Leveraging stock options

[Paradox]

I'm new at this so I need a lot of help here.

I have several options in a publicly traded company.

A friend of mine says that instead of cashing out my options I should leverage them against a purchase of more options.

He was also trying to explain to me the option of going short or long on the purchased options.

Can someone explain to me ho this works & what I can do with my options.

 

[Bad_Lil'Pixie]

Do you feel the company is solid? I am guessing it is Cisco, Sytec or another type tech stock, they have all been pushing leverages recently. I have several options out there myself and many seem about as valuable as bird cage liner today with the recent market dip.

My understanding of LEVERAGING based on my current options:

Leveraging basically gives you the right to buy or sell WITHOUT obligation. I believe you can leverage no more then you already own. If you have 100 options and leverage them to BUY or SELL a 100 then you have basically just earned the right to do so.

If you leverage to BUY 100, (called 'CALL' optioning) then the company can forecast you doing so and base purposed budgets on your 'promise'.

If you leverage to SELL 100, (called 'PULL' optioning) then the company can plan ahead for the decrease.

This allows them a "crystal ball" for their future so to speak and YOU a reserved place to wiggle your options as needed.

Leveraging never obligates you to do anything, it just gives you the RIGHT to when you are ready. It also can put you in as a more loyal options (holder) position and you will become valued to them. This value earns you tips, forecasts, notifications of developments, etc... long before folks like me, who just hit and miss the market, will ever know.

I have an idea that your friend wants you to hold on for the brighter days ahead - makes since. Is your friend affiliated with this company? Inside info is a big "no-no" so his tips may be hints to keep things on the up and up.

KNOW THIS: Leveraging is a big hit word right now in the market, it is taking on various definitions and sometimes in better defined by the type of option it is. Leverages in food and mercantile can be different then entertainment or energy leverages and still different in trades or foreign goods.

Your bank employs investment advisors; as an account holder you are entitled to their services free of charge. Also, places like Raymond James, Charles Schwab and other investment companies almost always have free advisors on staff to explain things and keep you up to date.

Investing through THEM now and give you HUGE benefits later in life. I know it is far fetched, but should you be a father one day, you can do prepaid college funds, braces and many other services for a FRACTION of the cost. We just set two college funds in motion for relatives of ours that are fully debt protected and will put them through an Ivy League school for a mere 5 grand invested now.

As far as long term vs Short term; your friend maybe talking about LEAP's. I am clueless on exactly how LEAK's work but you can google and read up on it. They are becoming more popular and until they make the LEAK's for Dummies books, I am not even going to try.

Use your free resources available!

 

[Paradox]

Thanks bad pixie,


I google everything else but I didn't think of googling this.
Here is the link I found to be most useful:
http://www.terrystips.com/stock_options.shtml

It also explains LEAPS.

I owe you a spanking. Thanks again

 

[Bible_Belt]

called 'PULL' optioning

It's "put" not "pull." Options that profit when a stock goes up are calls; options that profit when a stock goes down are puts.

Are your options in the money? What is the stock? Even if they are in the money, they are worth a little less each day as time erodes their value - unless the stock keeps going up past your strike price (the price that you can buy, as named in the call option.) But time is still a consideration - you can hold stock forever, but options expire.

Can't you sell some, take some money off the table, and then reinvest a smaller amount? This way, you are gambling with profits instead of principal.

I have known many traders who made money trading stocks, and then lost it back trading options. Most people should avoid the options market; stocks are difficult, options are very difficult. Spread are wide, liquidity is not great, commissions are higher, valuation is tricky (come back and explain the Black Scholes valuation model to me after you learn it - I still don't get it), and on top of all of that, time works against you. Even if you are right but jump the gun, the option can expire before the stock moves, and you lose out.

 

[Paradox]

Are your options in the money?

Yes, half are "in the money"

What is the stock?

They are for a Fortune 50 company

unless the stock keeps going up past your strike price (the price that you can buy, as named in the call option.) But time is still a consideration - you can hold stock forever

I purchased these at a low strike price. If I sell half now I will double my money.

but options expire.

These options expire in 2013 and 2014

Can't you sell some, take some money off the table, and then reinvest a smaller amount? This way, you are gambling with profits instead of principal.

This was my initial thought. I was going to sell and then reinvest in another company but a friend said that I can keep my options and leverage them

 

[Bad_Lil'Pixie]

This was my initial thought. I was going to sell and then reinvest in another company but a friend said that I can keep my options and leverage them

You can listen to the Squawk Box, Jim Kramer, Suzie, or whomever all day long, investing seems to be one big crap shoot. To me, in my opinion, your GUT is the best tool in the market. If you thought to reinvest it, do it, God it's a GREAT buyers market right now.

Years ago, this stock came out with a really cute name, I thought to myself, "Ya know Pix, if someone is brave enough to put a company out there with that cute, meaningless name then you should be brave enough to buy into it." My google purchase has really paid off.

Yes, Bible Belt, I did see I used the wrong word, PUT over PULL. Well, my contact at Raymond James is a damn Yankee and doesn't know how to talk right like us Southerners do! Thanks for pointing it out, I will make a note of it, I can always count on you! ;-) Pixie

 

[Celadus]

Don't be like the dummies that invested everything they had in Enron and got mad when they lost it. Take a certain percentage out and leave the rest in. Leverage is a double edge sword. I lost $3300 in 4 minutes on Tuesday but made it back over the last two days with a $15,000 dollar account.

Pixie, I think you are confusing leveraging with derivatives. Leverage is just borrowing money. But a derivatives allow you to leverage a lot.