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American Capital Agency Corp. Message Board

  • bertegle bertegle Dec 13, 2010 2:07 PM Flag

    Buy The Shares vs Options?

    How many on this board would risk buying 1000 contracts @.20 (Dec $29.00) costing $20000 right after the recent offering? The profit would be $55000. I wish I would of done that I only bought 10 contracts. Is the risk too high? Maybe I'm beeing too gready.

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    • I stay away from options.

      When I buy the shares, the dividend is my hedge if the price movement doesn't go the way I expect.

    • I believe it is too risky. I would rather go for the jan 29 for safety purposes (i have 106 contracts on those), or go for the jan 30, but it is risky as well, don't know if it is worth doing.

      • 1 Reply to arshakandriasov
      • Good for you Arsh!! Merry Christmas!!

        The question comes down to risk/reward. For every strike further "away from the money" the potential loss increases. On the other hand if the stock moves in your direction the higher potential % gain you reap.

        ITM(in the money) options give more $$$ reward for movement but less leverage, i.e. less % return per dollar invested.They carry less potential risk of expiring worthless but still can suffer catastrophic loss on significant downturns.

        Your example illustrates this in that those DEC 29's were a good trade. They could have been disastrous if the secondary had been like the last and taken two weeks to recover. Bye, Bye $20,000.

        As I have said over and over if you trade options you need an edge in knowing(educated guess) the likely PPS movement. In this case we "guessed" that there would be an upswing toward announcement and divi. This time we were right, if you unload now. We could be wrong if divi is $1.00 and we hold.

        But I am making an educated guess that we'll see $1.40 and have movement to 30-31.5, therefore I hold.

        Yes, options are more of a gamble as a rule than holding the shares. That's why most of us gamblers hang out on this board because this stock is one of the most consistent stocks to gamble with.

        Sorry for ending with a preposition Jim. Nice new identity.

    • Excellent post on options Ben.

      I think my head just exploded. I'm going to have to reread this several times.

    • Thanks for explaining options to me Ben.

      I did not realize the profit margin was so high, and the risk loss so low. I will have to research more about options on the TD Ameritrade website.

    • May I clarify this. I made a typo. I would not buy the calls if they decrease the dividend.

    • G55 I like to trade this stock like you. If I can get more than the div, why not take it? Especially since the div is not for sure. That last day of month before ex i must check out.

      Last quarter the stock went down on the day before the ex, but this was an exception. The high range has been 4 to 5 days before th ex. Thanks for the stradegy.

      Herb

    • Ben,

      That was a great description for Olee. I give it a 5 Star Rating, but I don't know how to turn on the stars. I have submitted my application for option trading and hope to start soon. I would suggest that Olee take the on-line course from OIC and/or get a book like Options for Dummies to provide an academic background to go with his option trading experience. Buying one contract is a great idea. Nothing helps the learning experience like a little skin in the game. I commend you for helping those of us who lack your expertise and experience. Thanks and GLTA

      RIMBoomer

    • There are no Dec. 29 calls, only Dec. 17 this Friday. I think you are asking a decay quesion, but the next part of the question depends on how far in the money versus how far out of the money. ITM decays a bit less, but nonetheless, you have to sell any Dec. options by Friday unless you want to exercise and buy the shares.

      You willl not want to exercise and buy the shares unless the strike price plus your option cost is less than the share price on the date of exercise.

      With that question, I hope you aren't holding any calls.

    • yeah that's what i thought

    • Except 1 contract equals 100 shares. 100 x 3.80 = 380 (not 3,800).

      So, I was off by quite a bit, but still the profit percentages and the rest were fine.

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