Options and Futures
Are you the betting type? In a hurry to lose your money? Don't sleep nights anyway, and need something to worry about besides why you always lose track of the sheep you're counting? Options and futures are for you!
You think I'm joking, but I'm not. Here's what you need to know about options — they are really and truly bets on the future price of a stock. Futures are bets on the future price of a commodity, like copper, wheat, or steel. We already know that you can't predict these things with any type of certainty. If you doubt it, just take a shot at it. Go to a financial website and start a model portfolio. Put a bunch of stocks in your portfolio because you think they'll go up. Then make a bet with yourself — for every point they go up, you'll pay yourself five dollars, and for every point they go down, you'll give that same five dollars to a street person in front of your favorite coffeehouse. Play the game once a week, and watch that street person's love for you increasing. Eventually, you'll have to go drink coffee someplace else, because you're going to give him a lot of money.
Here's the really nasty thing about options and futures — they cost too much and they last for too short a period of time. For example, you can bet on what the price of GM stock will be in two months, and if you are right, you will enjoy the right to cash out a certain number of GM shares at the price you picked — called “the strike price.” If you bet GM is going up, that's called a “put,” and if you bet it's going down, that's a “call.” If you miss the strike price, your option is worthless. You might as well have bet on a horse. And damn if it isn't hard to guess what a stock price will be like in two months. If you had a longer term to work with, your accuracy would rise. But long-term options would be riskier for the brokers, so they don't even issue them. You just get these short-term deals that spin out like Nascar racers on freshly-spilled oil.
Commodities futures are even crazier to get into. What, after all, do you know about the likely price of copper, coffe, tin, or wheat? You have no idea what drives these prices. Why would anyone invest in a commodities future? One good reason would be that you will have an actual need for, say, ten tons of tin during the next six month period, and you want to lock in the price, because if it goes up too much, it will be prohibitively expensive to make your tin cans. A huge bakery would likely have a similar incentive to lock in the price of wheat. But you? Get real. If you're not over it yet, read “Seize the Day” by Saul Bellow and you will get the message. Options and futures are for people who don't have the time to lose their money slowly and simply must get the job done quickly.
Currency Trading
You think I'm joking, but I'm not. Here's what you need to know about options — they are really and truly bets on the future price of a stock. Futures are bets on the future price of a commodity, like copper, wheat, or steel. We already know that you can't predict these things with any type of certainty. If you doubt it, just take a shot at it. Go to a financial website and start a model portfolio. Put a bunch of stocks in your portfolio because you think they'll go up. Then make a bet with yourself — for every point they go up, you'll pay yourself five dollars, and for every point they go down, you'll give that same five dollars to a street person in front of your favorite coffeehouse. Play the game once a week, and watch that street person's love for you increasing. Eventually, you'll have to go drink coffee someplace else, because you're going to give him a lot of money.
Here's the really nasty thing about options and futures — they cost too much and they last for too short a period of time. For example, you can bet on what the price of GM stock will be in two months, and if you are right, you will enjoy the right to cash out a certain number of GM shares at the price you picked — called “the strike price.” If you bet GM is going up, that's called a “put,” and if you bet it's going down, that's a “call.” If you miss the strike price, your option is worthless. You might as well have bet on a horse. And damn if it isn't hard to guess what a stock price will be like in two months. If you had a longer term to work with, your accuracy would rise. But long-term options would be riskier for the brokers, so they don't even issue them. You just get these short-term deals that spin out like Nascar racers on freshly-spilled oil.
Commodities futures are even crazier to get into. What, after all, do you know about the likely price of copper, coffe, tin, or wheat? You have no idea what drives these prices. Why would anyone invest in a commodities future? One good reason would be that you will have an actual need for, say, ten tons of tin during the next six month period, and you want to lock in the price, because if it goes up too much, it will be prohibitively expensive to make your tin cans. A huge bakery would likely have a similar incentive to lock in the price of wheat. But you? Get real. If you're not over it yet, read “Seize the Day” by Saul Bellow and you will get the message. Options and futures are for people who don't have the time to lose their money slowly and simply must get the job done quickly.
Currency Trading