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Stock Options 101 Jul28 10
Stock Options 101 Jul28 10
Stock Options 101 Jul28 10
Stock Options 101 Jul28 10
Stock Options 101 Jul28 10
Stock Options 101 Jul28 10
Stock Options 101 Jul28 10
Stock Options 101 Jul28 10
Stock Options 101 Jul28 10
Stock Options 101 Jul28 10
Stock Options 101 Jul28 10
Stock Options 101 Jul28 10
Stock Options 101 Jul28 10
Stock Options 101 Jul28 10
Stock Options 101 Jul28 10
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Stock Options 101 Jul28 10

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Illustrates the basic concepts for trading stock options

Illustrates the basic concepts for trading stock options

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  • 1. CFO STRATEGIES INC OPTIONS 101 JULY 28, 2010
  • 2. What is an Option
    • A security that represents the right
    • But not the obligation
    • To buy the underlying security (shares)
    • At a specified price
    • Within a specified period of time
    • Each call represents 100 shares
  • 3. The Options Quadrant
    • Buy a Call
    • You expect the underlying stock price to increase in value, you can buy a call option, giving you the right to purchase the shares at a price anticipated to be below the market price on or before the expiration date. This will be a net debit to your account.
  • 4. The Options Quadrant
    • Sell (Write) a Call
    • You expect the underlying stock price to increase in value and you are prepared to sell shares at a predetermined price on or before the expiration date. You will earn cash by selling a call which results in a net credit to your account. DO NOT SELL NAKED CALLS
  • 5. The Options Quadrant
    • Buy a Put
    • You expect the underlying stock price to decline in value, you can buy a put option to sell the shares at a predetermined price, anticipated to be above the then market price on or before the expiration date. This will result in a net debit to your account.
  • 6. The Options Quadrant
    • Sell (Write) a Put
    • You expect the underlying stock price to increase in value, you can sell a put at a lower price in anticipation of the put option expiring worthless. You will earn cash by selling a put, which results in a net credit to your account. Margin or cash reserve of about 30% will be required. If the stock price declines to the strike price, you will be required to purchase the shares at the reduced price.
  • 7. Types of Options
    • Buy a call option - expect price to increase
    • Sell a call option – reduce net cost
    • Buy a put option – expect price to decline
    • Sell a put option – desire to buy lower or
    • -- expect price to increase
    • Implement a spread option strategy
    • Multiple leg options
  • 8. Risk Factor
    • Options can be less risky than stocks
    • They require a smaller investment
    • They can be self correcting
    • The profit potential is exceptional
    • It forces to you to take profits
  • 9. Caterpillar – July 23, 2010
  • 10. Why Options???
    • Let’s Look at Caterpillar (CAT-N)
    • Buy 100 shares @ $70.00 = $7,000 risk
    • OR
    • Buy 1 C Sep $70 @ $3.10 = $ 310 risk
    • If by Sep 17 CAT @ $75
    • Option could be worth $5.00 = $ 500
    • Profit $ 190
    • % Return 61%
  • 11. Amazon – July 23, 2010
  • 12. Why Options???
    • Let’s Look at Amazon (amzn-Q)
    • Sell 100 shares short @ $119.00 = unlimited
            • risk
    • OR
    • Buy 1 P Jan $120 @ $12.45 = $ 1,245 risk
    • If by Jan 21, 2011 AMZN @ $100
    • Option could be worth $20.00 = $ 2,000
    • Profit $ 755
    • % Return 57%
  • 13. WAYS TO REDUCE COST
    • Buy shares & sell a call at a higher price
    • Buy call option at one strike & Sell another call option at a higher strike
    • This is called a bull/call spread
    • Enter bull/call & sell a put at a lower strike
  • 14. Conclusion
    • Options are safer than stocks
    • Options require lower investments
    • Lower investment reduces risk exposure
    • Options provide higher potential returns
    • Buying calls & puts are RRSP eligible
    • Covered calls are RRSP eligible
  • 15.
    • Thank you for your attention
    • Contact CFO Strategies Inc.
    • David Saxe – Investment Strategist
    • 613-563-1085
    • [email_address]

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