Conference nyoss1::market_investing

A future is generally a CONTRACT to buy the underlying security at a given 
price at a some time in the future. If you are long, expecting the prices to
up, your risk is limited to the price of the underlying security.  It you are
short, you have unlimited risk. 

An option is just that, and OPTION to sell or buy (puts and calls) a 
security at some time in the future.  Your risk is generally limited to
cost of the option.

I'm sure there are better explanations, but that is generally the idea.
Tell that broker that is soliciting your business to take a hike then  
do some reading on your own and decide for yourself if that's where you 
want to put/risk your money.


    > What are some other more conservative ways to invest in gold
    
    Buy gold itself, or gold stocks/mutual funds

    Options and futures are not the same, but both are high risk
    investments. Options can result in a 100% loss of the investment capital,
    futures may cause even greater losses. 
    
    With futures you buy an amount of gold for today's market price but 
    delivery in the future.  You enter into an obligation to pay a price 
    at the delivery day, and that price is fixed today for the lifetime 
    of the contract. 
    
    The daily value of the contract however will fluctuate with the daily 
    price of gold. If gold is rising in the future, then you have bought 
    low and will (after delivery) be able to sell high. If gold is falling you are loosing 
    money. 
    
    The buyer of a futures contract is obliged to buy gold from someone 
    else. If the buyer is loosing money in this deal, he might be tempted 
    to not fulfill his obligation, thereby imposing a risk on the seller 
    of the futures contract. 
    
    This risk is covered by the requirement for the buyer to pay 
    a 'margin' on the futures contract. The margin is calculated in such a
    way that at any given time during the lifetime of the contract, the 
    actual value of the gold to be delivered plus the current margin amount 
    always adds up to at least the final payment obligation.
    
    You have to pay the margin to your broker when entering into a futures
    contract. The margin is NOT a buying price but more like an insurance
    premium you have to pay.
    
    With the daily value of gold changing throughout the lifetime of the 
    contract, the margin requirement also changes. If gold is rising, the
    margin will be decreasing, as the value of the gold makes up for a
    larger piece of your obligation. This is the sweet side of the futures
    contract: your broker will pay money back to you. If gold is falling, 
    the margin amount increases. If you are not able or willing to do so, 
    the broker will sell the contract, thereby fixing your loss. This is
    the sour side of the futures game.
    
    Even if gold is rising in the long term, there may be significant price
    dips in the meantime. You might be forced to add fresh money in
    addition to the already invested margin. If gold does not recover, this
    might add up to more than 100% loss of the initial investment. 
    
    With an option you are buying the right, but not the obligation, to buy
    gold at a given price. This right is valid for a limited period of
    time. A March 400 Call for instance gives the right to buy gold for
    $400 an ounce between now and march. 
    
    The price of that right depends on the time until expiration and the 
    actual price of gold. If gold rises above $400, you may use that right
    to buy for $400 and sell immediately for the higher market price. 
    If gold is below $400, then there is no intrinsic value to the right. 
    
    Your risk with buying options is a loss of 100% of your investment.
    
    While gold had been rising about 20-25% last year, some goldmines have
    been rising up to 300-400 %. There is a lot of volatility in these
    stocks and they can go down as fast as they have risen. 
    
    A conservative approach to gold would be gold coins.
    
    Klaus

I have a question regarding price.

In the journal, the stock options are listed as follows:

			-Call-		-Put-
Option/Strike	Exp	Vol   Last	Vol   Last

Digital	30	JAN	40    4 3/4	....
34 1/2	30	FEB	10    5 3/8	20    7/16
34 1/2	35	JAN	149   1 1/8	50    1 5/8
34 1/2	35	FEB	203   2		34    2


I assume these are contracts to buy (call) or sell (put) 100 shares of
the security for the listed strike price.  the option is the current price
of the stock.  my question is, what is the cost, to me, of the, say FEB 35
calls listed above?  $2.00 ?  or $200.00 ?

    The price is per option, therefore it's $200 (100 options x $2)
    
    The volume data is per contract (=100 options).
    
    Klaus
    

    Klaus...thanks for the explanation...questions though.  Your option
    description i assume is for an option CALL.
    
    How does an option PUT work???  i assume you buy the securities now for
    sale during a certain period.  If the price goes down then you have the
    option to sell the security at the purchased price, but if the security
    goes up you would then lose money....am i right on this???  Is this what
    is technically termed 'shorting' the market (ie; anticipating a securty
    price decline)???
    
    So many 'options, so little time....
    
