Stock Markets

[Chester P. Dexter]

Is the market going to hold slightly green today or take another downplunger? Anyone have a guess?

[jq26]

I don't know. Daily moves are hard to figure out. My crystal ball is cracked.

What I do know is that I sunk 50% of that cash back into the market yesterday and this morning. Wife and I decided that we'll wait another year for a home. And the market corrected quite nicely over the past week. We'll see what happens, as always. Buy quality and a very strong balance sheet, then close eyes. And if you can, buy China. That's my strategy now!!!

[Chester P. Dexter]

I know you buy better stocks than this and I should (and often do), too, but what do you think of EWT? I just bought a lil' chunk on the depressed price today. To be honest, I found it on a list of most oversold ETFs.

It seems to be doing the same as EWZ which has been very good to me. It's one of my all-time favorites.

[Bigwoodystyl]

Congrats on the gains. I'm sure there were times when you were completely second guessing yourself. Way to stick with it!! I agree with you 100% regarding coming reversal. Fundies are not quite there yet. This was the massive short covering rally that everyone knew was coming just not when.

Absolutely, I second guessed myself even as I was approaching triple digit gains. This market is crazy and our monetary policies have me questioning whether I should even be buying anything at all priced in the US Dollar.

I still think we'll see more drops in the short-term...perhaps vicious drops. Despite those feelings, I couldn't help getting back in. Last week, I sold PNC at 52. This week, I bought back my shares at 43. I still believe in PNC long-term. They effectively doubled their assets, buying NCC for $5.6B and qualifiying for $7.4B in TARP due almost solely to the acquisition. Once the dust clears from their non performing assets, I expect real shareholder value to emerge.

I also bought a bit of PGPDQ (Pilgrim's Pride) as a speculative gamble. Once the largest chicken producer in the US, they are scheduled to exit bankruptcy later this year. They've already slashed their costs, restructured their debts and entered BK. I'm rolling the dice here, hoping/gambling that once they are reorganized they can undercut someone like Tyson, Perdue, Kirkland, etc., and possibly score a contract with Wal-Mart, Costco or the likes... They've already survived the worst... I think. I have a stop order on this just in case the worst happens. I'm OK using a part of my gains on a wild gamble or two.

Let me be clear- I am not a market timer for retirement purposes because, over long periods of time, even the best of the best who get paid hundreds of millions per year cannot time these things. It's futile, especially for a little amateur like myself. But in my "play" account, I went to all cash this week after a 92% gain over 60 days. Quite an unbelievable run.

I agree; market timing is futile, especially in retirement plans, as losses in these accounts are not tax deductible. You're probably better off 99.9% of the time in IRA/401(k)/403( accounts sticking to slow growth mutual funds that own both foreign and domestic stocks and bonds.

However, this market has been crazy, and avoiding losses has always been a pillar of my strategy, so I've been more active than normal in my retirement accounts. It's large losses which take a bite out of long-term compound interest. Large losses can take years to recover from. If you have a dollar and you lose 25%, you now have 75 cents. You then need to gain 33.3% just to become whole again. That extra 8.3% is a big difference to overcome--especially if the stock market pendulum doesn't swing back to the positive so quickly. If you have a dollar and you lose 50 %, now you need to gain a whopping 100% just to get back to break-even. It's my prefence that I'd rather have marginal gains and no losses, always staying positive than have big swings both ways, even if that might sometimes lead to a smaller return over time..

Edited to add: Real estate is a great way to go. I just saw the book you bought. It's fantastic!!!!! You are buying a tax shelter, income stream, and a hedge against coming inflation all in one. Way to go!!

I too feel that real estate is probably the best buy in this country right now. Speaking of the coming inflation, real estate may prove to be one of the only domestic assets worth owning long-term.

Admittedly, I have a massive learning curve to overcome here, although, I'm so far very impressed with John T. Reed's book that I mentioned earlier. I'm understanding what it will take to be successful in that field. This is not a motivatonal, inspiring, feel good book; it's a comprehensive, yet simple book that seems to cover just about everything.

