Stock Exchange

[krAzy :)]

im playing a game trough a bank (sparkasse) where u get 50.000 fictive money and u have to invest it in the Stock Exchange.

the first 3 of the province will get a price (money!!!!)... my friend and me were for 4 days 1.of our province, but now we are 6. =( ..... is anyone of u guys working in the Stock Exchange ....or do u know which stock is good .....or do u have any hint or tip .....plz post it

thx

[Livyatan]

Phantasm's topic

 

Here's someone that you should talk to about this. Good thing I remembered seeing this one thread in the tutorial section

[unlawfulsniper]

are you allowed to short stocks and buy options? i don't see the markets going up further, the likliehood is swinging more to profit taking as dissappointing earnings roll in. still if the contest is top 3 win amongst 1000s of entries, you will have to get involved with extremely high beta stocks to have a chance. november put options on the dow and nasdaq would be a good start.

[PHANTASM]

WIth $50,000 in his simulation he should be able to use put options. I read a lot of trading blogs and the shorters keep saying there will be a crash any day now, but the market keeps going up anyway. It broke 10,000 this week and a lot of shorters are getting hosed. If you buy a put option and you don't exercise before the option expires, you lose your investment. Also with options you can't sell with a stop order and control your loss. Of course you can make more if things go your way. I don't really don't use options much, I usually just trade financial equities on volatility and get nasty emails from the SEC for pattern day trading.

 

Citigroup, Goldman, Bank of America, and GE all posted disappointing earnings this week, all took minor losses (~5%, not even enough to worry about if you're already long in these stocks) but I don't think they will start going down. Citi has been trading in a consistent $4.20 - 4.90 range for a couple months, and when it gets low enough it will just get bought up again. This happens every week. Goldman is in great shape and I don't think it will go anywhere. Bank of America is overpriced compared to the other financials and could go either way, but a drop is just an opportunity to buy and wait for it to go back up.

 

I think we'll have another crash sometime next year if the government (US) doesn't raise the debt ceiling so they can re-bail out Fannie and Freddie. The commercial mortgage market is very likely to have a big crash next year and that will be another great buying opportunity (or shorting opportunity if you can time it right lol).

 

Unlawful, perhaps you could write a tutorial on how to use options. We all liked your sniper tutorial and would love to know what you know.

[unlawfulsniper]

WIth $50,000 in his simulation he should be able to use put options. I read a lot of trading blogs and the shorters keep saying there will be a crash any day now, but the market keeps going up anyway. It broke 10,000 this week and a lot of shorters are getting hosed. If you buy a put option and you don't exercise before the option expires, you lose your investment. Also with options you can't sell with a stop order and control your loss. Of course you can make more if things go your way. I don't really don't use options much, I usually just trade financial equities on volatility and get nasty emails from the SEC for pattern day trading.

 

Citigroup, Goldman, Bank of America, and GE all posted disappointing earnings this week, all took minor losses (~5%, not even enough to worry about if you're already long in these stocks) but I don't think they will start going down. Citi has been trading in a consistent $4.20 - 4.90 range for a couple months, and when it gets low enough it will just get bought up again. This happens every week. Goldman is in great shape and I don't think it will go anywhere. Bank of America is overpriced compared to the other financials and could go either way, but a drop is just an opportunity to buy and wait for it to go back up.

 

I think we'll have another crash sometime next year if the government (US) doesn't raise the debt ceiling so they can re-bail out Fannie and Freddie. The commercial mortgage market is very likely to have a big crash next year and that will be another great buying opportunity (or shorting opportunity if you can time it right lol).

 

Unlawful, perhaps you could write a tutorial on how to use options. We all liked your sniper tutorial and would love to know what you know.

 

I appreciate your insights and nice comments Phantasm. I must say that options are a rather complex subject to delve into in an online forum on a Friday night. But I will try to outline a basic strategy I've used to net over $32,000 so far since September 08. I am not going to try and play the roll of some finance genius who knew the markets were going to crash on the heals of the popping housing mortgage bubble. I suppose if one was an expert in the field at the time, it would have been rather apparent that a strong correction based on multiple defaults was impending. However, since the US's economy is one giant bubble itself, based upon its geomilitary strength which ensures (so far) a never ending ability to have its debt reserviced by foreign capital, its extremely difficult to say when the larger bubble will burst, never mind the smaller industry based bubbles, ala the mortgage crisis. In a nutshell, a country can sustain a positive economic growth rate, even while being (what is it $11T in debt now?), if its military is strong enough to ensure other countries will continue to buy its debt. Not to mention the global nature of the world's economy is largely linked to the US's health, therefore China, Saudi Arabia and many others, have a huge vested interest in continuing to fund and prop up USA's economy by continually buying its debt, simply to preserve their own exporting levels. Hurumphf, Hurumphf, breath. Ok, so this has little to do with options so far and is a very general glance at my position on current geoeconomics. Now for options...

