Stock Options Journal

[Multioption]

Impressed and surprised to read Obugi's post on Stock Options, so I decided to set up this journal for interested forumites to post their thoughts on Stocks, Options, and other financial instruments!

I'm one addict of options! Will try as much as possible to update this journal with my options play.

[Big-K]

Multipotion

I've always been fascinated with the idea of options trading but never fully grasped the idea. Can you please explain what it means and how its different from regular stock trading. What other financial instruments would you recommend if I'm a salary earner who is dreaming of becoming a millionaire?

[Multioption]

Originally Posted by Big K

Multipotion

I've always been fascinated with the idea of options trading but never fully grasped the idea. Can you please explain what it means and how its different from regular stock trading. What other financial instruments would you recommend if I'm a salary earner who is dreaming of becoming a millionaire?

Click here to learn more about mechanics of options!

I'll be glad to walk you through my technical analysis to options trading.

[Obugi]

All,

This should b an interesting week coming up in the market. I think the direction will b down. All the indexes are overbought with neg divergences. Oil prices, inflation, general anxiety. I also think the market will start pricing in the slowdown that may b coming mid '07, all those interest rate hikes (+oil prices), exhausted consumer wallets et c have to produce an effect sometime. I had thought it would happen late '05/early '06, but I was WRONG (now, how often does that happen? )

I'm just surprised at the strength of the economy.

Awright, down 2 doing the thing.

I see ANN, ESRX, PFCB going down, so I'm looking 4 puts there.

Also airline stocks in general, but they've been sold down quite aggressively that I might have missed the early flight on those. (Catch the joke I said early though, so there. Ha ha, I'm such a comedian.)

Long on oil stocks as usual, commodities in general. Doing shares, not options, can't risk it on these. It feels dizzy up here.

Just musing, abeg no follow me go throway ur rent money, say na Obugi tell una. Do ur own research. OK now, Meti I don hear, I dey come. Igboman no fit leave bed ten minutes u no wake up? Na wa O!

**Daggone woman is frisky tonight**

Get Yours!
Obugi.

[Multioption]

Originally Posted by Obugi

All,

This should b an interesting week coming up in the market. I think the direction will b down. All the indexes are overbought with neg divergences. Oil prices, inflation, general anxiety. I also think the market will start pricing in the slowdown that may b coming mid '07, all those interest rate hikes (+oil prices), exhausted consumer wallets et c have to produce an effect sometime. I had thought it would happen late '05/early '06, but I was WRONG (now, how often does that happen? )

I'm just surprised at the strength of the economy.

Awright, down 2 doing the thing.

I see ANN, ESRX, PFCB going down, so I'm looking 4 puts there.

Also airline stocks in general, but they've been sold down quite aggressively that I might have missed the early flight on those. (Catch the joke I said early though, so there. Ha ha, I'm such a comedian.)

Long on oil stocks as usual, commodities in general. Doing shares, not options, can't risk it on these. It feels dizzy up here.

Just musing, abeg no follow me go throway ur rent money, say na Obugi tell una. Do ur own research. OK now, Meti I don hear, I dey come. Igboman no fit leave bed ten minutes u no wake up? Na wa O!

**Daggone woman is frisky tonight**

Get Yours!
Obugi.

Thanks for your thoughts, Obugi! Do you use any technical tools for entry/exit, care to share?

[Obugi]

Multi ( and anyone else interested)

I didn't think I'd be reporting back on the trades I did so soon. Anyhow, here goes. This is how the trades I talked about went. I just finished all my transactions a few minutes ago. I'll quote from my earlier posts.

I see ANN, ESRX, PFCB going down, so I'm looking 4 puts there.

ESRX is down ~ 10% since I recommended it, I made a profit of 150% on put options.
ANN is up ~ 4% since I recommended it, I lost about 50% on put options.
PFCB is down about 7% since I recommended it, I made about 80% on put options.

Long on oil stocks as usual, commodities in general. Doing shares, not options, can't risk it on these. It feels dizzy up here.

Bad play here, but I recommended shares, not options, so losses are limited, about 5% since my post on this board; in fact, I have been holding oil stocks for a long time so I still have a profit overall.