[Chester P. Dexter]

I sure am glad to have been sitting on HDB (HDFC Bank of India) for a while. I mean, I've had it a long time, and the irony is that I was pruning my portfolio last week and had my finger on the sell button, but decided to let it ride.

17.55% overnight!

[jq26]

I sure am glad to have been sitting on HDB (HDFC Bank of India) for a while. 17.55% overnight!

Good one!!!! Isn't this fun?

[jq26]

Sold 5000 shares of SUTR and 1500 shares of APWR on Friday.... Looks like the squeeze is on and I missed it.

http://stockcharts.com/h-sc/ui?s=SUTR

http://stockcharts.com/h-sc/ui?s=APWR&p=D&b=5&g=0&id=0

Both of 'em bounced off the 200DMA like a trampoline.

[Chester P. Dexter]

Ouch. Sorry about that. My HDB has gone up $342 today, so I may be talking about smaller money than you are.

I have some tales of pain from last week, but I'm not sharing them here. Oh, I might as well share them, after all. Actually, I try not to look back and just look forward. Thankfully, my worst burn last week was a $50 loss on a double-long index ETF I waited a few too many minutes to get rid of; the husband booked a $600 loss, though... I told him to think about the $1,100 gain the day before (both of us just got started in options and his +1,100 and -600 were both from getting our feet wet in that.)

So far my foray into the June $35 call for EWW is turning out well. Being totally new and just doing this a real-life practice, I only wanted to throw $207 at it. It's worth $370 now so I'm happy enough with that!

[jq26]

My HDB has gone up $342 today, so I may be talking about smaller money than you are.

It's worth $370 now so I'm happy enough with that!

I opened this account with $500 in 2005. It took time and lots of sacrifice to grow this puppy through gains and additional contributions (why do you think I still drive my beater with 236,000 miles on it? ) It is still not a lot of money to many people, but to me it is! FYI- I yanked 50% of the account balance last week and placed it into my ING account. I'm locking in some gain. If markets correct, I have some safety. The rest may be traded around a bit...

As far as losses, everyone has a ton of them. Even Buffett picks losers on a continuous basis. The goal here is to pick enough winners to offset AND know when the price of these winners requires a trimming to lock in some gain. In my experience, timing is by far the hardest, as my premature Friday sales indicate. But I'd rather sell early and lose out on a gain than sell late and take a loss! Just want to live long enough to play again tomorrow. Because timing is the tough part, I'm convinced that options are a complete disaster for 99% of the people out there, myself included!

[Chester P. Dexter]

uh, just to be clear, since you put those two lines of mine in the same quote, the $342 is today's gain on approx. $1400 orignal-cost worth of HDB, (now worth at total of $1,940; I spent the $1,400 on it back in November) and..

The $370 is just the new value of what was originally $207 worth of options on EWW. (went up $160.)

Two totally different things. Maybe you knew that but you juxtaposed the apple and the orange in the same quote box!

[Chester P. Dexter]

Options do seem like timing and gambling; I agree on that. I feel that I've gotten lucky with my EWW option. Either that or I picked a very "safe" bet.

I also agree with everything you've said above; my classic mistake is to try to hold on longer out of greed and fail to reap gains when it would be prudent to do so, and then I miss out when there's a fall.

My husband is like you and I always think, "If you say so," when he say's he's going to lock in gains. But many times it is the smart thing to do. I've sustained a lot of pain by watching sinking investments while I stubbornly refuse to sell.

Before I talk myself down too much, though, my account is consistently twice the size as his, despite equal starting contributions. In the case of our roths, 3x the size. I hope he is not reading this thread.

[jq26]

Options do seem like timing and gambling

They should be properly be used for hedging. I was using them to juice returns. I probably lost $15,000 in options alone over 2.5 years. Expensive lesson!!