 

My options strategy in late 2008 was stricly based upon the presidential elections in the USA. My logic was as such. Its no secret that Bush and Cheney, Wolfowitz and several other Neocons are supporters of war in general, but in particular, giving large non-competes to a few enlightened companies in the defense industry, such as Kellog Brown and Root and more notably, the infamous Haliburton. Haliburton enjoyed record profits a the end of Bush's second term and their stock price was also at record highs. My logic then became... If the democrats win, there is a strong likelihood that the War in Iraq and A-Stan will be wound down and defense spending drastically reduced. In Hindsight, Obama seems more like a Manchurian for a new Republican face, when it comes to military policy, but I will leave these politics alone for the moment. All that mattered in Late 2008, was that the markets would clearly respond to a democratic victory, as a loss for defense contractors, most notably Haliburton since its ties to the Bush/Cheney families were so apparent to Wall Street and the world at large at this time. So... The election date was November 4th, 2008, the day of reckoning as it were. I will not explain how options work, because this is not the place and there are many good explanations online, or at least explanations what will suffice, see here http://en.wikipedia.org/wiki/Option_(finance) However, it is important to note that the expiration date of an option is always on the Saturday that follows the third Friday of the month, unless that Friday is a market holiday, in which case the expiration is on the Friday. In November of 2008, the third Friday was November the 21st.

 

How my plan was hatched...

 

-Presidential election results Nov. 4th.

-Haliburton (HAL) November put option expires November 21st.

-Oct. 31st I bought 100 HAL16 Nov put option contracts for $0.35 each costing $3500 total (remember, each contract underlies 100 shares of the stock [called a standard lot], effectively meaning a 100 x 100 x $0.35 = $3500 investment). HAL was trading at ~$19 at the time. This means I'm betting that between Oct. 31st and Nov. 21st (3 weeks time horizon) that HAL will drop from $19 to below $16. So if Obama was elected on Nov. 4th, HAL would have 2 1/2 weeks to sell off to a level below $16 , which I expected it would and consequently it did. On Nov. 20th, HAL bottomed at ~$13.50 and I still had 1 day left to excercise the option, I waited and exercised it on the 21st at ~$14.00. This meant that I had effectively made $2 for every share underlying my put contract. Meaning, the difference between $16 and $14 = $2. Muliply this $2 by 10,000 underlying shares, and you see that I netted $20,000 pretax. I was very happy to say the least However, to be fair, I didn't make this much because I hedged my risk by buying $10,000 worth of HAL common stock on the same Oct. 31st day as when I bought the put options. So I lost $10,000 x the difference between $19 and $14, which is roughly $2500, by hedging my risk. So when it was all said and done I was up about $17.5k.

 

Personally I think this is the easiest and best strategy for playing the options game. You hedge your options by doing the opposite play by buying the stock. So, if you think a company will go down, you buy put options, but go long on the stock, to hedge your risk in case your options fail. Inversely, if you think a company will go up, you buy call options, but go short on the stock to hedge your risk in case the stock goes down. BUT, I would strongly advise against the second strategy because going short on a stock adds significant risks, like margin and such.

 

Strategies like the one I just outline work when one very important force is at work, volatility above the norm. An event like a presidential election, that is linked so closely to the success of defense companies and HAL in particular, like the Nov.4th election, almost guarentee volatility above the norm. This is what you must look for. And quite honestly, events like this do not come along very often, especially events of the magnitude of the USA presidential election.

 

My next idea is an oil play. I think oil will be at least $100 by next summer, but I have not worked out the best company to buy a call option on yet. My rough idea, as it stands now, would be to buy a junior oil company with solid cashflow and little debt (lol that's hard enough to find) who also has a low cost/barrel production and who's revenues are at least 90% stemming from oil production (in the finance industry, we call this a pure play, as opposed to a company who is 50% oil, 30% gold, 20% potash, etc., you get the point). So the basic notion would be to buy a call option on the junior oil company, and a put option on the commodity of oil itself, to hedge my risk, in case oil goes down. This is a challenge in another respect, because most small oil companies don't trade options and if they do the spread between buy and sell is very large, meaning you won't get a good price when you buy it, and if you sell it before the expiration date, you won't get a good selling price either.

 

 

I hope this has helped a bit. It was fun to write it all out.

 

Cheers.

[PHANTASM]

Thanks. I learned a lot.

[unlawfulsniper]

Thanks. I learned a lot.

 

 

You really day trade? I've never understood how people can make money from daytrading, unless of course you are the daytrading house that takes trade commissions. I think its a scam. Perhaps you can make small %s from buying stocks when they are about to bounce off of technical lows, as found in moving averages and bollinger bands, but the % is so small that commissions would erode most of the profit. Week trading or month trading I can understand, but imho, profitable daytrading is simply pure luck, or if you have faster access to information than AP or the Dow Jones Newswire, I suppose you could beat the street and trade before they do.