Options? Beer And A Blindfold With That Traffic? Bone Up Before Crush Hour.

 

WE ALL SHARE THE CHAIR.  HERE’S THE TALE.  THE MOOD’S BLURRED.  IT FEEL’S JUMPY.  HOLDING ON MAKES OUR MINDS WANDER.  ARE WE THE NEXT TARGET?  BUT EARNINGS SEASON’S OVER.  IS THAT TRAFFIC?
ANTS IN THE PANTS MARKETS MAKE PLAYERS CHURLISH.  MARKETS ONCE SPEWED CASH.  NOW IT’S ALL HAND-WRINGING.  WHAT TO DO?  INVESTORS PAUSE TO ASK THE QUESTION–PLOW ON OR SEEK “PROTECTION?”  WHATEVER THE ANSWER, OPTIONS ARE EAGER TO HELP.  WB STILL CALLS EM “WEAPONS OF MASS DESTRUCTION.”

 

On

 July 2 the 2018 Tour de France rockets out of Noirmoutier near the western seashore.  200 professionals will flow like liquid toward Paris.  That’s heavy traffic.  It’s a lot like the opening bell.  For 23 days and 3 mountain ranges the 2018 tour will snake the French countryside.  The tour spins a swell of mania and joy as it streams.  The land undulates as the peloton rolls through scads of pin-prick hill villages snugged in along the winding route.

 

Everywhere the tour rolls riders will be dealing with what’s known as “road furniture.”  Road furniture includes concrete medians, traffic circles, crosswalk appliques,  sewer lids, crash barrels, detours, construction disruption, signage, poles, etc.  Tour organizers attempt to deal with such by what?  More signs.

 

 

french-countryside-232571
Summer on foot in the French countryside. Perhaps the real Elysium.

 

 

Any one of these obstacles is capable of creating mass damage to the peloton, or main body of riders.  Is our market any different?  Isn’t that every investors’ chair in the center of traffic?  Yes, remember the volatility spike that exploded the private equity bet against volatility?

 

 

 Private equity’s Bozoic bets against volatility cost everyone.  So you’re parked in your chair on Equity Street, when private equity swerves down the lane drunk, sideways, and brainless.  That’s like Road furniture for rational investors.  The fact is that everything in the market is moving, including our chair.

 

 

cyclists-601591_1920
You can’t lean like that unless you’re hauling ass. When you’re hauling ass it becomes far more difficult to spot and avoid crap conditions like this. A bad move and you’re toast, and so may be your tour, and maybe your spot on the team. Deliver of go home. The markets are precisely that brutal.  All the crap behind right is  “road furniture,” curbs, islands, railings, etc.  How many new concrete truck barriers will there be from now on?

 

CALL OPTIONS

OPTIONS ARE NOT CREATED EQUAL.

 

Graphic, Calls
Options are a form of “derivative.” Derivatives derive their worth from the underlying asset, like stock. Derivatives come in many types, including the rightly reviled CDO, “collateralized debt obligation.” Right. That one.(SJGraphic.)

 

 

 

 

-BUYING CALLS-

THE “GOOD” CAPTAIN KIRK OF THE OPTIONS WORLD

 

Most stock options “expire” worthless, except to the broker.  Yet it can be a great thing to buy the right stock at the right time at the right price.  Arranging the confluence of the three is no simple trick.  Calls can help.  Buying a call option allows you to “call away” a stock that’s moving your way.

 

 

settee-147701_1280
Buying “in-the-money” calls can make a great move. The stock has to be on the move. The call must be in the money deep enough to easily manage the cost. Buying too short a time, or paying too much, are the most common stumbles.  Long dated calls allow the time for a move to happen.   You’ll need a seat.

 

Option Contract Elements

“Contract.”–

The terms of the deal, set at 100 shares per contract.

“Strike Price”–

The per-share price to be paid if the option is “exercised.”

“Premium”–

The price per share multiplied by 100 paid by buyer for option right, but not obligation.

