“A put might more properly be called a stick. For the whole point of a put — its purpose, if you will — is that it gives its owner the right to force 100 shares of some godforsaken stock onto someone else at a price at which he would very likely rather not take it. So what you are really doing is sticking it to him.”
— Andrew Tobias
Puts options are extremely useful for both traders and investors. They can provide safety, but are also dangerous for those who don’t understand how they work.
Options (puts and calls) allow you to control a large amount of an underlying instrument (stock, index, or futures) with much less of your own money than you would need to buy or sell that amount outright. Options give you the ability to profit from price movement up and down.
The buyer (owner or holder) of a put option has the right, but not the obligation, to sell a specific amount of an underlying instrument at a specified price (strike price) within a specified time (expiration). Put buyers have unlimited profit potential with an always known and strictly limited risk at all times. This is known as Superleverage.
The seller (writer) of a put option has the obligation to buy a specific amount of an underlying instrument at a specified price by a specified time. Put sellers take in a limited return with unlimited risk.
The option price which buyers pay and sellers receive is known as the option’s premium.
Put options may be purchased by sensible speculators seeking to profit from down moves and investors looking for portfolio protection. Put options may be sold by investors to earn instant income and to position to buy shares below their current market price.
Exchange-traded put and call options are powerful tools for traders and investors.
Understand their risks and rewards, then use them wisely.
“They wonder much to hear that gold, which in itself is so useless a thing, should be everywhere so much esteemed, that even men for whom it was made, and by whom it has its value, should yet be thought of less value than it is…”
— Sir Thomas More
The Midas metal, a longstanding store of value, often shunned by investors, is showing signs of shining anew.
Lamp, h/t mylittleadventures.com Istanbul Magic Lamp Club
In dangerous times, remember the good old adage, “It’s better to be out of a market wishing you were in, than in a market wishing you were out.”
Spoiler Alert: Like worrying, wishing doesn’t help.
In your trading, use less wishing and more positioning with probability. Have a complete game plan for each trade in place before you open your position. If you’re prepared for what will happen when you’re right and what will happen when you’re wrong, you won’t need wishing.
You’ll be charting your course to trading success.
PCRM delivering a message h/t pcrm.org
“Money is like manure. You have to spread it around or it smells.”
— J. Paul Getty
The world needs less selfishness and more philanthropy. Since the 1980s, one of my favorite nonprofit organizations is the Physicians Committee for Responsible Medicine (PCRM).
Dr. Neal Barnard leads a dedicated team of talented caring people who work tirelessly to bring positive change to our world. They don’t just raise their voices in opposition to cruel, senseless and ineffective laboratory testing on animals. They offer industry and academia better alternatives through science and technology. PCRM supports the enacting of legislation for the good of people, animals, and our planet.
I’ve seen a lot accomplished, but there is plenty of work still to be done.
If you haven’t already, please check them out. You receive so much when you contribute to the kind of world you want to live in.
In good health,
Hope and Fear
“There are only two emotions in the market — hope and fear. The problem is, you hope when you should fear, and you fear when you should hope.”
— Jesse Livermore, Speculator King
Refining your systemic approach to trading is a good way to overcome costly emotional reactions to market moves and spot profit opportunities.
Analyze your trades to learn from your winners and losers.
Let go of ego, so it won’t get in the way of proper and objective analysis of your actions.
For sensible speculation, build your trading system on a solid foundation of mind, method, an money management.
Enjoy a great weekend!
PS I’m on the road this weekend, so next blog post is scheduled for Monday.
Portrait of Blaise Pascal by Darren McAndrew
“Both he who chooses heads and he who chooses tails are equally at fault. They are both in the wrong. The true course is not to wager at all.”
— Blaise Pascal, seventeenth-century French mathematician, physicist, and founder of the theory of probability.
Sometimes, the smartest thing a trader can do is stand aside and rest.
Black Swan swimming at Perth Zoo
“Probability is not a mere computation of odds on the dice or more complicated variants; it is the acceptance of the lack of certainty in our knowledge and the development of methods for dealing with our ignorance.”
— Nassim Nicholas Taleb, Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets
The only certainty in markets is that prices will fluctuate. Approach your trading with the humility to value what you don’t know. Be ready and able to act with courage and discipline to changing conditions.
The Boy Scout motto, ‘Be prepared,’ is vital for survival in always uncertain markets. At Options Hotline, we apply knowledge based on experience for sensible and successful speculation.
This one is apropos to our current deregulatory environment.
Be sure to understand the difference between investing and speculating…and the difference between speculating and gambling.
At Options Hotline, we’re all about Superleverage and the art and science of sensible speculation.
Martin Luther King, Jr. photo by Ted Williams / Iconic Images /Getty Images
“We don’t have to argue with anybody. We don’t have to curse and go around acting bad with our words. We don’t need any bricks and bottles, we don’t need any Molotov cocktails, we just need to go around to these stores, and to these massive industries in our country, and say, … make the first item on your agenda–fair treatment, where God’s children are concerned. Now, if you are not prepared to do that, we do have an agenda that we must follow. And our agenda calls for withdrawing economic support from you.”
— Martin Luther King, Jr.
Dr. King’s legacy of working for positive change lives on. To honor the great Civil Rights leader, we’re thinking about how his words and actions can be applied to socially responsible investing.
As you step forth each day, strive to be a conscious consumer and investor. You vote with your dollars. Together with others, your individual vote becomes powerful.
Be mindful with your money and sensible with your speculation.
Walking together, we can move toward social justice. One day, may we truly hear freedom ring for all.
Enjoy a happy and healthy holiday!
“Time and tide wait for no man.”
A rare ‘Super Blood Wolf Moon’ total lunar eclipse will be visible this long holiday weekend. Will this alignment coincide with a turn when trading resumes?
We shall see.