Reply to What's the secret?

Forum Index » Money and Finances

Reply to "What's the secret?"

Subject:

Emoticons





More smilies

Text Color: Font: Close Marks

[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]Tip of the day.

Buy the Jan. 2015 Bank of America, Call Option.

It wil cost you about $1.70 per share at the strike price of $15.

Buy 10,000 = $17,000

Present Real Time Price 14.64.

You would be buy the rights to purchase 10,000 Shares of BAC at $15 in roughly 510 days from today. In order for you to break even the share price during the next 510 day must rise to $16.70. Beyond that price would be making a profit. Any price below $16.70 and you'd be taking a loss.

For every dollar it sells for over $16.70 in January 2015 you'll be making a profit of $10,000. If BAC ran up to $26.70 (and it will) during the next 510 days your profit will be $100,000 minus the $17,000 you paid today for the Call Option for a net profit of $83,000. [/quote]

Could you elaborate?  I'm really curious if this is reliable.[/quote]

What the poster neglects to mention is the downside. If you buy $17,000 worh of options and it doesn't go over 16.70, you loose $17,000. All of it. So, unlike stock, it's truly a full-on bet for $17k. You can also buy some puts to hedge the downside but increase the volatility you need to see to make a return. 
[/quote]

I believe I did include the risk, but if not I'll try again and clarify a mistake you seem to have made. The premium price for the options is $1.70 per share sold in 100 share blocks and the strike price is $15 in Jan. 2015, giving you the right to purchase a quantity of  BAC shares equal to the number of options you own. So today, you've invested $1.70 for the right to purchase shares at $15 in Jan. 2015. The goal you are trying to achieve is for BAC shares to be selling in the market for a price greater than $16.70 in Jan. 2015.

Anything above $16.70 you are making a profit. Anything between $16.70 and $15 and you are incrementally losing the $1.70 premium times the number of options you've purchased until you reach the $15 per share price where the entire 1.70 per share premium will be permanently lost.

So the upside is infinite, however realistically bank analyst Dick Bove expects the price of BAC to double in two years. With the share price currently at $14.65, if you believe in our ecoconomic recovery it's not too difficult to imagine the share price of BAC being greater than $16.70 in Jan. 2015 where you would begin to make a profit.

Where the PP is mistaken is that the option gives you the right the execute your trade in Jan. 2015 at $15 regardless of the market price at that time. So, if you did not profit from the price being above $16.70, you could still mitigate your loses by executing the trade at any point above $15 per share. If the price on the expiration date was $16.00, you would still make the trade because it would reduce your loss from $1.70 per share to $.70 per share. So in larger terms of 10,000 options at $1.70 the cost is $17k where it is reasonable to believe over the course the next 500 plus days the share price will appreciate $12 to the $26.70 range at which time the owner of said options will enjoy a profit of roughly 10,000 times $10 (the difference between $16.70 and $26.70) equaling a gain of $100k. Clearly, depending on the share price in Jan. 2015 the gains could be less or even greater, and the potential for losing money always exists, but potential for loss will never be any greater than the options premiums you have spent to purchase the options.

Also, options are traded in the market daily just like shares themselves so at any point when you feel you've made enough profit or you feel the risk is too great and you want to get out, you just trade/sell the option to someone else.  As the price of the stock appreciates the price of the options appreciate as well.  So, you are not stuck in the trade until in this scenario until Jan.2015.

If you believe in the U.S. economic recovery this is a good options trade. However, if you feel dower about our  economic recovery during the next year and a half this is a trade you should avoid.

The secret is to leverage your money wisely. This is just one option presented to you from the millionaire who lives next door. I'm not rich and there are many, many people who are much smarter than me, but I do okay.

You can do this!!!! [b] You can be a successful capitalist!!![/b][/quote]

Unfortunately, this post confirms the negative stereotype I have of modern "capitalists."  It's all just a numbers racket of puts and calls and options, devoid of actually doing anything (building a factory, hiring people, creating a product). If you can navigate the analytics and tax laws, you can make money.

But, I guess that's why I've never figured out "the secret".[/quote]

Options

	Disable HTML in this message
	Disable BB Code in this message
	Disable smilies in this message

Review message

Search Recent Topics Hottest Topics