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Investment Thread

Discussion in 'Real Life Discussion' started by Lyndon Eye, Jul 12, 2013.

  1. dhulli

    dhulli The Reborn

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  2. Darth_Revan

    Darth_Revan Secret Squirrel ~ Prestige ~ DLP Supporter

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    Your link is just a soup of words.
     
  3. Giovanni

    Giovanni God of Scotch

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    Not really, but it does a piss poor job explaining options in terms for people who don't understand them because almost all of the terminology used assumes some underlying knowledge of options trading.
     
  4. Sesc

    Sesc Slytherin at Heart Moderator

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    Options, in the most simple terms, buyer's perspective:

    You think a stock will rise. Therefore, you buy the right to buy the stock at a certain price (=="strike price"), e.g. the current one: "Call". Or:
    You think a stock will fall. Therefore, you buy the right to sell the stock at a certain price (=="strike price"), e.g. the current one: "Put".

    The thing is that you don't actually need to execute the options. You can -- but they have an intrinsic value, because obviously if you possess the right to sell the stock to someone at 15, and it currently costs 10, that's worth 5 per stock, and you can just sell the option to someone else.

    Reverse from seller's perspective: If you already own stocks (=="long" position), and you sell someone the right to buy the stock from you for price X approx. around/higher than the current price, and the stock largely moves sideways until the option expires, you have a net gain because the buyer isn't going to execute his option, but paid you for getting it in the first place (it's not free, naturally). That was the idea from the link.


    That's my TL;DR of it, though it's been a while.
     
  5. Ched

    Ched Da Trek Moderator DLP Supporter

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    So what programs/sites do you all use for your investment activities?

    I've got my savings invested now via some advice from an advisor. Planning to manage these funds myself later on in Vanguard (or similar) but probably not for a few years.

    I've got a retirement account with approximately the same amount in it as the above savings, and some control over how it's invested.

    I put some money into Cryptocurrency and managed to not lose too badly, but it did end up down about 35% from where I started. I used GDAX, Coinbase, and Binance mostly here, picked up one or two coins like DRGN elsewhere, and stored most of it in MEW wallet or whatever. I am writing this off as a loss for the most part even though technically it's not - I don't expect it to go up again.

    I have a vanguard account but nothing in it (went with the financial advisor above), but I'll probably use it at some point.

    I'm familiar with other things like Acorn, Robinhood, etc. but haven't used those.

    Your favorites? And what do you use them for, just buying and holding? Day-trading? Options? Etc.
     
  6. Lindsey

    Lindsey Headmaster DLP Supporter

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    I use Betterment for my Roth IRA and a higher interest savings account.

    I have a ton of cash sitting around doing nothing as I don't know anything about stocks, and I fear the risk. I am watching this thread carefully as I would love to have this money working for me, and not making a few dollars in interest each month.
     
  7. s0ng2Sing

    s0ng2Sing Second Year

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    How is Betterment? From what I've looked at it has good reviews and it is said to be one of the best robo advisors out there. Any issues/complaints with them or do they seem to perform well? I've been considering opening a Roth IRA with them for a while and I'm curious how the robo advisors perform compared to the other more traditional options.
     
  8. Sesc

    Sesc Slytherin at Heart Moderator

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    Entirely depends on what kind of money it is. Money =/= money. I.e.: Is it money you want to have immediate access to, all the time? Then it's call money, with daily access. Or is it money you'll want for your retirement in 30 years? Then we're back to index funds -- just dump it into an MSCI World ETF, for instance, and forget about it 'till you retire.

    In-between is more complicated and requires either your time or your money. A reasonable idea that requires a bit of time each year could be dividend aristocrats, for example. That's stocks that have increased their dividend each year for the past 25 years, indicating they A) have a solid business model, and B) a desire to let you participate in it. Spread your money there (never buy just one stock), and you'll run a very small risk.

    That's just one example, though; there are many other possible ways to pick. It depends on you.
     
  9. Darth_Revan

    Darth_Revan Secret Squirrel ~ Prestige ~ DLP Supporter

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    For my money that isn't invested with TSP, I have most in savings accounts, but I use Robinhood for my personal play-time investments. The interface is good, you can do tradition stocks or options trading, and there's no trade fee. Overall, I like it.
     
  10. Heleor

    Heleor EsperJones

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    I just throw everything but my immediate savings (emergency fund) into my Vanguard account for VTSAX. I also have some RSUs (vested and unvested) in a Morgan Stanley account.
     
