Minutes
Monthly Meeting,
800 Marguerite
Reported by: Rex Chen
Title: How to Fit Options into Your Investing
Activities
Speaker: Jim Bittman, Senior Instructor the
Chapter President Bob Welge
brought the meeting to order at
Jim began by describing three types of investors: long-term,
short-term, professional marketers (speculators). Jim point out a common misconception in the
market is that options are only for speculators. In fact, Jim indicates options can be used by
conservative investors, and gives investors many choices and tools besides
long, short, and t-bills. However, Jim
noted the differences between stocks and options. When one owns a stock, they are entitled to
its ownership, dividends, and rights to vote in corporate affairs. However, option is not entitled with
ownership; it is simply a contract analogous to insurance policies.
For the conservative investors, Jim
indicates that buying options can be used as a technique to speculate a stock’s
volatility without investing a lot of money.
In general, high volatility stocks have higher option prices than lower
volatility stocks due to more fluctuations.
A very good question from the audience asked Jim rather than buying
options, why not just put a stop loss limit?
Jim answers that the distinction in putting a stop limit loss is
price-dependent while call-option is time-dependent. Time duration for buying an option can range
from 1 week, 1 month, 3 month, and up to 2.5 years. Jim suggests one type of long-term options
called LEAP options, which is often used as a gifting program (e.g. college
education for grandchildren).
Jim then talks about covered call strategy where options are used as income
generator similar to earning dividends.
In the covered call strategy, the investor would buy a stock and sell
calls to a share-for-share basis to someone else. When the option expires without getting
called, the seller earns income stream paid by the buyer. In such a scenario, the seller has the
obligation to sell, but the buyer only has the right to buy. Jim recommends that investors should not sell
a covered call stock if they may be unwilling to sell, and has emotional
attachments to the stock. Options
trading can also be a good IRA strategy since the earnings inside the
retirement account are tax deferred.
In summary, options can be used for a number of
investment strategies that include going bearish or short a stock but want to
limit risk, as well as speculating or protecting a stock or portfolio. For beginners, Jim suggests investing in an
option that lasts at least 60 or 90 days (rather than 30 days or less) to learn
the procedures involved with options.
For more information, Jim provided the following Internet websites for
the audiences to learn further on the topic.
·
http://www.coveredcalls.com
·
http://www.poweroptionsplus.com
·
http://www.optionnerd.com
·
http://www.optionstrategist.com
·
http://www.optionexpress.com
Following the conclusion of Jim’s presentation and taking
questions from the audiences, Bob adjourned the meeting at 11:00 am.