Options, Futures & Derivatives

One of Johnny Carson’s best characters was Carnac the Magnificent. Clad in a cape and giant feathered turban, the comic great pretended to prophesy the answers to secret questions.  The act went something like this: Carson holds an envelope to his head, pretends to concentrate, and then sternly says, “Sis boom bah.” Then he opens the envelope and reads the question that prompted the answer: “What sound does a sheep make when it explodes?” If only it were this hilarious and easy to predict the future values of investments.  That’s why people use options. Predict the future price of a… Read More

One of Johnny Carson’s best characters was Carnac the Magnificent. Clad in a cape and giant feathered turban, the comic great pretended to prophesy the answers to secret questions.  The act went something like this: Carson holds an envelope to his head, pretends to concentrate, and then sternly says, “Sis boom bah.” Then he opens the envelope and reads the question that prompted the answer: “What sound does a sheep make when it explodes?” If only it were this hilarious and easy to predict the future values of investments.  That’s why people use options. Predict the future price of a security accurately, and you’ll make far more money than just holding the security. Blow it, and you can at least limit your downside.  It sounds easy, but before you put on your own feathered turban, here are a few things you need to know about options. 1. What Are Call Options And Puts — And How Do They Work? The most popular forms of options are puts and calls. A call gives the holder the right, but not the obligation, to purchase 100 shares of a particular underlying security (usually a stock) from the seller at a specified strike… Read More

Groupon (Nasdaq: GRPN) has been hit hard during the past year, but a price bottom may have formed with extreme lows below $3 a share. As of this writing, Groupon is trading around $5.36 a share. The unfilled gap down in August from $6.35 to the 52-week low at $2.60 has midpoint support at about $4.50 to lean on. “Cheap” is a relative term, but with the downside risk of zero and unlimited upside potential, I’d say Groupon… Read More

Groupon (Nasdaq: GRPN) has been hit hard during the past year, but a price bottom may have formed with extreme lows below $3 a share. As of this writing, Groupon is trading around $5.36 a share. The unfilled gap down in August from $6.35 to the 52-week low at $2.60 has midpoint support at about $4.50 to lean on. “Cheap” is a relative term, but with the downside risk of zero and unlimited upside potential, I’d say Groupon stock qualifies. Due to volatility, another word for opportunity, the options on the stock offer many strategies with mathematical advantages over a straight purchase of the shares. If you are comfortable holding on to this inexpensive stock to wait for a potential recovery, then selling put options could allow you to collect income while you wait to get into the stock at a 16% discount. Cash-Secured Put Selling Strategy While the typical investor might use… Read More