“Days to expiration”–

The time within which a contract may be “exercised,” set in days.

“Exercise”–

The action taken by option buyer to “call away” activate the deal.

 

 

Cramer
The guy who brought stocks right into America’s living room–and Louis. Jim Cramer recommends only buying “deep in the money calls.” The technique is called “stock replacement strategy.” In actually it’s one of the most conservative moves you can make. But it can be tricky.

“Stock Replacement Strategy”

WHEN YOU’D RATHER RENT THAN OWN

LIKE “BLOOD DOPING” ONLY LEGAL

 

Stock replacement strategy can cut risk and improve returns.  That’s not reckless.  That’s risk management and return on investment.  Owning stock involves risk.  That’s referred to as “single issue risk.”  When you own stock, your risk is equal to your “exposure” or the total number of shares you own.

 

Not owning shares reduces that risk to zero, as well as your shot at capital appreciation.  That’s where options come in.

 

Buying “in-the-money” calls, instead of stock, reduces risk.  Call options cost a small fraction–less money on the line means you risk less.  But you still get to buy the stock.  What you pay for is control and time, and value if shares rise.  But if you’re wrong you lose premium.

 

SRS is great if you have a strong upward moving stock you want to own for a while.  Think Betas over 1.5.  Buy time–45 days or more.  Buy “in-the-money.”  That means buy a call with a strike below the current stock share price.

 

Savoir details of our experience and mistake with a real world example, Huntsman International.

“SJ Brain-Pill.  Stock Replacement Strategy.”

https://stockjaw.com/2018/01/03/sj-brain-pill-stock-replacement-strategy-and-amzn/

 

tour-de-france-244348_1920
Exquisite pain in the French Alps. The Tour is conducted in 21 stages over 23 days in July. The Alps are but one of three mountain ranges the tour attacks annually. Only “pure climbers” can enjoy the mountains.  Everyone else simply attempts to survive.  Fact.  Ever seen a rider puke over the side without breaking pedal stroke?  We have.  Whatever it is get rid of it, and keep cranking. That’s real investing.

 

Put Options

MANY VIEW PUTS AS “INSURANCE” AGAINST DOWNSIDE RISK

 

Graphic, Puts
Put options are perhaps most commonly used as downside protection. Puts are an equity escape hatch people pay for. Puts are also commonly part of a multi-leg options strategy. These become very complex very quickly. Professional equity managers go broke in options-gone-bad scenarios. Fact. They think they know, and find out they don’t.(SJGraphic.)

 

Buying puts as downside protection requires luck and timing to be successful.  Otherwise the premium is wasted.  Trimming the position seems more sound.  Selling puts makes no sense.  If used as part of a larger 2 or 3 leg option strategy it may make sense.

Yet, complex option strategies are complex, thus complicated by nature.  Crafty plays such as these explode in the faces of extremely skilled players on a regular basis.  Bets against volatility?  Wow.  That’s like betting against gravity.

 

 

Thanks for Reading.  Keep Rolling.

AAA Stockjaw boxed

STOCKJAW.COM

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https://pixabay.com/en/photos/
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Additional resources:

Investopedia.com.  Seriously Wonderful.  Fact.
http://www.investopedia.com/
Charles Schwab.  In Our Opinion, the best broker going.
https://www.schwab.com/public/schwab/client_home
STOCKJAW.COM EARNESTLY THANKS YOU FOR YOUR INTEREST AND WISHES YOU THE VERY BEST.  THE WORLD BEING WHAT IT IS, WE MUST POST THE FOLLOWING:  ALL CONTENT ON STOCKJAW.COM IS PURELY FOR GENERAL EDUCATIONAL AND ENTERTAINMENT PURPOSES ALONE.  ANY ACTION TAKEN BY ANY READER IS THE SOLE CHOICE AND RESPONSIBILITY OF SAID ACTOR.
Be careful.  Do the work.  Have patience, with yourself.  Never put your dreams away.
stockjaw

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