STOCK TRADING 102

I am still in the stock trading, but have pulled back on the number of stocks I am trading in an effort to stay in control. If you know me at all, you KNOW I have a need to be "In Control" at all times-if possible. I still am holding 8 stocks with some obviously having become "Long Term". I really enjoy the quick ins and outs-but that is not always possible in today's market. I will say that of these 8, I am only REALLY concerned about 2 being possible Losers.

The latest thing BC has gotten me into is the "Option Market". Think of it as I have an option to buy or sale a stock at a certain price by a certain date. Options consist of "Calls" and "Puts". All business students have studied and are familiar with puts and calls, but only when you get involved in buying and selling them do they begin to become understandable. In an effort to convince myself that I totally understand what I am doing, I will attempt to explain calls and puts to you.

If I own a stock that I bought at $50, but the price has fallen and I am searching for a way to either lower my basis (what I have in the stock) or make some additional money while holding the stock , I can sale calls. Calls have a "Strike Price" or the price that they will pay you for your stock and an execution date-the final date that the buyer of the call can buy my stock from me. The buyer of the call pays me the seller a certain figure, say $2 per share to buy my stock in a certain period of time (30, 60, 90, etc etc days) at a certain price. Lets say I sell my call for $2 and the buyer has 30 days to buy my stock at $55. If the stock does not go up to that price, the buyer of the call will let the call expire and I will be ahead $2 per share. I can then either sell another option, sell the stock, or continue to hold it. Perhaps the stock in that period of time begins to go up to the $55 strike price, the buyer then has the option to pay me the $55-NO MATTER HOW HIGH THE STOCK has gone and I will have made The $2 option price plus $5 profit off of the stock sale. Now this can go the other way. I have some Apple stock. I have sold a call option when the stock has started going up, making the option more valuable. NOW we have a further complication, say I sold the call option on Apple for $5 per share when the stock was moving up towards the "Strike Price". ALL of a sudden, the market turns down AGAIN and heads south. I now have the option of buying that option back for a lower value since the stock will not get to the "Strike Price" and once again owning the stock with no option to take it from me attached. Perhaps I could buy the call back for $1 since we were so close to the strike date and so far from strike price. I have now made a profit of $4 per share and still own the stock. I have could then turn around in a few days as the market goes back up again and sell THE SAME call option and make an additional amount ON THE SAME CALL. BEAUTIFUL!

Puts are the exact opposite side of the trade. I do not own the stock, but would like to be able to buy it at a certain price by a certain date. I sale a put with the anticipation of buying this stock at the strike price if the stock is at the strike price or lower by expiration date. It is like a payment made to me to take the stock at a set price. I remember what puts are by saying "They can put the stock to me." In other words, they can force me to buy the stock by the execution date at the price determined, IF I am still obligated for the put. The puts work in the same way as a call in that you can buy and sell them with the fluctuation of the market.

Calls and puts are riskier than buying and selling stocks. Keep in mind, if you buy the stock-you have something and if you are patient enough you can hold it FOREVER waiting for it to go up. A call and a put are for a determined period of time and if the market goes the wrong way on you, you have just lost your money and if you own a stock-you might also have to come up with the additional $'s to buy the stock. I like owning the stocks, but the calls and puts do not cost you as much and are an effective way to play the market without the huge dollar risk.

CONFUSED YET? Every time I trade a call or put, I have to really think about this-ESPECIALLY THE PUTS. With the calls, I own the stock, I know if they take the stock what my gain or loss will be, but with puts-I risk coming up with additional $'s to buy the stock.

Confucius say"Don't fool with "Puts" unless you like the company, for you may very well end up being a stockholder." I am thankful for a GREAT BROKER who does not mind saying, "You don't want to do that!" Don't hesitate to tell me, "TMI" or MORE THAN I EVER CARED TO KNOW!