  11. Lindsey

    Lindsey Headmaster DLP Supporter

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    I've only been using them for a year, but so far they've been alright.

    In 2017-2018 I had two accounts set up with them: an Roth IRA and a basic retirement fund account (made it by accident). My Roth IRA has gone up about 2.4%, while the basic retirement fund as lost me a wee bit of money.

    I decided to try out their savings account this year, and added the max 5500 to the Roth IRA. I will say, I love how simple the interface is.

    In-Between. I already put in over 14k in my 401k, and max out my Roth IRA, so retirement should be fine. And I have enough of an emergency fund to last me over a year of unemployment (thank god as I am unemployed).

    I had been saving all this money to take a year off and travel. However, life got in the way and it's looking like I may be taking a different path that will not cost me as much money. Now, I just have money sitting around that I may not be using for the next 3+ years, or whenever I decide to buy a house.
     
  12. Perspicacity

    Perspicacity Destroyer of Worlds ~ Prestige ~ DLP Supporter DLP Gold Supporter

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    I use Fidelity and Vanguard sites. The former has all my retirement accounts: IRA, 401(k), 403(b), etc. The latter has more liquid (but not much more) assets, mostly "buy and hold for long periods of time" stuff. I don't day-trade and only get around to checking stuff every month or two or when I have to put some money away (usually when the checking account exceeds a threshold).
     
  13. Heleor

    Heleor EsperJones

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    Vanguard offers auto-invest - I set it up on my checking account ($X/month) and don't really worry about draining it manually anymore.
     
  14. Perspicacity

    Perspicacity Destroyer of Worlds ~ Prestige ~ DLP Supporter DLP Gold Supporter

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    I prefer doing this by hand to facilitate portfolio rebalancing. And it gives me an excuse to check back in every couple months and monitor things (about as often as one needs with a buy and hold approach to investment).
     
  15. pbluekan

    pbluekan Headmaster DLP Supporter

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    The max is 6k this year IIRC.
    The nice part about both of these is they offer advice over the phone or easy investment strategies if you don't know what you're doing.

    On a slightly different topic, for those of you who know how and understand the risks, writing options contracts can be a good way to maintain a steady influx of cash into your account (IRA or standard Brokerage). I do it in my Roth IRA which is geared heavily towards growth, but is fairly well diversified. I maintain lots of 100 of each asset, and write out of the money covered call options on a weekly basis. It brings in about $80/week on average with the occasional minor disruption if a contract actually ends up in the money.
     
    Last edited: Apr 14, 2019
  16. Darth_Revan

    Darth_Revan Secret Squirrel ~ Prestige ~ DLP Supporter

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    Could someone with the requisite knowledge provide a primer on the options contracts that they regularly use?
     
  17. pbluekan

    pbluekan Headmaster DLP Supporter

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    So, this is kind of a large topic, and here are some investopedia links, but I'll provide a primer here on options and what I generally do with them. (1, 2, 3)

    Options contracts are, as the name implies, contracts that give the contract holder the option to perform the action stated within the contract provided the preconditions are met on a certain date. When you buy and sell options, you are not trading the actual asset. You are trading words on a piece of "paper". What this means is that this has no true value and can actually go to zero and be unrecoverable. So be fucking careful. Options are what is known as a derivative product; as in, they and their value are derived from an actual, underlying asset. There are thousands of derivatives as anyone could write a contract for anything and someone might take up the deal, but those are usually sold in private deals.

    For our purposes, there are two types of options contracts you will commonly see on public markets: Calls and Puts.
    • In simple terms, a Call is a long position in an asset, a Put is a short position. (I assume you know what long and short is.)
    These options give you the right to buy (call) or sell (put) a single lot (100 shares) of the underlying asset at a pre-negotiated price, known as the strike price. Each options contract consists of a few basic things:
    • Premium
      • This is the price of the contract itself, and is basically the amount of money the contract holder is paying the contract writer for the rights outlined in the option. This price is on a per share basis, and because each option is for 100 shares, you multiply the premium by the number of shares. (A contract with a premium of $0.26 cents costs $26.00, because .26X100=26)
    • Strike Price
      • The strike price is the price I can buy or sell a single lot of 100 shares at, as negotiated.
    • Expiry Date
      • The date that the contract must be exercised by, or it vanishes. Most brokerdealers (fidelity, vanguard, schwab, etc.) will auto exercise any contracts that are valid at end of day (4:00pm ET), however, the contract holder has the ability to exercise at any time.
    So, if I'm looking at an option in my trading app, I'll see something like this:
    tempsnip.jpg
    The red square is the underlying asset, the blue is the expiry date, in this case, April 26, 2019 at 4:00pm ET, the C is the type of option, and the yellow is the Strike Price. At the bottom, you can see all this information, including the Bid-Ask spread for the option premium.