Also airline stocks in general, but they've been sold down quite aggressively that I might have missed the early flight on those. (Catch the joke I said early though, so there. Ha ha, I'm such a comedian.)

I was very right here. The day after my post airline stocks went up. Just like I thought, I had already missed the chance to trade them down. I think an opportunity to buy puts on them will be coming soon. Oil prices are still high.

Overall, made 75% (~$15K) on trading capital of ~$20K, in about 1 week.

By the way, it looks like the market is breaking out to new highs today. I just don't know why the economy is so strong, but everyone is so gloomy. I can't argue with the market though, so I'm buying some calls options on the S&P and QQQQ.

So what else to do? Anyone ever heard of Comcast Cable Company? Y'all better pay your cable bills on time, cause I'm buying some long term call options, at least 8months out or so.

Never mind me sha. By the way, the prices I quoted can be checked on yahoo quotes at the following site:

Yahoo Quotes.



Remember, I made my recommendations on Apr 24.

Its pretty easy 2 use. Anyone should be able to see the changes I quoted above on the on the changes in stock price. Monitoring the option quotes is a little more involved, but the information is also there.

Trading options can be profitable, but it is also very risky. It takes a long time to learn. There's tons of material out there to learn from. I don't like to talk much about it due to the danger involved; also, like sex, I find that ppl are uncomfortable talking about money. For me options have been a very good thing. I think I've been very lucky too. The beginning was very bitter, but all the pain was worth it.

I also recommend subscribing to the following: The Wall Street Journal.com, Barrons, and BusinessWeek to learn about the economic and business of America. Also the sites Clearstation.com and Stockcharts.com for those interested in learning about the technical aspects of the market and how to trade.

ClearStation

StockCharts

BusinessWeek

Wall Street Journal

I'm done here.

Get Yours!
Obugi.

[Obugi]

All,

04-27-2006
By the way, it looks like the market is breaking out to new highs today. I just don't know why the economy is so strong, but everyone is so gloomy. I can't argue with the market though, so I'm buying some calls options on the S&P and QQQQ.

So what else to do? Anyone ever heard of Comcast Cable Company? Y'all better pay your cable bills on time, cause I'm buying some long term call options, at least 8months out or so.

Thought I'd update this thread.

Lost a good deal of money on the S&P and QQQQ calls, I bought right at the top in Apr. I was confident the economy was good, but there was a short term loss of confidence which sent the market down. I'm being proved right this month, and since the bottom in July. I wish I had held on to those call options, they would be profitable by now, but hey.

I've made a bunch of money on Comcast. The stock hit a new year high today. The slowdown from Apr to Jul was a blessing. I added more call options, and I sold enough today to make a 200% profit on my original investment and still have a lot left in the market to ride; which is to say, any further gains from here are pure profit. Comcast is still good to go, I can even say I saw this one before the professionals. Its amazing the way this company is being touted today. Na wa O!

The market......strong uptrend. Thinking points:

1. It has a lot to do with emerging/developing market growth, I mean look at all those US companies in India and China.

2. The elections should have some impact on the pharmaceutical sector. Just wait till the Dems take control of Congress and start muckracking on MediCare Part D.

3. Dividends anyone? Bank of America, Branch Trust & Banking and Altria (Phillip Morris) all pay around 4%.....that's almost guaranteed in perpetuity. Not bad for young people to get in on now.

4 This market has illustrated an oft repeated message in the past year or so. Buy them when they are cheap Check out the history of Merck, Time Warner, Mattel and AT&T in the past 2-3yrs. So, you ask what is cheap today? What companies are people screaming are gonna die and will never come back? How about housing stocks (Lennar, KB Homes)? How about those auto companies like Ford and GM? These are todays horror stories and tomorrows gems.

Get Yours!
Obugi.

[Obugi]

All,

Hmmm. Day b4 the elections, stocks are rising after a bad week. Until it takes out new highs, don't relax too much. Watch that stochastic, man! Looks like the big money ppl are RUNNING AWAY from the market. Sarbane Oxley? Read the Yahoo Finance headline, public firms are going private all over the place! Chineke! We've been hearing this talk of private equity takeovers, but today na wa O!

Yes O, what about XMSR, the satellite radio company? Its up 15% today. Too late? No, not at all. Why?