[Chester P. Dexter]

Market up-plunger or down-plunger today, or a "deer market"?

We like to place bets around here (nothing riding on those bets other than pride.) The whole family gets involved. Then again, we believe in little superstitious things like wearing a miniature candy box on your nose makes the indexes go up.

I like to be an optimist, so I'm betting uptick. Then again, it's been so wishy-washy all day that I could also see a deer sprint to the finish line.

[Bigwoodystyl]

Options do seem like timing and gambling; I agree on that. I feel that I've gotten lucky with my EWW option. Either that or I picked a very "safe" bet.

Options are a true zero-sum game. There is always a winner and a loser. Like you, I feel options are gambling, and like JQ, I think I would only use options as a hedge. I rarely touch them.

I prefer to buy stocks long after doing much research. Unlike options, if you buy long, everybody can win; there is always a loser in options. Worse, that loser is usually you (unless you're in that 1% that JQ mentioned...)

I know you buy better stocks than this and I should (and often do), too, but what do you think of EWT? I just bought a lil' chunk on the depressed price today. To be honest, I found it on a list of most oversold ETFs.

I like the emerging market ETF's.... I don't own any, but I think I'd rather own VWO, which is a mix of all of them... Although, maybe, I'd also rather have FXI instead of EWT? I don't really know.

[Chester P. Dexter]

I disagree with both of you if you're saying that options are necessarily a loser's game. Don't you realize that if you do your research on stocks, that same research can pay off in options?

I'm looking over my husband's account right now. He only started in options on March 30. Here are his closed options, and I'll indicate the loss or gain for each one:

-30

-62

-109

-514

+602

+1,026

+287

+33

+36

+155

+53

The total amount of loss is $715 and

The total amount of gain is $2,192

(for a total gain of $1,477.)

By the way, this does not count the gain he has made off some exercised stock - a few hundred dollars on Ford, and while he has not closed the position, he's $56 ahead on SLV.

[Bigwoodystyl]

I disagree with both of you if you're saying that options are necessarily a loser's game.

Well, no. But, there is always a loser. It's a true zero-sum game and the aggregate total never increases. You don't create real growth out of options.

Shorter description from Investopedia

Don't you realize that if you do your research on stocks, that same research can pay off in options?

I'd rather buy equity and be a part of creating real value and wealth. It was your own words just four posts above where you admitted that "options do seem like timing and gambling".

I don't really believe in gambling. I believe in massive amounts of research so that by the time I make a buy, I'm almost assured to make money, and if I don't, then it's only because of something unexpected, and I almost never buy something that has a chance to go to $0 (which happens everytime you purchase any derivative). My advice is to stay away. But, if you can continually make money in options, then it's my opinion that you're either very lucky or very skilled. Unless I KNEW the direction something was going to go, I personally would only use options as a hedge in case one of my long investments soured...

[Chester P. Dexter]

I'm not really sure what we're in disagreement on, if anything.

1. Any investing is gambling, if you want to pick that word apart - buying an equity is gambling if buying an option is gambling; many choices we make in life are gambles (like hoping the red light is operational on the cross street or hoping the train signals work before crossing the track.) Yes... options seem more risky and unpredictable, thus my use of that word. (I maintain that buying equities can be a real roll of the dice.)

2. You aren't opposed to buying options yourself, as long as you label them hedges. You can't be sure I have not done the same. It seems that you are probably talking about puts, though, and I am indeed not interested in them yet at this point.

I also would rather buy equities but don't find the two to be mutually exclusive. It's true that an option could (and does - I've experienced it) go to zero, but keep in mind: Buying thousands of dollars worth of a stock has the potential to lose hundreds of dollars pretty quickly given poor market conditions or other stock-related downturns. Buying $200 worth of options has the potential to lose only $200, no more. (I have no interest in anything other than regular plain old calls, thus possibly the basis for an apparent difference in opinion that is probably not significant.)

