STOCK MARKET ANIMALS
Are You a BULL or a BEAR ?
BULL is an option entrepreneur who believes that the
market or option will rise in value.
BEAR is someone who believes the market or option will drop in value.
Actually, the Market itself is a fearless Honey Badger
who doesn’t really care what you think.
Question #1: If you are a Bull:
A.___You are a pessimist.
B.___You are laid back.
C.___You believe the market will go up
D.___You don’t care about the direction of the DJIE
Picking an option is like picking a pair of shoes –
the most important thing is FIT !
What fits your personality??
Are you a charging BULL? or, a laid back careful BEAR?
Your personal FIT determines your trading style.
BULLS BUY CALLS
As a Call buyer, you believe the underlying stock
is going to go up in price and you’ll make money
with the option.
WHY BUY CALLS ?
- LOW COST: Stock sells @ $25.00 share – Call Option is only $1.00
- PARTICIPATION: Follow rumor of a “once-in-a-lifetime” stock without too much money invested.
- You can buy EXPENSIVE STOCKS (who can afford shares of Apple? — Call option will cost thousands of dollars less.
- LEVERAGE: For only $500 you could “control” $10,000 in stock.
- RISK: Less risky than owning stock.
Question #2: What is a good reason to buy calls:
A.___Low cost vs share cost
B.___Tips from strangers will be profitable
C.___You can buy penny stocks
D.___Everybody else is buying them.
WHAT TO LOOK FOR IN A CALL OPTION
1. Avoid cheap options
2. Always buy a Call option in-the-money
3. Expiration date 50 – 120 days out
4. Don’t ignore volatility (buy when low –
minus 50% —-sell when high +100%)
BEARS BUY PUTS
WHY BUY PUTS?
1. THE MARKET: goes down faster than goes up
2. FLEXABILITY: by trading both side of the market
3. RISK: less risky than shorting stock
4. INSURANCE POLICY: to protect your stock portfolio
5. TAX MANAGEMENT: If you think your stock portfolio
is going down and don’t want to sell it.
Question #3: If you are a Bear:
A.___there is a statute of you on Wall Street
B.___you will buy Puts
C.___you will buy Calls
D.___you wait for the S&P to go up.
WHAT TO LOOK FOR IN A PUT OPTION
- Avoid cheap options
- Always buy PUTS out-of-the-money
- Expiration date 50 – 120 days out
HONEY BADGER (a/k/a Volatility)
The Honey Badger is characterized by tending
to be volatile with personality changes.
Fireworks and gasoline are volatile –
just takes one little thing (like a match)
to set them off!
The stock market
is volatile – just takes one little thing
to set it off (like a war or tweet from the President)
IMPLIED VOLATILITY (IV) is shown on your trading
platform. It is not a measure of current
volatility, but rather what investors expect
it will be in the future.
Past volatility, shown as “HISTORIC VOLATILITY” is a
measure of past volatility, which has been
at an average of 15.8 for 60 years.
Market stability is just an illusion. The stark truth is … the market is always volatile. Market volatility isn’t some savage monster that rises up to wreck havoc only when we least expect it. It’s always there, waiting just beneath the surface.
Question #4: If there is high implied
volatility, the market thinks
A.___there will be a big movement
B.___the market will explode and be closed
C.___just another day
D.___a Honey Badger is roaming around.
Answers: #1: C –#2: A –#3: B –#4: A