Posts Tagged ‘stock market’

Stock Market Investing: Buying Call Options

Saturday, January 9th, 2010
Image: Michelle Meiklejohn / FreeDigitalPhotos.net

Image: Michelle Meiklejohn / FreeDigitalPhotos.net

This week I made my second stock option purchase within a month.  I subscribed to Motley Fool’s Option newsletter and followed Jeff Fischer’s advice, buying call options on Johnson & Johnson and Intel.  The risk is somewhat lessened by the fact that these are both solid companies.  Also, the calls don’t expire till 2012…plenty of time for the underlying stock prices to go up even if the market decides to dip a few times in the next year or so.  The way call options work is that I am buying the right to purchase a stock at certain price(strike price) on a certain date.  If the stock is trading below that price on the expiration date, I will not exercise the right to buy the stock and the option will expire worthless.  In that case, I lose the amount of money that I paid for the option.  If the stock is trading above the strike price on the expiration date, I can exercise my right to purchase the stock at the strike price.  What will most likely happen though is that sometime in the next two years I will choose to sell my options to someone else, hopefully at a hefty profit.  Options can be traded through your brokerage account much like stocks.  When the underlying stock goes up, the option typically goes up as well depending on the length of time remaining on the option as well as the proximity of the stock price to the strike price.

So that’s my latest stock market adventure.  More to come…

Stock Market Investing: Value, not Price

Saturday, October 31st, 2009

cscoIBM may be underpriced at $120; while Ford might be overpriced at $7.  I once bought Cisco Systems for around $20 thinking that since it had fallen from $80 it was cheap.  Guess what, it fell further.  In fact, here we are almost nine years later and CSCO is just under $23.

Learn from my mistake, pay attention to fundamentals…P/E, Div Yield, growth rate, free cash flow, etc.  Your research should give you a number that the stock is worth to you.  Prices rise and fall.  Sometimes without a good reason.  Don’t get fooled by a “sale”.  Only buy or sell if the price matches your investment goals.  Not because a stock looks cheap.

I’m planning to share more of my lessons learned in upcoming posts.  Feel free to add your own stories in the comments below.

Stock Market Investing: Goals

Sunday, October 25th, 2009

Stock chart One of the most important considerations if you are beginning a stock portfolio is to figure out what your goals are.  Why are you setting this account up?  What do you hope to gain by putting your hard earned money into the stock market?

Examples of situations that call for different investment goals:

1.  A 70 year old on social security may need that investment to earn a good dividend that she can use for monthly living expenses.

2.  A 25 year old may be starting his retirement account.  He doesn’t plan on taking money out for 30+ years.

3.  A couple in their thirties might open an account to save money for their children’s future college tuition.  They’ll need to withdraw that money in large chunks in 15 years.

4.  A 45 year old earns six figures a year and wants to build as large a nest egg as possible, possibly setting up an inheritance.

Each of these examples requires a different strategy.  Various types of accounts(401k, 529, IRA, etc.) allow tax savings for the appropriate strategy.

You will also choose your stocks or mutual funds according to your goals.  McDonalds is a stable company that pays almost 4% in dividends.  Google is a company (and stock) that has been growing like gang busters but doesn’t pay any dividends.

Finally, your goals dictate which broker you should choose.  An online brokerage account is inexpensive, but provides little to no guidance.  A broker at a full service firm like Edward Jones may cost more, but can guide your investment decisions to match your investment goals.

Have fun and know what you want out of your stock market investments.