Saturday, 20 December 2014

Dec 2014 Portfolio

Month of December

Finally the last month of the year has arrived. Came back from cruise and I find myself planning for the next holiday again. You can never spend too much time thinking about your next holiday.

Stocks
Previously I was holding to 3 stocks which have been closed due to the recent drop in market. Now I’m looking at a few stocks which are showing rebounds from their technicals.

Stock
Size
Price
Closed
Realised
MU
84
$31.80
$34.09
$192.36
BBY
52
$33.40
$37.58
$217.41
TTWO
131
$22.40
$26.67
$559.37

Net Liquidating Value : $11,489.00
Total Invested Capital : $10,261.02
Total Realised Gains   : $969.14
P/L YTD                     : 11.97%

Options on Futures
The market drop mentioned caused me to close 2 of the Dec contracts earlier to put some money back into the account. Besides, I do not need the to wait another 10 days just to get $20-$25 while risking my entire account going into a margin call situation. I try to avoid margin call as much as I can. And you should too. If new funds are not injected into the account or positions are not closed when you receive a margin call, the broker will force close ALL your positions and most of the time, it will cause trouble to your account. Hence you should try to avoid a margin call as much as you can. 

Oct 14             : -$837.50
Nov 14            : $937.50
Dec 14            : $917.5 ($642.5+$275)

Net Liquidating Value : $12,655.45 (If I close all my contracts now)
Total Invested Capital : $10,000
Total Unrealised Gain : $2,655.45
P/L YTD                      : 26.55%


Investing Wolf

Disclaimer: This is not a recommendation to buy or sell any mentioned stocks or securities in this blog.

Sunday, 14 December 2014

What is Options Selling?

To understand option selling, we need to understand what are options?

Options are contracts that allow the holder the right to exercise (buy or sell) the underlying asset at a specific price on or before a specific date for a premium. Common uses of option in daily life include buying a house or buying insurance.

For example, you pay the insurance company to insure the underlying asset (which could be you, your property or anything else) at a specific price (how much the insurance will pay in the event something happened)on or before a specific date (the duration of the insurance policy) for a premium (money that you pay monthly or annually).  If you fail to pay the premium then the policy will expire. But if something happens, the insurance company would have to pay.

The above example is typical for option buyers. Then, if you think about it, if there are buyers (policy holders), there has to be sellers (insurance company) out there.

Option Selling can be compared to being an insurance company for the financial world. You take on the risk for a small amount of premium. Who in the right mind will want to take on the risk? Well, think about it, most of the time you have insurance but how often do you make a claim? When no claim is made during the policy year, the premium will still be kept by the insurance company. Most insurance will either charge a higher premium or deny the application for those with a higher risk.

The most interesting part is this… you can choose to exit the position anytime you feel uncomfortable. You just have to buy back the contract and you close the position. Risk is always there, it’s how you manage it that defines your portfolio.



Investing Wolf
Disclaimer: This is not a recommendation to buy or sell any mentioned stocks or securities in this blog.