Trading 101 - How should I position this?

Hi there IB fellas, prospective monkeys or I would rather call fat fellas. A little help is needed here from a blue collar dude aka borderline OWS junkie. I would have joined them were it not for my libertarian principles.

Anyways back to the topic 101. I was hoping to actually play the market both long and short positions using 10k I have stashed away somewhere?

I have done my own research as a layman and feel I am on the ballpark on this one.

Ideally how should I position this. Was hoping to bank on options instead or direct long,short positions...

Say if I were to drop the whole 10k on call options, how can I maximise my exposure. In other words assuming my bet is right, I believe I can increase my returns ten folks....

Example say I were to buy JPM calls or BAC how should I go about buying them. What is the optimum and ideal call strikes I should be aiming for. For those with the terminal perhaps they can tell me of calls for each.

Can I maximise this using say leverage. I do know FX has one upto 50:1, do call options too have, I was hoping to get a leverage of say upto 50:1 for each or even more as I am almost certain about 4 tech companies I have in mind.

Thirdly any recommendation of which brokerage firm I should be using. Is wfc any good broker. Any other cheaper broker but reliable.....

Much appreciated fellas and have a molly jolly tuesday. A cold guinness for all. Cheers

 
Best Response

hope this is a troll. if not, save your money, you will definitely lose. rofl terminal for call strikes. here's your terminal:

http://www.google.com/finance/option_chain?q=NYSE:JPM http://www.google.com/finance/option_chain?q=NYSE:BAC

you do understand that leverage is debt right? as in, borrowed money that you have to pay back when you lose it? so, for starters, you can't have a margin account with less than $25k at most brokers (pretty sure). but for kicks, let's say you can get a margin account with only $10k. Let's also say you register with insanebroker.com and you give you 10:1 for options, so you've got $100k. You spend $100k on JPM calls, they expire out of the money, and now your $10k is negative $90k. And you owe them that $90k just like you still owe the bank $300k on your house that's only worth $200k.

again, save your money. you will get raped by guys that make their living sniping guys like you.

 

Djiif I am no troll. Anyway, thanks for the headsup. As for margin call, I can increase my initial to upto 25k as I would need leverage. The reason I said margin is so I can have most exposure and highest leverage using this minimal amount. Let me worry about if my bet is right on these tech companies or not.

On a layman's term, I just want to know how can I increase or lose swinging with maximum leverage... Is 10:1 the best I can get... Which brokerage and were would you advise me I can get say 50:1 or preferably 100:1 or more. Any particular brokerage in mind.

Thanks again mate. Other takers.

 

Hey,

I used to be an (exotic) option trader.. and there's one thing i can tell you: none of my (former) co-workers would ever, ever, ever, ever invest their own money in that. It's ainly because, as an individual, you really can't have any reliable info on the skew and smile (which, ultimately, are the things that matter for an option). Can you tell "when is the skew cheap"?

Why? Because put/call options are for betting on volatility, not the underlying. If you are convinced that these stocks will go up, then (borrow some money and) just buy the stock. That's it. Options are for betting on vol, forwards/futures on dividends, bonds on yields, swaps on IR, CDS on creditworthiness and that's pretty much it.

Nevertheless, there's one thing you might want to do. If it's a very short-term investment, you have a bloomberg near you and can afford to loose all this money should you be wrong, then you might wanna buy some 3m to 6m down-and-out calls or up-and-out puts. Those are very risky, but with the barrier = the strike, you cancel out the volatility effect, they're cheap and highly leveraged.

My 2 cents...

 

Agree with nono's strategy, but honestly just go long an index etf with some leverage of your own (home equity). It is actually ridiculous that non sophisticated investors are allowed to purchase options for anything other than hedging an existing position.

That being said, if you want to throw it all on the line, buy a call option 15-20% out of the money. The big caveats here are that the options on volatile bank stocks already cost a premium, and second, if liquidity dries up you are screwed. Another strategy is to go long a call spread. If you go long one call and short another $1 apart (say net $.10 cost), you have a x10 payback if the trade ticks in the money at expiration.

Etrade - the next financial crisis. I would love to see how occupy will blame wall street for letting yahoo's trade options in their retirement accounts and lose big. Sound familiar to "how could you let us borrow way to much money, banks!!!!" This is a capitalist society... buyer beware.

 

It's consistent with everything else in this society - maximize everyone's freedom to make individual decisions, but don't force them to be accountable for the outcomes of those decisions. It's just like fat people complaining that heart surgery is too expensive, or gastric bypass - you shouldn't have spent 30 years stuffing your fat fucking face with cheeseburgers. Now you're about to die, and you want the rest of us to pay $500k to buy you a new heart or cut your stomach open and staple it to the size of a walnut? Pfft.

 

The down and out calls are options with a barrier that, if crossed during the life of the option expire. For example, one could buy a 3m down and out call on JPM with a barrier of $25. If over the life of the option JPM ever trades below $25 the option expires worthless, even if it is trading at $30 after 3 months. The premium on these options is cheaper because there is a greater chance they expire worthless than a vanilla option. Cheaper premium = greater leverage on the trade.

As with everyone else above I think you should NOT persue this strategy as you are highly likely to lose a substantial amount of you $10k.

 

Thanks boothorbust... Say another example.. BAC.. If I were to buy down-out option with barrier being US$2 for three months how much will I get these options for and their premiums..... Secondly with only 25k initial, how much leverage can I get tentatively....I am hoping say upto 50:1 minimum...Is that even feasible....This BAC is mere example though as I have my eyes set on three tech firms to be exact. CHeers and thanks again mate. Other takers.

 

I think I figured it out finally. Hope I am right on the bet... I will buy simple OTM calls and see where this 25 heads...Bust or not come strike day.... At least with this, I will be cushioned against fluctuations won't I? Will I still be able to take leverage with OTM calls, say upto 100:1. Much appreciated all.

Lets hope I am good at tech firms predictions so I can finally go to the valley with this loot.

 

I think I figured it out finally. Hope I am right on the bet... I will buy simple OTM calls and see where this 25k heads...Bust or not come strike day.... At least with this, I will be cushioned against short term fluctuations won't I? Will I still be able to take leverage with OTM calls, say upto 100:1. Much appreciated all.

Lets hope I am good at tech firms predictions so I can finally go to the valley with this loot.

 

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