    					   Doug  

    re: .5
    
    Whenever you buy an option (call or put) you are purchasing the right,
    but not the obligation, to do something.  Your maximum potential loss
    is always 100% of the purchase price, but no more.
    
    For example, I buy a DEC Feb 30 Put for $1, or $100/contract.  Let's
    say DEC stock is at 31 1/4.  I'm betting that DEC stock is going to
    decline.  Assume that I hold the option until expiration.  If DEC stock
    is 30 or more, my option is worthless -- I have the right to sell DEC
    stock at 30.  If DEC is trading above 30, nobody wants my option.
    
    If DEC stock is trading below 30, my option is worth (30 - DEC price).
    So if DEC is at 29, my option is worth 1, and I break even.  If DEC 
    decline to 25 my option is worth $5, and I'm very happy.
    
    Note, however, that to break even I needed DEC to decline from 31 1/4
    to 29.
    
    This is different from the "short" concept.  Whenever you sell
    something you don't own you are said to be "short".  The idea is to
    sell something you don't own and then buy it back later at a lower
    price.  You can short a stock, hoping the value will go down allowing
    you to buy it back at a lower price.  You can also short options;
    also known as "writing uncovered" options.  If I short a DEC Feb put
    I'm actually betting the the stock won't decline; i.e. I'm hoping that
    the Put expires worthless, so I can keep the money I got selling the
    option...
    

    re: .0
    
    Be extremely careful.  Gold prices are difficult to predict, and the
    market is "self-correcting".  If "most" people thought gold would rise
    then there would be more bold buyers than gold sellers, increasing the
    price of gold until it reached a point where buyers and sellers evened
    out.
    
    If you choose to invest in gold be aware that the futures and options
    markets are extremely risky places to start.  I would suggest that
    somebody wanted to invest in gold select a gold mutual fund, which will
    invest primarily in mining stocks.  These will move more or less in
    line with gold prices.  You won't retire overnight, but you run much
    less risk is gold falls.

    Thanks Ken for the options insight...i have a much better appreciation
    now of how these work....
    
    
    				Thanks again

Then there's the whole world of writing covered/uncovered puts and calls!

    Well that brings up a good point...what book/s would you recommend for
    Investing '201'....beyond knowing how to read the stock listings...we're
    talking the ins and outs of Indexes, Options and Commodities????

	A basic book on options is by Michael Thompson (the 'p' may be missing)
	with "Options" in the title. Of course, one of the classics is
	"Options as a Strategic Investment" by Lawrence McMillan, but from
	what I have heard (I haven't read it), it is beyong the basics.

	Do "dir/title="book" to find a pointer to these and more. 

    
    This isn't about gold but about options.
    
    Let's assume that I have 700 shares of DEC that I would be happy to get
    $60 a share for. Looking in the WSJ today I see that dec 60 puts goes
    for $5. Could I sell 7 dec $60 DEC puts, covered by my shares?
    
    What would happen? If DEC goes above $60 I get $60 a share plus what I
    sold the options for (700*60+700*5), right?
    If DEC is below $60 the puts will expire and I'll still have the stock
    plus what I sold the options for. Should I also buy december calls,
    seeing as they are traded at $1 1/8, then I would be covered if the
    stock goes above $60 since I then have the right to buy at $60.
          
    This seems like I can have my cake and eat it to...
    
    What's wrong here?
    
    /Peter

>    [...] Could I sell 7 dec $60 DEC puts, covered by my shares?
    
    No. You can't sell puts "covered" by your shares. You can sell calls
    covered by your shares.
    
    A "put" option permits the buyer to SELL TO YOU at the strike price.
    As a put seller you would be forced to pay $60/share for DEC, even if
    It fell to $20. That's not what you want.
    
    You probably want to look into selling calls covered by your shares.
    As you have seen, they aren't -that- profitable, though there are folks
    who make some pocket change selling out-of-the-money calls.
    
      John

    
    John,
    
    Thanks, it sounded to good and it was. I have bought calls in the 
    past and thought that the opposite was selling puts.. Never thought
    about selling calls.
    
    Thanks again. Maybe it's time to get to get one of those options
    books..
    
    /Peter 

> I have bought calls in the past ....
> ....
> Maybe it's time to get to get one of those options books..

	I'm surprised you were able to open an options account
	without having been sent the booklet and giving your
	John Handcock on the options account application that
	you have read the booklet .... (the booklet says the
	exchanges, at least the NYSE, requires this procedure).

    
    I did get the booklet when I opened the account 7 years ago. However,
    the only options trading I ever did was buying calls.
    
    /Peter

    	Covered calls can be an investor's best friend!