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ELI5: Please explain how calls and puts work in the stock market
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I've tried but I can't seem to grasp how options work. Please help me.
Top Comment: An option contract is simply an agreement between two people to either buy or sell 100 shares of a specific stock at a set price (strike price) within a given time frame. A call is the right to buy shares and a put is the right to sell shares. Let’s look at calls. Say I own 100 shares of xyz stock which is currently priced at $10 per share. You think xyz is going to go up in the next 3 months, but I don’t agree. We can make a bet on this. As the owner of the shares, I can sell you 1 call with a strike price of $12 with an expiration day 3 months from now. I’m not just going to do this for free, I want to make some money if I’m right, so I sell it to you for a $0.30 / share premium and since there are always 100 shares to a contract, you pay $30. Ok, let’s fast forward 3 months. And xyz is trading at $15 per share. Since the strike was $12, you choose to exercise the option contract and buy my 100 share for $12 per share, a total of $1,200. You then immediately sell all 100 shares for $15 / share for a total of $1,500. That’s $300 instant profit, but you did pay me $30, so your actual profit was $270. So, on a $30 investment in this option, you made 9x return. If, on the other hand, at the 3 month mark xyz only went up to $11, you wouldn’t exercise the contract to buy it at $12. The contract would be void, I’d keep my 100 shares and you would have lost your entire $30 investment. Puts are basically the inverse. It’s the right to sell 100 shares at a set price in a set timeframe. This is how you make money betting the stock price will go down. Take XYZ at $10. This time you think it’s going down in the next 3 months and I disagree. So I sell you a $9 put for a premium of $0.30 per share, the same $30. This means if you exercise the contract, I will buy 100 shares of xyz from you for $9 in 3 months. Fast forward 3 months and xyz is down to $6 a share. You exercise the option, go buy 100 share for $600 and then instantly sell me those shares for $9 / share or $900. That’s an instant profit of $300 - $30 premium you paid me, for a net profit of $270 or 9x your money. These two examples are with you as the buyer of the contract. If you are the seller, your profit will only ever be the premium you collect at the outset.
To put things into perspective, the overall market sold off 25% while GME DRSed shares WENT UP
Main Post: To put things into perspective, the overall market sold off 25% while GME DRSed shares WENT UP
Top Comment:
Let's appreciate the guy who takes his time to post his own comments as a separate post!
I love the detail they put into the market stalls :)
Main Post: I love the detail they put into the market stalls :)
Top Comment:
I haven't played yet on this new release. How do the markets function? Do you place items in there? Do NPCs gather items and place them in there?
If I put an item on the flea market and then remove the offer, do I still lose the fees?
Main Post: If I put an item on the flea market and then remove the offer, do I still lose the fees?
Top Comment: Lesson learned
Is Emerging Market ETF even worth to put in portfolio?
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I know OG bogleheads will have like 10-20% in EM markets index.
But do Singapore bogleheads do it?
What kind of ETFs are best for this?
How much do you allocate to EM?
Is it even worth it?
Their performance has been pretty bad. Super volatile too.
Top Comment:
From 2000-2010, CAGR of emerging market was 9.82 percent while CAGR of S&P 500 (US large cap) was -1.03 percent.
Should I put more invest in small caps and emerging markets
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I have just finished reading the passive investing Australia guide, I am 15 years old with my first job and because of that I have a really high risk tolerance, I know the small caps and emerging markets have high volatility but in the long term do they have a higher expected returns, if so what etfs would you recomend.
Also what general etfs would you recomend for global equities, aud hedges and Australian equities.
Top Comment: You will find you have a high risk tolerance until you find that it is your real money that is disappearing. For sure dabble in one or two but keep most of your money progressing in safer places. You can't beat compounding especially if you start at your age. Our son started at 18 when he started working and will crack $1 million this year. That's 15 years. He doesn't earn big money He doesn't spend big money. He hasn't even been trying that hard. Look backwards at what shares have worked in the past and you will see the type of shares that will work in the future. Be careful about other people advice and watch it for your own confirmation bias and arrogance off youth. It will sing when you lose a few times in a row. Don't be a gambler you will probably lose. Most likely. ....... Your life your call.I hope it works out ok for you.
Why do you put money in Wealthfront HYSA instead of money market fund in a Fidelity brokerage account?
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Just curious. Fidelity money market fund has higher yield right?
Top Comment: Fidelity's website, app, and general processes are pretty terrible. Not as bad as Vanguard, but not much better. I use it for my retirement and such, but wouldn't put anything liquid there. I'm willing to shave a bit of APY to have a better experience with more liquid money. Trying the automated bond stuff now, which should in theory get a better yield while remaining liquid, but time shall tell. Edit: Plus, Fidelity doesn't have a Tony hanging around the sub to announce features, take feedback, and answer questions. That alone is valuable to me.
When you learn how to put market stalls outside your house...
Main Post: When you learn how to put market stalls outside your house...
Top Comment: What a nice flower girl, i hope nothing bad happens to her
Best to wait until recession starts to put more money in the market?
Main Post: Best to wait until recession starts to put more money in the market?
Top Comment:
Time in the market beats timing the market.
We won't know we're officially in a recession until we've already been in it for several months. Bottom line, don't time the market, just keep investing regularly.
I have an apocalyptic, existential fear of investing that has resulted in me holding off for a long time, and I’d love to move past it with logic.
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This may sound silly but it’s true, and I think I should overcome this irrational fear and actually get in the market.
If I were to put the irrational fear into words it would sound like this (keep in mind, my extent of investment education is only the book Simple Path to Wealth):
- I like having all my money to be liquid cash in case there was ever a global meltdown emergency (whatever that means).
- It is also hard to imagine that this world as we know it will still be functional in the next 30-40 years, so what’s the point? What if currencies get abolished? Major wars happen that cause such geopolitical shifts that the dollar becomes worthless? Or if the entire investment machine as we know it breaks somehow and all of my money vanishes into thin air?
- What if a really cool business venture comes along but all my money is tied up in the markets?
- It’s like I want to hold onto my cash for dear life and not let it go.
Has anyone else shared these types of fears? Am I being crazy?
Top Comment:
your liquid cash is worthless in these end of day scenarios you are worried about. you even admit it in point #2.
stocks are very close to liquid, you can sell at any time. it's not like commercial real estate where you are locked up for years.
your cash is losing money due to inflation.
surprised you arent into investing in gold tbh.
btw do you keep all your cash under your bed? banks wont survive your scenarios either, good luck getting it out.