Fundamentals (Not my specialty) The losses narrowed. Increased subscription. Gotta check the competition, though.

Sentiment: Reaction to the report loss is phenomenal. XMSR has traded up 15% on >3X average daily volume. This doesn't look like something that will stop soon.

Technical: Ahhhhh, now I can talk. Look at that MACD on the 3yr chart. We have a double bottom formation. If you notice, MACD is higher now than the last time this stock was at this price. We got here after a loooong, painful slide. The sellers are all gone. Note that the stochastics weren't oversold at this time, yet we get this pop.

What to do?

Buy shares. Not for tomorrow or next month, but all I know is, by Krishna, this thing will make money. I'll get some options too, but later, when things cool down a bit.....yes, of course there will be a pullback or pause of some kind. Wetin?

Obugi.

[fulani]

Mr. Obugi

You've been dancing all over the place. There may be people who manage real money reading this stuff.

Take am easy!

But then. If you are musing for fun...Then what the hell.. go right ahead.

If you are going to share tips do so with some level of fudiciary responsibility.

Puts... Calls... Down.. Up.. what is your AUM? Whats the composition of your portfolio?

.

Fulani

[Obugi]

fulani,

You've been dancing all over the place. There may be people who manage real money reading this stuff.

I take it that u manage money. I manage money too......my own.

I'm posting some trades that I have made, some profitable, some loosing. I have clearly stated that I'm not expert at fundamental analysis, but allow me to say that I'm quite good with technical/chart reading. The thread is here for all to see.

I have clearly stated that option trading is dangerous. Share trading is not risky and can be done by any reasonably intelligent person who commits to a little research and common sense. In fact, the biggest long term risk in investment in the USA is NOT to learn about and trade stocks.

Are you willing to discuss US stocks? Post your own recommendations and views. Professional money managers can only intimidate novices. I used to trade thru a broker, now I manage my own account and do my own trading. I'm doing OK, much better than when I used a pro. I own mutual funds for my long term, but short term, I'm having fun.

Again, if you are willing to educate the village about stocks and options, I'd be grateful for your insights.

So abeg, don't HATE.......EDUCATE!

Obugi.

[fulani]

Hey Obugi
Am glad to hear that you are doing a little bit of everything regarding investing in the capital markets, and having fun to boot.

Money management is serious business. My rebuke stems from the fact that in our (Nigerian) community we do not do enough in this regard. Therefore, those with some experience amongst us should share their thoughts and advice in measured terms.

What I do is wealth management, so I tend not to recommend stock trades off the cuff.

That said, I didn't mean to lay it on too heavy.

Best

Fulani

[Obugi]

All,

I'm so sad. I just got a notification from my trading account. I wrote this earlier, on Nov. 6, 2006.

Yes O, what about XMSR, the satellite radio company? Its up 15% today. Too late? No, not at all. Why?

Fundamentals (Not my specialty) The losses narrowed. Increased subscription. Gotta check the competition, though.

Sentiment: Reaction to the report loss is phenomenal. XMSR has traded up 15% on >3X average daily volume. This doesn't look like something that will stop soon.

Technical: Ahhhhh, now I can talk. Look at that MACD on the 3yr chart. We have a double bottom formation. If you notice, MACD is higher now than the last time this stock was at this price. We got here after a loooong, painful slide. The sellers are all gone. Note that the stochastics weren't oversold at this time, yet we get this pop.

What to do?

Buy shares. Not for tomorrow or next month, but all I know is, by Krishna, this thing will make money. I'll get some options too, but later, when things cool down a bit.....yes, of course there will be a pullback or pause of some kind. Wetin?

Obugi.

XMSR is up >5% today, for a total of >20% since my recommendation. I am selling enough of my holdings to let the profit ride, so from here on out my risk is zero. In addition, if any of you are holding options on Comcast, now is the time to sell.

So why am I sad? I'm sad that this thing is easy to learn, yet so many are afraid, even in the face of clear opportunity. I'm sad because too many rush to hate, not educate. I'm so sad because there is so much out there that can be done, in concrete terms beyond theorizing, that we are not taking advantage of. The more I think of it, the more I am convinced that there is no excuse for Africa to be in the state it is in, compared to other continents.

Obugi.

