An option is a contract between a buyer and a seller, based on an underlying security, usually a stock. Options trading is when the buyer pays the seller a fee, or premium, in exchange for certain rights to the stock option. In exchange for the premium, the seller assumes certain obligations.
Options trading occurs through stock exchanges, with prices quoted each day in the financial section of newspapers. Each options contract is for 100 shares of stock. So one contract quoted at $5 will cost you $500 (before commissions).
Calls give the holder or buyer the right to buy the underlying security at a specified strike price until the expiration date. Puts grant the holder or buyer the right to sell the underlying security at the strike price until the expiry date.
Each options trading contract has a limited life span, or time to expiry—usually less than nine months. The expiry date is the date on which the contract expires. The strike, or exercise price, is the price at which the rights granted to the buyer can be exercised.
In options trading, we think that you will eventually lose. That’s the key difference between most aggressive investing methods and stock option investing. If you want to invest aggressively, our best advice is to avoid options and buy stocks like those we recommend in our Stock Pickers Digest newsletter.
At TSI Network, we recommend using our three-part Successful Investor philosophy:
Discover our complete guide to Canadian wealth management and making the most out of your savings. It’s all in our newly updated report, Wealth Management & Retirement Planning: Canada RRSP Contribution Limit, RRSP Interest Rates, TFSA Contribution Limit and More. And it’s yours FREE!
BMO Europe High Dividend Covered Call Hedged to CAD ETF, $18.34, symbol ZWE on Toronto (Units outstanding: 2.5 million; Market cap: $45.9 million; www.etfs.bmo.com), holds mostly high-quality European stocks. These include BP plc, Swiss Re AG, HSBC Holdings plc, Total SA, Teliasonera AG, Allianz SE… Read More
Recently a member of Pat McKeough’s Inner Circle asked about exchange-traded funds (ETFs) that are “set up to move in the opposite direction of particular stock indexes”. These are ETFs that are designed to rise in value as the underlying market index falls:… Read More
This will be our last Inner Circle Q&A for 2015. Our next issue will go out on Tuesday, January 5, 2016.
Now is a good time for me to say “Thanks!” to all our Inner Circle members. It’s a pleasure to read and… Read More
Q: Pat: Can you suggest some U.S. ETFs that are set up to move in the opposite direction of particular stock indexes, rather than in the same direction? Regards.
A: U.S.-based ProShares offers a range of exchange traded funds for U.S. stock indexes. The company offers… Read More
BMO U.S. High Dividend Covered Call ETF, $18.41, symbol ZWH on Toronto (Units outstanding: 14.7 million; Market cap: $270.6 million; www.etfs.bmo.com), uses covered calls to try to boost its cash flow so it can provide higher distributions to investors.
Covered call writing is where you sell… Read More
Investors can use special ETFs called bear funds to hedge their positions in a market downturn.
A bear fund is a type of ETF that is designed to rise in market downturns. A bear market is a situation where stock market averages trend downward… Read More
What are stock options, and can they increase your profits?
What are stock options, and how are they used for investing? An option is a contract between a buyer and a seller, based on an underlying security, usually a stock… Read More
We take a hard look at the risky aspects of online trading and what they mean for you as an investor
Online trading seems like an easy and convenient way to invest, but that can also make it an easy way to lose… Read More
Here’s the text of the quarterly letter I recently sent to our Portfolio Management clients:
“Most investors find they improve their investment results when they invest conservatively. Speculating can pay off from time to time. But the gains are generally too small and/or… Read More
Today’s tip: “A healthy sense of skepticism can help investors avoid conflicts of interest—as, for instance, when the prospect of higher commissions may prompt a broker to steer a client into stock options.”
Let me remind you of a couple of our… Read More
Learn everything you need to know in 'The Canadian Guide on How to Invest in Stocks Successfully' FREE Special Report from The Successful Investor.
How to Invest In Stocks Guide: Find 10 factors that make your investments safer and stronger.
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