposite of call.

.........

call
Definition 1

An option contract that gives the holder the right to buy a certain quantity (usually 100 shares) of an underlying security from the writer of the option, at a specified price (the strike price) up to a specified date (the expiration date). also called call option.

Definition 2

The act of exercising a call option.

Definition 3

The right to redeem a callable bond before its scheduled maturity.

Definition 4

In banking, a demand to repay a security loan immediately.


.......

short sale (see "short")
Definition

Borrowing a security (or commodity futures contract) from a broker and selling it, with the understanding that it must later be bought back (hopefully at a lower price) and returned to the broker. Short selling (or "selling short") is a technique used by investors who try to profit from the falling price of a stock. For example, consider an investor who wants to sell short 100 shares of a company, believing it is overpriced and will fall. The investor's broker will borrow the shares from someone who owns them with the promise that the investor will return them later. The investor immediately sells the borrowed shares at the current market price. If the price of the shares drops, he/she "covers the short position" by buying back the shares, and his/her broker returns them to the lender. The profit is the difference between the price at which the stock was sold and the cost to buy it back, minus commissions and expenses for borrowing the stock. But if the price of the shares increase, the potential losses are unlimited. The company’s shares may go up and up, but at some point the investor has to replace the 100 shares he/she sold. In that case, the losses can mount without limit until the short position is covered. For this reason, short selling is a very risky technique. SEC rules allow investors to sell short only on an uptick or a zero-plus tick, to prevent "pool operators" from driving down a stock price through heavy short-selling, then buying the shares for a large profit.

.........

long
Definition

The state of actually owning a security, contract, or commodity. also called long position. opposite of short.

Enter "put", "call", "short", and "long" into the search tab at the site to see related terms.

You're right.....it could take forever to explain this. The only way to learn is to research, just like an investor should always do due diligence for themselves.

October 27, 2006 at 10:37 PM  
Blogger bubba said...

I forgot a couple:

swing trade
Definition

A trading strategy that seeks to create profits by holding positions for relatively short periods, often one day to one week. This is similar to day trading, but with a slightly longer time horizon.

day trader
Definition

Very active stock trader who holds positions for a very short time and makes several trades each day. Day traders are individuals who are trying to make a career out of buying and selling stocks very quickly, often making dozens of trades in a single day and generally closing all positions at the end of each day. Day trading can be costly, since the commissions and the bid/ask spread add up when there are so many transactions.



I don't day trade, but have been known to swing trade from time to time.

I don't like to short, however. I'm usually not disciplined enough.

October 27, 2006 at 10:42 PM  
Blogger meblogin said...

Hi Bubba,

Thanks for the explanations...great job.

Most of my research is contained within a given day with no holding overnight. The trading vehicle is the derivative called Spyder (S&P500 stock eqivalent) based upon trading a 1000 shares.

I enjoy developing equations or algorithms and back test them for years to see how the ideas work.

thanks again for your help.

October 28, 2006 at 1:43 AM  
Blogger meblogin said...

I still own the puts...they came back to life on Friday...wonder if the selling will continue tomorrow?

I guess I could ask the famous Percy Walker for his take. Anybody know how to contact him?

October 29, 2006 at 4:47 PM  
Blogger meblogin said...

The market fell yesterday and today and I sold my puts for a 10% gain.

Normally after I sell the markets continue in the same direction...so therefore Nov 3 will be a very down day....sorry.

November 2, 2006 at 7:37 PM  

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