[Ejonigboro]

To Fulani,

Being in Wealth Management does not stop you from having an opinion does it! What investment themes are you putting forward to your ULTRA HIGH NET WORTH clients at the mo?

To Obugi,

Can I state that your use of Options implies to me that you are speculating i.e. no convictions in your trades. But then again trading on Technical Analysis only, you are probably better off with options.

On a more serious note, both gentlemen should inform us of their current market views.
Then we can start entering Fulanis' arena of "fudiciary responsibility".

Regards,
Ejo

[fulani]

To Ejonigboro

I hope this anecdote will throw more light into what I do.

In the year 2000, I presented a proposal to a prospect who was worth $2mm liquid, perharps $10mm Total net worth. He owned several Mcdonalds Res. in southern California. I showed charts, past performance fiqures, separately managed account themes etc...how I was going to continue growing his assets...

I thought my presentation was quite neat. Well, this gentleman came back am said to me 'young man, I know how to make money, I need someone who can show me how to protect, and preserve my money.

My point is that true wealth management require a holistic approach. You consider your net worth. Tax implication of certain transactions, estate planning etc.

I realize that Obugi is trading his own account. Thats all good and well. But he goes on to say that Africans are 'scared ' to delve into the capital markets. This was precisely the point I made earlier about guiding the faint hearted into investing as opposed to speculating.

I believe we can all learn from each other's experience, and I certainly will share my thoughts from time to time. I just have to remember not to have my professional game face.
Good to hear from you.

[Ejonigboro]

Well I do not know about Africans, but my immediate friends, who are Nigerians, are either scared or apathetic towards the market. They probably have a lot of good reasons for their attitude.

Naturally all people would be inclined to protect and preserve their money, however large or minute it might be. And the Capital Markets, or any other market for that matter, are definitely the place to lose it all if you’re ignorant of its workings.

However, I assume Obugi never meant to teach anyone how to invest. Like all other villagers, he probably just started a thread and expected like minded people to contribute. And rest assured, after all this is NIGERIA VILLAGE SQUARE, no body would follow Obugi’s play just like that, and if they did, they would be smart enough to test the water rather than go full blow. And if they do or did go full blow, they were probably desperate and if it wasn’t Obugis plays, it would be something else!

Back to Basics….

EQUITIES
FIXED INCOME
COMMODITIES
FX
REAL ESTATE

Guaranteed, the favorite asset class of Nigerians is Real Estate, we are comfortable with it, it’s tangible, understandable! No matter where Nigerians are they want that Casa, and they would leverage to their nose to get it, except from in Nigeria itself, simply because it cost a lot, not because of that myth that naijas no dey chop gbese like oyinbo, abegi!

Obugi, it’s a Call Option, right! And they say you are risqué.

Obugi has illustrated at least that for a given Asset Class, in his case Equities, you can be invested via different instruments directly via purchasing the Stock or indirectly using Derivative Instruments.

I am tired of people leveraging up to their tits for not very impressive yields in hope of some Capital Gains (CG) that in my opinion is already priced in. The only way to enjoy a property boom is not via buying directly, you could

1. Invest in Equities of Homebuilders
2. Invest in Raw Materials i.e. Commodities e.g. Timber, Copper, or companies producing to market these raw materials
3. Real Estate Investment Trusts (REITS)

Buying directly exposes you to so much debt and you are most likely to get in at the top-end of the market when most of the CG is already priced in.

And Cheap Credit does not come with a lifetime Guarantee, or else your Babalawo has told you that Bernanke is never going to raise rates, that in fact he his going to start cutting again, and that the USD will continue being the reserve currency of the world even with twin deficits and it being the world’s biggest debtor.

Me right now, I am hot on REITS as the safest way to play the Real Estate market. If you so wish look into REITS investing in Asia esp. Hong Kong. The Rental Yields are good re Commercial Markets, and the Financial Services industry is back in full swing again over there. Even my dear London, REITS invested in Commercial Properties too would be attractive or those in Central and Eastern Europe. But I believe this play is all about the Slower Fool Theory. Hopefully you would get in and get out before the next fool.

By the way I’m not materially invested in any of these places because I am a broke dude, but I know some Villagers are strong, and they should be more proactive.