In a portfolio of many thousands, I don't think putting $200 on the line here and there, now and then, is imprudent and as you can see with my husband's record, he's done OK with that. I like the loss-limiting factor. I've seen more than $200 disappear from a lot of equity pretty fast and it's no fun.

On April 29 I spent $209 on an option that was worth $700 two days ago. (Could have sold it for an approx. $500 profit.) It does not expire till June 19 and I left it there. It shrunk significantly yesterday (worth $440). It would be easy for me to make sure I retain my original $209 but I think I'll give it some roaming room and see what that baby can do.

*by the way, I realize that many people try to be cute and clever or maybe they are just insane and put every bit of their money on some good-for-nothing penny stock, by way of an option, and rinse and repeat every time they lose their shirt. That's just dumb and it may be what people think of when they think of "options trading." I am not that kind of spaz. That's a quick way to empty one's own bank account. To each his/her own but while I do thrive on a certain amount of stress, I don't enjoy financial roulette and that stereotype (with basis in truth, unfortunately - I've been acquainted with some of these people) does not depict me.

[jq26]

Options aren't just higly leveraged but you're dealing with wider spreads and substantial time and volatility decay which erodes value. If I ever buy options again, it'll strictly be in LEAPS in the best of the best stocks that are fundamentally strong and way below book value. Anything else is a donation to the CBOE traders and the option seller.

My objection to options is, in part, premised on the inherent complexity of the option price. I was the top student in my accounting class and I still struggle with Black-Scholes! http://en.wikipedia.org/wiki/Black-Scholes#Black.E2.80.93Scholes_formula

Just remember that the traders buying/selling options are whizzes at these mathematical calculations so the playing field in this zero sum game is tilted almost entirely in their favor. I don't like those odds, so I pulled myself out of the game before I went broke. Remarkably, in the 18 months since I bagged the options trading, I've booked substantial gains and recovered ALL of my options losses and then some. Coincidence? Think not.

Even double and triple leverage ETFs have substantial decay built in (see SRS v. IYR for a good example), much of it having to do with derivative time and volatility decay. It is akin to swimming as fast as you can against the tide. Sometimes you win (you gave examples of some winners), but in aggregrate everyone loses. Think of a poker table where the dealer continually skims the pots for the house. Some players win, some lose. But in aggregate, the players must lose. It is a mathematical certainty.

But I'm rooting for ya'! I hope you and you husband are the minority of players at the poker table who walk away with chips to cash in at the window.

[Chester P. Dexter]

Thanks; neither of us have an appetite for losing money, so we lose a few, we retreat. And I have to stress again, this is "small money." Both of us are smart enough to know that you don't use big money on something so risky.

At heart I am a dyed-in-the-wool long-term investor. So much so that I have a hard time selling anything and I need to work on that. The idea of shorting anything doesn't appeal to me and I don't really like short-term (day trading or several-days or several-weeks) trading goes against my nature. I guess I believe in buy-and-hold and there's no real changing my thinking on that, although I have to train myself not to be so rigid in that regard. I can't remember who I was reading recently, but he said that stocks do need to be sold sometimes to avoid losing money. I have to keep reminding myself of that.

[Bigwoodystyl]

I'm not really sure what we're in disagreement on, if anything.

We're in disagreement about the amount of risk one is willing to take. To me, utilizing these types of leveraged investments in an attempt to increase profits is about creating unnecessary risk.

As to point #1. Sure, investment can be risky, but there is no argument from anyone that derivatives have inherently more risk. Again, it's taking unnecessary risks and incurring huge losses that take away from your compounding power over time. (Also, I don't really know where you're going with respect to the risk of traffic lights and railroad crossings....)

As to point #2. I'm pretty sure you're not using options as hedges. If you were, and you were making money with the options, that would mean your long investments have all turned around, and that's not good, lol.

