The date that I started this page: August 14, 2010
I have decided to invest $5,000 in either stocks or stock options. Below is what I am currently invested in, along with my train of thought. I am not giving out financial advice from this page. Please, please, please, do your own research. Wish me luck.
Strategy
When I invest money in stocks I invest for dividends (cash flow) as well as growth. Why dividends? Because, I want my investments to pay me. I like getting a check every month, or quarter, that I did not have to work for. When I invest in stock options I take into account the dividends of stocks, listen to what is going on in the news with different companies and commodities, and then I refer to technical charts to see what the trend is for a particular stock. I tend to be more conservative when I invest. My current goal is to buy or sell stock option contracts that expire in about a month. This will allow me to reinvest my money every month. If I end up having to buy a stock due to an option contract being exercised, then I will start selling calls against the stock. By choosing a stock with dividends, I will also be able to collect dividends from the stock as I am selling call options against it. Potentially, this will provide me with multiple streams of income.
Definitions from OptionsXpress, in quotes, and from me, in purple:
Stock Options
"A contract that grants the holder the right, but not the obligation, to buy or sell a particular security at a predetermined price for a set period of time. Conversely, the seller of the option has an obligation to fulfill the terms of the contract in the event of exercise by the option buyer."
One option contract typically represents 100 shares of stock.
Call Option
"In the case of an equity option, a contract that gives the buyer the right, but not the obligation, to purchase a set amount of stock (usually 100 shares) at a predetermined price anytime before the contract expires (American Style option) or at expiration only (European Style Option). The predetermined price is known as the strike price."
Buy calls when the stock price is expected to go up. i.e. Buy low, sell high.
Put Option
"In the case of an equity option, a contract that gives the holder the right, but not the obligation, to sell a stock at a set price for limited period of time. The seller or writer of the option is obligated to buy the stock at the strike price in the event that the option is assigned."
Buy puts when the stock price is expected to go down.
Strike Price
"Also known as Exercise Price. The price, specified by the option contract, at which the holder can buy or sell the underlying stock."
In-the-Money
"An option with intrinsic value because its strike price is below (in the case of a call) or above (in the case of a put) the current market price of the underlying stock."
Resistance
"A price level at the top of a trading range that a stock has reached on several occasions but has not penetrated due to increased selling pressure at that price. This is a key concept of technical analysis."
This is like hitting your head against the ceiling as you jump, and not being able to go any higher. If a stock gets some momentum or good news behind it, it can break through the invisible barrier, and will continue upward in price.
Support
"In a period of falling prices, the support level is a price below which the stock tends not to trade because of the reemergence of buyers. For example, a stock that has fallen near $27 on several occasions only to reverse the trend and increase in price is said to have support at $27."
An example would be me jumping on the floor; I am not going to go any lower unless I find a rotten spot. A stock will fall past the support if there is bad news.
Margin
“The ability to leverage one's purchase - to buy on margin - is a very attractive aspect of stock investing. Buying stock on margin involves borrowing money from a broker to purchase the shares, a practice that allows for greater control and bigger gains with less money upfront, but also leaves an investor subject to potentially greater losses as well. For instance, if a stock bought on margin declines until its value falls below an agreed-upon maintenance level, the broker can issue a margin call and request that additional funds be deposited to bring the account back up. Because of its ability to amplify both gains and losses, the greater leverage afforded by margin is often thought of as something of a double-edged sword.….”
February 25, 2012
Starting Cash: $5,000
Current Cash Balance: $7,236.36
Current Stock Holdings: none
Table 1: Monthly investment information
| Year | Month | Stock | Option | Strike Price | Option Premium | # of Options | Net Gain | Annual % Rate |
| 2010 | August | IP | Sold to open Put | $21.00 | $0.22 | 2 | $29.02 | 8.28 |
| 2010 | September | YUM | Sold to open Put | $44.00 | $0.59 | 1 | $44.03 | 12.00 |
| 2010 | October | DMND | Sold to open Put | $40.00 | $1.30 | 1 | $115.03 | 34.51 |
| 2010 | October | MCP | Buy to Open Call | $35.00 | $3.70 | 2 | -$754.97 | |
| Sell to close call | $35.00 | $4.30 | 2 | $845.01 | 143.12 | |||
| 2010 | November | MCP | Sold to open Put | $37.00 | $1.70 | 1 | $155.03 | 50.28 |
| Bought Stock due to option assignment | $37.00 | 1 | -$3,709.95 | |||||
| 2010 | December | MCP | Sold to open Call | $37.00 | $0.50 | 1 | $35.03 | 11.36 |
| Sold Stock due to option assignment | $37.00 | 1 | $3,689.98 | |||||
| 2010 | December | REE | Sold to open Put | $9.00 | $0.60 | 1 | $57.00 | 76.00 |
| 2011 | January | CZZ | Sold to open Put | $12.50 | $0.30 | 5 *** | $134.99 | 32.40 |
| 2011 | February | HOGS | Sold to open Put | $17.50 | $0.45 | 4 *** | $165.00 | 35.11 |
| 2011 | March | KOL | Sold to open Put | $44.00 | $0.65 | 2 *** | $115.02 | 23.78 |
| 2011 | April | CZZ | Sold to open Put | $12.50 | $0.35 | 7*** | $229.96 | 46.61 |
| Buy to close Put | $12.50 | | 7 | -$8759.95 | | |||
| 2011 | May | CZZ | Sell to open Call | $12.50 | $0.20 | 7 | $124.96 | 24.38 |
| 2011 | June | Sold a | July call | See | below | | | |
| 2011 | July | CZZ | Sell to open Call | $12.50 | $0.30 | 7 | $194.90 | 18.64 |
| 2011 | August | CZZ | Sell to open Call | $12.50 | $0.35 | 7 | $229.90 | |
| 2011 | September | CZZ | Dividend | | | | $196.79 | |
| 2011 | September | Sold an October Call. See below. | | | ||||
| 2011 | October | CZZ | Sell to open Call | $12.50 | $0.37 | 7 | $243.90 | |
| 2011 | November | CZZ | Sell to open Call | $12.50 | $0.20 | 7 | $124.90 | |
| 2011 | December | CZZ | No Trades Made For December | | | |||
| 2012 | January | CZZ | Sold a February Call. See Below | | | |||
| 2012 | February | CZZ | Sell to open Call | $12.50 | $0.15 | 7 | $89.89 | |
| 2012 | February | CZZ | Sell Stock | $12.50 | | 7 | $8,740.89 | |
| *** If I am assigned the stock I will be buying some of my stock on margin. | Total Sum | Total % to date | ||||||
| $2,336.36 | 46.72 | |||||||
Table 2: Withdrawals
| Date | Amount | Reason |
| 7/27/2011 | $100 | Household Expenses |
| | | |
| | | |
Calculations
Option premium x # of options x 100 shares - commissions - regulatory fees = Net Gain
Net Gain / total money invested x 100 = Percentage Returned for the Month
Percentage Returned for the Month x 12 months = Annual Percentage Rate