Seeking more efficient ways to protect and preserve their wealth

[fulani]

Hey Ejonigboro. (I like that name)

You wrote
The only way to enjoy a property boom is not via buying directly, you could

1. Invest in Equities of Homebuilders
2. Invest in Raw Materials i.e. Commodities e.g. Timber, Copper, or companies producing to market these raw materials
3. Real Estate Investment Trusts (REITS)

Homebuilders State side are taking a beating because of the slow down in demand for housing. Inventory levels are rising, prices coming down.

I don't know if I agree with your 1. suggestion.
Your 2. there may be some possibilities in my mind there. Reasons, China is growing so rapidly, gobbling up commodities. Commodity prices are still going up. Gold is still under priced, there is some value in that commodity. You will see some flight to gold with increased concern over whether China will switch to Euro instead of the Dollar.
Per 3. REITs were a good dividend play post 911, am not so hot about those now though. Investors are pulling out of commercial real estate ie taking profit from the recent run up in prices.
If one is still looking for high dividends I'll look into Preferred stocks, These are paying up to 6.75% and if you are taxed @ 15% your good.

[Ejonigboro]

Hi Fulani,

Thanks re the name, its my Oriki, didn't expect you know the meaning though, ignorant me.

My apologies if my comments seemed like an expression of current market opinion.

In my defence, the post was an attempt at making a point that there were other ways of gaining exposure to a property boom other than buying directly, rather than a statement of current market conditions, i.e. in any economy where a there is a property boom other options are available to be part of that boom.

It was only with REITS, I believe, I expressed a current market opinion. I am not Bullish on the US as a whole, thats why I pointed out the UK (where REITS have just been recently introduced), Asia, & Central and Eastern Europe and not the US.

I will attempt to be more coherent going forward.

Back to Presssing Matters ........

I totally agree with you on the current fate of the Homebuilders State side. The US housing slow down was inevitable, and Greenspan is partly to blame. While these Central Bankers concentrate on keeping inflation at reasonable levels, that is Consumer Prices; Asset Prices, I do not believe they consider(ed) a priorty.

The reduction of interest rates post the Tech Burst fuelled the Asset Valuation bubble and the Chinese along with Nigeria and the Rest of the World, continued pumping money into the US at such low yields. If the world acted differently the US recession would have been a thing of the past; or perhaps, the world thought since US was their biggest market might as well keep their consumers spending and economic growth going on, but Imbalances accrue and they must be paid for.

Now, China esp., run the risk of devaluing their reserves if they make an attempt to move out of the Dollar. The market thinks its more likely that further foreign reserves allocation to the Dollar would reduce going forward rather than already invested amounts being moved. Or maybe the Yuan would continue its upward revaluation.

Gold!!! That is one commodity wey I no know wetin dey! I mean what is the supply demand arguement behind Gold! One Analyst on Bloomberg was Bullish on Gold because the Chinese use a lot of it when building temples and on their idols; he proferred thesame arguement for India, including that they also love their Gold Jewelleries. DUDE!!! I aint buying this arguement. And Gold as an Inflation hedge or as a safe haven when other assets are tanking, please that was so 1970s and 80s. Your point re Gold rising, is more vaible than all the ones I have heard, but it still falls in line with the falling Dollar, thus would suffer esp. when there are no convincing supply demand issues.

I am Bullish on Commodities as you are, White Sugar (Ethanol driving up Raw Sugar Prices and creating Supply constraints, the increase in substitute i.e. Splenda, is not enough I mean Splenda wouldn't be nice with Garri), Crude of course ( this thing is still going up), Copper (real supply bottlenecks going fwd). Essentially I am Bullish on Africa, the way China is i.e. looking to get mine, so lets stay abroad and make hay!

Easy Blood!

[fulani]

I have to admit that am not versed in the African MKT. I'd like more info.

You are bullish on Africa. What gives. Do tell.

[Ejonigboro]

Happy New All!!!

@Fulani - sorry about my belated response, my internet access has been very limited, but here it is

There is nothing specific about my Bullishness on Africa. But I’ll attempt to summarise my hunch for being Bullish in following paragraphs.