I agree with JQ. Not only is it a zero-sum game, but when you add commision plus time value decay in options (something that IMO few amateur investors truly understand), it really is a loser's game. Plus, you're competing with professionals.

My objection to options is, in part, premised on the inherent complexity of the option price. I was the top student in my accounting class and I still struggle with Black-Scholes

I had an app on my calculator with which I became pretty proficient. It's still difficult to break it down step-by-step, though. Although, it's not intuitive, I guess, which makes calculation necessary, IMO, if you really want to buy options.

Even double and triple leverage ETFs have substantial decay built in (see SRS v. IYR for a good example), much of it having to do with derivative time and volatility decay. It is akin to swimming as fast as you can against the tide. Sometimes you win (you gave examples of some winners), but in aggregrate everyone loses. Think of a poker table where the dealer continually skims the pots for the house. Some players win, some lose. But in aggregate, the players must lose. It is a mathematical certainty.

Exactly.. And, while this is slightly off topic, I see these leveraged ETF gaining in popularity and I don't believe the people buying them have any idea how they actually work. I wouldn't want to be in a leveraged ETF in this up and down rollercoaster market.

[Chester P. Dexter]

Traffic lights and railroads - if you can't actually see all parts of the track/road (as you often have limited visibility in urban situations around sides of buildings, etc.) you are trusting that the signals are keeping the train/vehicles from barrelling through to run you over. Gambling in a sense. We all take chances every day.

When I have made less than I've gained on options, I'll consider them bad (or me bad at them) and then discontinue. I don't know why you would be so strident about it - and by that I mean using phrases like "incurring huge losses" - when my individual case (mine and the husband's) is right now higher gains than losses. That kind of gain justifies risk, in my opinion (is consistent with my reasonable appetite for risk, rather.) I wouldn't take on enough risk to wipe out all my gains at any point (talking about options only, now.) If I'm not making bigger and bigger purchases as I go along, there's no chance of it becoming a losing proposition, overall, unless I choose to let it become one. Banking all gains and buying only the same small amount of options each time (around $200 and that's not going to send me to the poorhouse

instantly) can't turn into a catastrophic loss situation - it would have to be systematic and gradual and done with my permission - and I'm too smart for that!

You can try as hard as you want to, but you just can't pigeonhole each person into a profile of a group, or into a statistic.

By the way, I don't really care what other investors understand - it's not my business to worry about that - but I do understand what value decay in options means and know how to factor in commissions, too. You're being just a little patronizing - even if it wasn't directed entirely toward me, who may or may not exactly be an "amateur investor" although I do consider myself one when it comes to options.

[daveyzzz]

Interesting thread. As the wife said we aren't into complex spreads , puts, or any fancy derivatives. We haven't been using options as insurance against stock drops, although that looks like a valid stategy and I am thinking about it for some larger holdings. What we have done is purchased simple call contracts on stocks that we would be investing in anyway. It's an easy way to control a much larger block of stock with a small amount of money. And if they go down - well it's a lot less painful with $200 on the line than it is with $2,000. But we research and pick our options just like we select our stocks and hopefully we will continue to be right more than we are wrong. Thanks for all the advice.

[Bigwoodystyl]

People are too sensitive around here... FWIW, I also consider myself to be an amateur investor. Basically, anyone who doesn't trade professionally is an amateur, IMO.

When I have made less than I've gained on options, I'll consider them bad (or me bad at them) and then discontinue. I don't know why you would be so strident about it - and by that I mean using phrases like "incurring huge losses" - when my individual case (mine and the husband's) is right now higher gains than losses. That kind of gain justifies risk, in my opinion (is consistent with my reasonable appetite for risk, rather.) I wouldn't take on enough risk to wipe out all my gains at any point (talking about options only, now.) If I'm not making bigger and bigger purchases as I go along, there's no chance of it becoming a losing proposition, overall, unless I choose to let it become one. Banking all gains and buying only the same small amount of options each time (around $200 and that's not going to send me to the poorhouse

Well, like JQ, I wish you nothing but goodwill if you continue to buy options. You should understand, though, that the majority of amateurs who buy options lose money doing so.

