Monday, March 12, 2012

Quiet Day Today

Haven't done much at all.  The high point seems to be having loaded a new version of Quicken so I can see how our accounting is fairing.  Talk about life in the fast lane; I'm chasing the family accountant!  Actually I shouldn't make fun of accountants; when I was studying for my Computer Science degree, the accountants had lots more parties than the Comp Sci folks did.  I was even tempted to go for my CPA credentials but stupidly didn't do it.  Oh well, just goes to show that my current level of stupidity isn't the result of accident.  I worked for it!

The incredible geniuses at TD Ameritrade sent me a pamphlet entitled "Characteristics and Risks of Standardized Options"  It was written in 1994; has 94 pages of crap about options.  Then there are 72 pages of supplemental information and 16 pages of supplemental information printed only in January and March of 2011.  Let's face it folks, options are NOT for the average investor.  Aside from a covered call, it's really dangerous territory out there.  This is ONE area that I'd consider marked 'For Professionals Only'. 

The thing is that options are investments that are based on your view of the future.  There are two ways to play them. 
1)   You buy the option (a call) of purchasing X at $5 within the next three months(time is variable but I'm just using 3 months).  If X is only selling for $4 at that time; your option is worthless.  If X is selling for $10, you can get it for $5 and look like a hero. 
2)  You sell a 'put' offering to sell X for $5 within the next three months.  A 'covered call' is when you actually own the stock; if you don't own it it's an 'uncovered call'.  If X is only worth $4; you have gotten the money from the 'put' for nothing.  If X is selling for $10, you are selling for $5 and look like a schmuck.  It's even worse if you were selling shares in X that you didn't own (yes, that is the uncovered call) so you  have to buy them for $10 and re-sell for  $5.  Yep, that can happen.  Lucky you!

OK; that was 'Options 101' - call TD Ameritrade and ask for their 170+ page booklet if you want to know more.  They will love you.  My OPINION is that aside from writing a 'covered call' where you own some stock and offer to sell it for some ridiculous sum in the future; you are crazy if you fool with options.  It is simply putting your money on the line about if you think a stock (or whatever) is going to go up or go down.  Kind of like gambling in Las Vegas.  And I DEFINITELY  cannot tell the future.  If you can, here's the way to great wealth. Go forward, grasshopper, with my blessings and envy. 

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