    So, the basic idea is that if I hold the above contract, and the price of the underlying asset, CSCO, is at or above the strike price of $56.50, then I have the right to exercise the option and buy those shares from the other party at the strike price. When the price of CSCO is above the Strike Price+Premium is when actual money is made on the trade. (This is called being in-the-money) You can imagine, say if CSCO had jumped to $60 what an advantage it might be to own the option to instead buy those shares at $56.50. The opposite is true for a put option: I have the right to sell shares at the strike price should the price of those shares drop to or below the strike price.

    Logically, the premium of an option rises as the option becomes more valuable, and this is where options trading arises, as people can buy and sell the contracts without ever exercising them. The contracts also often inflate/deflate in price disproportionately to the underlying asset. For example, if the underlying asset grows 10%, the price of the call options might increase by 400%. Similarly, if the asset decreases by 10%, the call option could decrease by 400%.

    I feel I should remind you all that if an option is not exercised by its expiry date it vanishes and becomes worthless. YOU CAN LOSE ALL OF THE MONEY IN A PLAY. HOLDING DOES NOT GUARANTEE THE PRICE WILL RECOVER.

    In the industry, options are primarily used as a hedge (or a buffer) against losses. Say you have a large amount of a certain asset. You naturally fear that asset dropping significantly. You might buy put options of that asset. If the asset continues to rise, all you've lost is the premium. If the price drops, then your losses are mitigated by the exercised option.

    So, that was my little primer on options.

    What do I do?
    • I write what are called Covered Calls. This means that I write (the trading software does the actual "writing") call contracts for shares of an asset that I already own and collect the premium. This is called "covered" because if the option is exercised, I have the shares available to sell to the opposite party. Essentially, my ass is covered.

    How do I make money with this?
    • Well, I write contracts for strike prices that are out-of-the-money, or contracts where I think the price of the asset will drop below my strike price prior to the expiry date. Buyers of the contracts pay for the premium at the time of sale, and assuming my plan holds together and the option never becomes in-the-money, the contract expires, and I keep both the asset itself and the cash premium.
    • If they were to ever exercise the option, I still keep the premium and then the proceeds from the sale of the asset, I'm just missing the extra gains on top between the strike price and the current asset price.
    • If the price of the asset falls, I still make my premium, I just have to deal with the reduced asset like I would even if I had never written the contract.
    • In summary, this is a way of hedging your losses (loss is reduced by the premium the buyer pays on the contract you sell) at the risk of minimizing possible gains.
    I also have two other strategies:
    1. Buying call/put options that are deep in the money with long expiration dates:
      • Basically this is an option that I could exercise immediately. The prices don't move as much on these (though still more than the underlying asset) however, they are safer as there is a more liquid (more people buying and selling) market for them, and if the asset starts moving against me, I can exit the trade with limited losses and not go straight to zero.
      • I usually do this on companies in the run up to their earnings call and then exit the trade the day before or day of earnings.
    2. Earnings Strangles
      • This is a bit more of an advanced strategy and is explained here. But basically it amounts to buying both an out of the money call and an out of the money put of a single underlying asset with the expectation that the asset will move a large amount in either direction. This doesn't have to be done at earnings, but assets tend to move the most just before and after earnings. If the underlying asset drops significantly, the call option goes to zero and the put option rises dramatically. If the asset rises significantly, the opposite happens. I only lose if the asset does nothing, and then I only lose the premium when the contracts expire.

    There is a lot more to options and options trading, but this is the basic gist of it and what I do.

    Don't trade or dabble in options until you are very familiar with them.
     
    Last edited: Apr 15, 2019
  18. dhulli

    dhulli The Reborn

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    Well, I figured I was happy with whatever profit I already had with my FB calls and figured let's not gamble on earnings. Just my luck that FB beats earnings (as I expected) and shoots up 8%... :(
     
  19. pbluekan

    pbluekan Headmaster DLP Supporter

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    Heh. I just wish I’d bought that TSLA strangle I was eyeing up. 399% surprise. Jesus H. Christ.
     
  20. Xiph0

    Xiph0 Administrator Admin

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    Not gambling when you're already gambling is usually wise.
     
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