....I have to tip my hat to the husband who bought Ford $3.00 call options a few days ago. Spent $330 and just raked in about $1,500.

He's the options person, not me... while I may not understand all of it, I understand the bottom line

I think you should be extremely careful here with something you admittedly don't fully understand.

Further, you've now admitted that

a. you have consistently higher returns than your husband, and

b. your husband is the options trader and not you.

Coincidence?

Traffic lights and railroads - if you can't actually see all parts of the track/road (as you often have limited visibility in urban situations around sides of buildings, etc.) you are trusting that the signals are keeping the train/vehicles from barrelling through to run you over. Gambling in a sense. We all take chances every day.

Don't be silly; we're talking about the differences between stocks and derivatives; this has little to do with the inherently small risk of crossing the street. I mean, heck, I could die in my sleep tonight, I might as well buy a butterfly... after all, everything is risky

[Chester P. Dexter]

Hey there: (after calling people sensitive you are inciting argument and also referring to things I've only vaguely heard of and had to ponder a minute to get - "butterflly" - I thought you meant something spiritual concerning dying and a winged creature before I remembered hearing the term in connection with some kind of trading technique... I had to reread and come back and edit -choose someone else to argue with about options because you've got the wrong person here. I don't really know or care what that is - I don't think I have to know about it to do what I've done, either - it's weird that you're assuming so much that you're making references to things that aren't even what I brought up, and you're getting mighty patronizing, too) To address your points/quotes above:

When I said I have higher returns that means I currently have more money in my account after we have started with the same amount quite some time ago, and that reflects regular stock gain/loss (he has not always picked stocks that grow as fast as mine; he's done better than me at other times but in another account before starting these particular ones.) Options have only been traded by either of us since March 30, so that has little to do with that (you're going through back posts to pick things out? That's creepy.) I don't know what you're getting at but I don't think I can confirm what it is. He's made more on options than I have because I've only bought a couple of them, and both of us have bought them only since March 30 (April 29 for me). Oh, I see - you're implying that, like the average amateur investor, he must bomb out at options since his account is of lower value than mine. That's your angle with the, "coincidence?" comment.

Want to see ALL of his options experience? It's all there, on the prior page - I posted all of it. Have a comment about it now or did I deconstruct your point? In actuality, his account has gone up faster since he started options than it did prior. It has been a real boost to his total.

As for your quote box where I said I don't fully understand... I understand it enough to know what I am buying. (by the way, the comment was marked April 6 or something, before I bought my first option April 29, and in the interim I did guess what? Learn. Can't buy what I don't understand well.) I do not fully understand other aspects of options (spreads, puts, etc. which I have therefore wisely not gotten into, and don't wish to at this time, maybe not ever.) Again, I don't know what your point is but I'm pretty sure I just blew it for you.

You even took apart my analogy of track/street crossing? Those actions entail risk. Not enough risk to hold up as an analogy, by your standards? That's beyond picky and now you're just being plain old argumentative and I'm done arguing with you.

[jq26]

Hey, we're all amateurs. If you have any job other than staring at your screen and trading $1,000,000+ every second of the day, then you are an amateur.

Obviously everyone is free to make their choices. Some will do very well. I did on a few options purchases. A few times I made 1000% on small amount of ST calls. But the end game is what matters and it was U-G-L-Y. Just one amateur's experience. :(

FYI- I'm all cash as of 5/14. I even liquidated my brokerage account entirely earlier this week and dumped it into my checking account to capture the 2% and prevent the temptation to trade. This market wants to correct. 2009 S&P looking like it may come in at $30-$35 earnings. That puts us at a pretty rich 28 forward PE. Looks like we may rollover. Not to mention the ongoing disaster in the bond market right now. Another bad week.