Forum Archive Index - February 2003

["Nick McCaw" <nick.mccaw@golearn.co.nz>]

Hi Everyone,

 

I’ve had a few calls recently regarding Options Seminars and products being offered in the NZ market. Most callers have seen me mention the presenter in this forum and call wanting further insight. I am reluctant to outright slander the guy, but any depth of due diligence will uncover enough information to steer any potential buyers in the other direction.

 

I’m a big fan of the educational value of seminars etc, but once again there is no magic bullet for trading or investment success, One more time…..There is no magic bullet. Its not easy, It hurts from time to time, and if you have no discipline, stick to savings or buy a gold stock for the next 12 months.

 

So with that out of the way, I wrote this guy a quick email on what he could do to start leaning about options. This led me to thinking that a few of the lurkers on this site might be interested in the same info, so I have attached it below. It is very brief, but you should be able to follow it with the help of some limited research. If you have any interest in using other financial instruments, its always better to try your hand on paper.

 

Even then its no guarantee of success, ( speaking as the owner of an almost worthless options contract right now) but you might save yourself several $,000’s in the cost of a full proof system…….that isn’t full proof, because there is no such thing, really, not even if they say it is.

 

Keep learning all the same

 

Regards

Nick

 

 

 

 

Stocks to safely use options with.

 

CBA

NAB

TLS

WOW

RIO

BHP

 

There are many others but they are less liquid

 

Firstly you should decide which direction you wish to place a trade. Obviously if you think the stock is moving up, you will be buying calls, if you think its moving down, you will be buying puts.

 

Go to http://www.asx.com.au/asx/markets/OptionPricesSearchPage.jsp

 

Type in the stock code. Select either put or call options.

Look down the options list and select a contract that is very close to the current price of your stock.

 

For example: today if I thought that CBA was moving up, I could locate the following call contract

 

CBATM

C

27/03/03

27.000

0.290

0.315

0.275

60

413

0.33

 

This contract is called CBATM and expiries on the date of 27-03-03. It is essential to buy a contract that is at least 6 weeks away from expiry.

The next number is the strike price of 27.00 which means that the contract would give me the right to buy 1000 CBA shares at 27.000 on the expiry date.

 

The next number of 0.29 is the bid, and the 0.315 is the ask. For the purpose of paper trading you should record the ask as your purchase price.

 

The next number is the last trade, followed by the volume for today, and the open interest, the last number is the margin value, based upon the difference between the contract strike price and the current share price, and a few other things.

 

You should aim to buy a contract with a high number of open interest because it means there is a large number of contracts held, indicating a more liquid market.

 

So use this as a first paper trade to see what the thrills and spills of options is all about.

 

Let me know if you need further help.

 

Regards Nick McCaw