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DaJoka, what is your take on PCLN from a fundamental point of view?
OFFICIAL STOCK MARKET & ECONOMY THREAD VOL. SCHOOL'S OUT
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Admittedly I don't know a whole lot about the company. Anyone can look at fundamentals and either like or dislike what they see. Anytime I make an acquisition, I try to get the best understanding of the company to see if I like the direction the business is going.
But just looking at the fundamentals, I think they're strong. Granted they are in a small industry with few competitors, but they boast the strongest profit margins, the best EPS growth, the best long term growth, a fair TTM and forward P/E, and a PEG below 1. Those are all positives in my eyes.
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The way you are thinking about it is an extreme oversimplification. Options are very rarely priced at the current price minus the strike, other pricing factors
make them fluctuate around that number. You are speaking of intrinsic value here, and you are assuming an in the money call option with that calculation. Intrinsic
value plus value assigned to time, volatility, and interest rate risk is what makes the price of the option, theoretically. Out of the money options have no intrinsic
value (it would be a negative number in your calculation) so their price is all time, volatility and interest rate risk value.
As for your question about volatility. Volatile pharmaceuticals are probably gonna have options priced the farthest away from your calculation (intrinsic value) based on
their volatility. Stocks that don't move are gonna be priced much closer to intrinsic value. You can think of the price reflecting the likelihood of the call expiring in the money.
If the stock has big swings like pharmaceuticals do, it is much more likely for the near the money options to expire in the money, so they are more expensive.
The closest you can get to estimating how much a call will be priced above it's intrinsic value (theoretical call premium) is using Black-Scholls pricing model.
And as you can see I wasn't lying when I said you were oversimplifying it. Solve for C
[h1]
Fortunately you don't have to do that because the answer to that equation is somewhere between the bid and the ask on the option chain in most cases.
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Nice post FM. I hope the learning curve isn't too steep. I should be trading starting Friday. I have some picked out that I think are sure fire money makers for me.
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I actually learned the black-scholes method yesterday while reading a financial management book on derivatives. It's really crazy, but it's something I understand now. I'm still looking for good pharmaceutical picks so I can see what their tables look like, though.Originally Posted by FrankMatthews
The way you are thinking about it is an extreme oversimplification. Options are very rarely priced at the current price minus the strike, other pricing factors
make them fluctuate around that number. You are speaking of intrinsic value here, and you are assuming an in the money call option with that calculation. Intrinsic
value plus value assigned to time, volatility, and interest rate risk is what makes the price of the option, theoretically. Out of the money options have no intrinsic
value (it would be a negative number in your calculation) so their price is all time, volatility and interest rate risk value.
As for your question about volatility. Volatile pharmaceuticals are probably gonna have options priced the farthest away from your calculation (intrinsic value) based on
their volatility. Stocks that don't move are gonna be priced much closer to intrinsic value. You can think of the price reflecting the likelihood of the call expiring in the money.
If the stock has big swings like pharmaceuticals do, it is much more likely for the near the money options to expire in the money, so they are more expensive.
The closest you can get to estimating how much a call will be priced above it's intrinsic value (theoretical call premium) is using Black-Scholls pricing model.
And as you can see I wasn't lying when I said you were oversimplifying it. Solve for C
[h1][/h1]
Fortunately you don't have to do that because the answer to that equation is somewhere between the bid and the ask on the option chain in most cases.
@dajoka It's not really essential that you learn the method, although it helps with understanding why prices may be what they are a bit more.
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Virtual Account I started last Friday, I wish this was real
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LNKD broke out, damn. I thought about buying some yesterday when it was at 88 but decided not to and it just steamrolled. Oh well.
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good stuff even though it's play money
you'll be set up soon
you'll be set up soon
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Good choices!
I also find TD bank stocks pretty good as well.
I also find TD bank stocks pretty good as well.
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You don't really need to learn the mechanics of it, as long as you are comfortable with your stock selection ability.
Timing is absolutely everything with options. You really have to have near perfect timing and tightly set stops.
I was speaking to a professional trader recently and he was telling me that he looses on more than half the trades he makes.
His stops are so tight that he looses small amounts repeatedly but the gains are much bigger so he profits in the end.
Realizing that you are going to be wrong on the majority of your trades takes some getting used to but it is very helpful
to think that way.
bruce negro wrote:
I actually learned the black-scholes method yesterday while reading a financial management book on derivatives. It's really crazy, but it's something I understand now. I'm still looking for good pharmaceutical picks so I can see what their tables look like, though.
@dajoka It's not really essential that you learn the method, although it helps with understanding why prices may be what they are a bit more.
I would stay away from pharmaceuticals in general unless you have an inside track or are very well versed in analyzing their potential.
The drug development and approval process is extremely complex and you almost have to know the science to understand any particular
company's chances of profiting. The research required is more trouble than it's worth in my opinion but that's just my opinion.