1. Excess Liquidity in World Markets – The world markets right now are centred around the theme of cheap credit. This has led to investment in many countries previously considered too risky. In all this the amount invested in Africa is minimal. I am anticipating that once credit becomes more expensive and risk/reward comes back to reasonable level best exemplified by a Falling USD, Africa would become centre of attention, as the Invesment Community seeks Risk Premia. I know Hedge Funds have been doing this, as their mandates allows more investment scope than Mutuals, who would no doubt join soon. Mutual Funds such as Silverwoman Fachs Sub Saharan Africa Growth Fund (exc. South Africa) and IQ Mirgun West African Opportunities Fund would be common in the near future. So thats the Demand Side.

2. On the Supply side – African govt. are more serious than they were before. Developing their capital markets, attempting to uphold the rule of law... Yes a lot of window dressing but substance would follow in good time. If reforms continue, it only makes Africa more attractive in terms of reducing Political and Operational Risk.

3. A more specific Bullishness is that Africa has a lot of raw materials and these are currently experiencing supply side pressures. As long as the bull market in raw materials last thats as long as my bullishness in Africa would last. But I’ll analyse on country to country basis and conclude that countries were govts. are keeping up reforms should remain in portfolio.

If my hunches were highly likely how can one benefit from it?

The Easy and Passive way would be to invest in local Mutual Funds and Govt. Securities (yields could be very handsome) of selected countries e.g. those ones you can monitor your investments quite easily.

The Active Investor might consider Economic Indicators i.e. GDP, Trade Balance, Current Account, Inflation, Interest Rates, FX Rates to assess health of economy and risk of being a lender to the Govt.. The Good Economy being the one with comparatively high GDP, Positive Trade Balance would be good identifying a net exporter, Positive Current Account signifying net saver economy, etc....

The Active investor might also analyse GDP growth to further understand whats fuelling it and attempt to gain exposure to those sectors of higher growth.

For those Economies underperforming, all is not lost, the active investor could still drill down on GDP and separate the chaff from churn (or is it the other way round) and gain exposure to performing side of that economy.

[Ejonigboro]

Happy New All!!!

@Fulani - sorry about my belated response, my internet access has been very limited, but here it is

There is nothing specific about my Bullishness on Africa. But I’ll attempt to summarise my hunch for being Bullish in following paragraphs.

1. Excess Liquidity in World Markets – The world markets right now are centred around the theme of cheap credit. This has led to investment in many countries previously considered too risky. In all this the amount invested in Africa is minimal. I am anticipating that once credit becomes more expensive and risk/reward comes back to reasonable level best exemplified by a Falling USD, Africa would become centre of attention, as the Invesment Community seeks Risk Premia. I know Hedge Funds have been doing this, as their mandates allows more investment scope than Mutuals, who would no doubt join soon. Mutual Funds such as Silverwoman Fachs Sub Saharan Africa Growth Fund (exc. South Africa) and IQ Mirgun West African Opportunities Fund would be common in the near future. So thats the Demand Side.

2. On the Supply side – African govt. are more serious than they were before. Developing their capital markets, attempting to uphold the rule of law... Yes a lot of window dressing but substance would follow in good time. If reforms continue, it only makes Africa more attractive in terms of reducing Political and Operational Risk.

3. A more specific Bullishness is that Africa has a lot of raw materials and these are currently experiencing supply side pressures. As long as the bull market in raw materials last thats as long as my bullishness in Africa would last. But I’ll analyse on country to country basis and conclude that countries were govts. are keeping up reforms should remain in portfolio.

If my hunches were highly likely how can one benefit from it?

The Easy and Passive way would be to invest in local Mutual Funds and Govt. Securities (yields could be very handsome) of selected countries e.g. those ones you can monitor your investments quite easily.

The Active Investor might consider Economic Indicators i.e. GDP, Trade Balance, Current Account, Inflation, Interest Rates, FX Rates to assess health of economy and risk of being a lender to the Govt.. The Good Economy being the one with comparatively high GDP, Positive Trade Balance would be good identifying a net exporter, Positive Current Account signifying net saver economy, etc....

The Active investor might also analyse GDP growth to further understand whats fuelling it and attempt to gain exposure to those sectors of higher growth.

For those Economies underperforming, all is not lost, the active investor could still drill down on GDP and separate the chaff from churn (or is it the other way round) and gain exposure to performing side of that economy.