Investment Club meeting, November 18, 2008
- Topic of the week: Technical entry and exit points with pivot expert
- Club capital pool performance review.
- Trading plan for next week.
THE HIDDEN COST OF TRADING
When we talk about the cost of trading, we usually think of commissions, but there is an even greater cost of trading, and that is slippage. Slippage is the difference between the bid and asked price.
USE NAKED PUT WRITING TO BUY STOCK
Naked put writing can be as conservative as covered call writing, for naked put writing is a way to buy stocks or futures.
THE HIDDEN RISK OF COVERED CALL WRITING
Covered call writing is an extremely popular form of option writing, but there is a hidden disadvantage. When you write (sell) a call against a stock that you own, you are capping the profit or upside gain, yet you still have all the downside risk.
Avoid an option's last month
As a general rule, I avoid holding options in their last month before expiration. They depreciate at the fastest rate during that last month. In fact, in some cases the option premiums absolutely collapse.
CHEAP IS NOT ALWAYS CHEAP!
Cheap options are easily found. Just look in your financial newspaper or on the internet, and there are hundreds and thou sands of options that are priced under 1 ($100).
Different Uses of Options
Many people who are not that familiar with the world of equity options view these instruments as extremely risky and useful only for the most sophisticated of investors.
Predict the unpredictable
Even with all the predictive tools we have presented, the markets still approach randomness, at least for the regular investor. Unfortunately, a high percentage of investors believe they can predict the markets even though they can't.
Understanding Credit Default Swaps
Throughout the past several months the financial news has been talking about credit default swaps and the adverse impact they have had on the financial community.
Option Trading Risks
You must have heard things like "Option trading is risky" or "option trading is a high risk investment vehicle" before, right? So what are option trading risks? What kinds of option trading risks are there?