That said, i'm long NVS
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Zagg and BP are doing pretty good for me. I bought zagg last year when someone on NT recommended it, got it at $9 now its $10.66, got BP around $35. Thanks NT
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How much does he pull in? And what is his trading method/ philosophy?
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One of the only "safe" ways to pull in money off of the market is a strongly diversified, asset allocation strategy. Pretty much the opposite of what we're all doing in this thread
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Well he said he was up 80% over three years. He's a technical trader but I'd have to go look for my notes to see what his specific strategy was.
According to someone close to him he has quite a bit of money and is in the process of starting a hedge fund.
According to someone close to him he has quite a bit of money and is in the process of starting a hedge fund.
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Originally Posted by bruce negro
One of the only "safe" ways to pull in money off of the market is a strongly diversified, asset allocation strategy. Pretty much the opposite of what we're all doing in this thread
But what about for those with less capital? And there is no better strategy, everyone is different just depends on how the person uses the strategy.
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Originally Posted by freakydestroyer
Originally Posted by bruce negro
One of the only "safe" ways to pull in money off of the market is a strongly diversified, asset allocation strategy. Pretty much the opposite of what we're all doing in this thread
But what about for those with less capital? And there is no better strategy, everyone is different just depends on how the person uses the strategy.
I've sat down and talked with the director of a wealth management firm. There's definitely a better strategy, although it does depend on the amount of money you're working with. If the guy he's talking about is about to start a hedge fund, I'm sure his strategy is very similar. For those of us with a small amount of capital to invest, this thread works really well. I think it's hard to apply hedge fund strategy to what most of us are working with on the board, though.
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When you are older and have more capital, you are most likely trying to preserve your money while making some decent gains. You aren't trying to hit home runs anymore. The entire dynamic changes.
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An asset allocation strategy requires trading in nearly every asset class with high diversification in each class. It's basically what you see when you choose your 401k, but many portfolio/fund managers don't necessarily look at the financials of each entity they're investing. Rather, they research and try to make sure that there are as few correlations between their investments as possible. When you're working with a portfolio, you don't want to lose money on one thing (because you will lose money at some point) and then have 50% of your portfolio go down as well just because the other stocks were somehow related to that first thing. The diversification they seek is within the separate asset classes, and the diversity of the asset classes themselves. That's basically what I learned in that talk.
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I'm thinking RIMM could be a potentially good long heading into March 29 Q1 earnings as they didn't pre-announce lower guidance and earnings as some rumors expected. A lot of the downwards price action happened on analyst downgrades while there have been a few positives such as Samsung possibly taking a minority stake in RIMM. Regardless with the short ratio between 3.5 - 4.5% any "good" news could cause a nice short squeeze
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Over diversification won't yield much gain. Safe, maybe. That doesn't fit my style right now. The guys you talk to essentially have boatloads of money and just compound it over years, so of course it looks substantial. And let's face it when a recession hits everything is affected, so you aren't coming out without a scratch.
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In order to create a diversed portfolio of such I suppose you'd need hundreds of thousands of dollars...Originally Posted by bruce negro
One of the only "safe" ways to pull in money off of the market is a strongly diversified, asset allocation strategy. Pretty much the opposite of what we're all doing in this thread
On RIMM, I don't know, the information regarding the Samsung buy-in is great, however I havent seen too much development in the company. Their tab failed, their products are getting beaten by Apple and the Android products. I think they would need a huge comeback, which everyone thought was going to happen septemberish, with the release of the new OS, however there wasn't a significant change...
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I would not try RIMM, there are too many levels of overhead resistance. Just my opinion.
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Avoid RIMM like the plague.As far as diversification, we're all around the same age right (mid 20s)? Now is the time to take risks with your portfolio. You have another 40 years of earnings potential to bank on. Your portfolio should adjust as you age and your goals change. But right now I'm not looking for a 3% dividend stock. I'm not looking to make the historical 8% annual return on my investments. I want to at least add 30% a year. My portfolio reflects that. I own Apple and a lot of small cap, large growth companies. There are big swings, but I can deal with it. Just have a plan and try to stick with it. Don't let a 10% dip in a week force you to sell if you were holding for the long term (unless the company did something stupid like create Qwikster).
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I pretty much agree with that.In addition I think that even when older the money you don't need for the next few months and only this money can be invested in higher risk funds, if it's well thought out and properly diversified then it shouldn't cause problems.
I have most of my money in BAC since yesterday, although the high RSI kind of scares me, but regardless I hope I can see some growth.
And I don't know if Apple can be considered a too risky investment it has a better rating then most countries...
I have most of my money in BAC since yesterday, although the high RSI kind of scares me, but regardless I hope I can see some growth.
And I don't know if Apple can be considered a too risky investment it has a better rating then most countries...
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