Investing 101: Options Trading

Investor portfolios are often comprised of stocks, bonds, and ETFs, but options are another asset class that is getting more attention in the news. An option is a contract that gives the buyer the right to buy or sell the specified stock at a pre-determined price on or before a certain date when the contract expires. A call option gives the holder the right to buy a stock, while a put option gives the holder the right to sell a stock.

Options are generally used for income, to speculate, and to hedge risk. A stock option contract is typically comprised of 100 shares of the underlying stock. Options can usually be bought and sold like stocks on your brokerage account, such as Webull, Robinhood, or Fidelity.

People who buy options are called holders, and those who sell options are called writers. Options holders (buyers) are not obligated to buy or sell, they simply have the choice to exercise their rights. This limits the buyers’ risk to only the premium spent on the options contract. However, options writers (sellers), are obligated to buy or sell if the option expires. This means that a seller may be required to make good on a promise to buy or sell, even if that negatively impacts them. It also implies that option sellers have exposure to more risks. Writers can lose much more than the original price of the options premium.

There are four basic options trades: buying a call option, selling a call option, buying a put option, and selling a put option. With call options, the buyer is betting that the stock price will be higher than a predetermined price called the strike price. The call options seller is betting the price will go down. With put options, the option buyer is betting the stock price will fall below the strike price, while the seller is betting it will be higher than the strike price.

When valuing option contracts, it’s all about determining the probabilities of future price events. The more likely something is to occur, the more expensive an option would be that profits from that event. Generally, the closer an expiration date is, the less value an option will have because there is less time for the stock price to make a big move. For example, an option for a fairly stable priced stock will be more valuable as a three-month option than it will as a one-month option.

So, if you buy a call option then you are betting the stock price rises above the predetermined strike price listed in the options contract, that way you have the option to buy the shares for the cheaper strike price compared to the current market trading value. If you’re selling a call option, you’re betting the price will fall below the strike price, so you have the option to sell the shares for more expensive than the current market value. For put options, it’s the opposite of calls, where the put option buyer is betting the stock price will go down and the put seller is hoping it goes above the strike price.

That was a simplified quick breakdown of options trading but I hope you understood and liked it. Don’t forget to like this blog post and subscribe to see more weekly posts about investing and news in the stock market. Leave me a comment and let me know your thoughts or experience with options trading.

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Friday’s Weekly Market Wrap Up 5/28/21

The biggest news from this past week has been the resurgence of the infamous meme stocks GameStop (GME) and AMC (AMC). As you may remember, back in January GameStop was made famous when the Reddit group WallStreetBets and in particular a user named Roaring Kitty, urged retail investors to buy and hold the stock because it was being short sold by big hedge funds. I went into detail about the whole situation in a previous blog post.

Prior to the stock reaching its peak price of $347.51, it was selling around $10-$15 per share. Within less than a two-week span, the stock price shot up more than 10 times its normal trading value and then came crashing back down. At the same time, AMC’s stock price was trading around $2 per share and shot up to $19.90. Both stocks have been trading higher than previously but nowhere near their all-time high prices. There was another bull run on these stocks in mid-March and then prices lowered again.

These two companies, AMC in particular, were the subject to another bull run driven by retail investors who are countering hedge funds attempting to short sell the stocks again. AMC started the week around $12 per share and is ending the week at $26. GameStop went from around $170 at the beginning of the week up to $222 to end the week. AMC’s stock price more than doubled in one week!

In other news, the crypto market has been on a downward spiral lately, and the announcement that came out on Wednesday regarding Iran banning bitcoin mining due to power outage problems didn’t help. Many large cities in Iran have been experiencing daily power outages and Iranian officials blame part of the problem on bitcoin and other cryptocurrency mining. This ban is effective immediately and will be in place until September 22nd of this year.

Do you think the crypto market will bounce back even after Iran and China have recently banned cryptocurrencies? What’s your thoughts on the rise of memes stocks like AMC and GameStop? Leave me a comment and let me know your thoughts. Don’t forget to follow me on social media, I post investment news every weekday on my Twitter.

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Tech Stocks Bouncing Back?

May has been a rough month for tech stocks, even as many companies have posted record earnings. This past month saw a huge selloff in the stock market, particularly in the tech sector. Yesterday was finally a decent day of trading for tech stocks. Today saw prices dip slightly from yesterday, but it’s still an improvement from the past few weeks.

The NASDAQ Composite was down .04% today, but it outperformed the S&P 500 (-0.21%) and the Dow Jones Industrial Average (-0.24%). The NASDAQ is up a total of 2.67% for the last 5 days. Looking at graphs showing the past 30 days, it looks like the stock market and tech sector in particular, is ready to bounce back from its May slump. Is it time to buy the dip?

I’ve recently bought some Snowflake Inc. (SNOW), DraftKings (DKNG), GoodRX (GDRX), and Lemonade, Inc. (LMND) and made some small gains. Besides DraftKings, which has been traded since July 25, 2019, all of these companies are within one year of their IPO. I personally believe all four of these companies are recovering from the recent dip in the stock market and poised to make good gains. This is my opinion and not financial advice.

What do these companies do? DraftKings is the premier sports betting app that is only gaining in popularity as professional sports are all officially back now from the Covid-19 hiatus. Snowflake is a cloud-based data platform and offers “an ecosystem that enables customers to consolidate data into a single source of truth to drive meaningful business insights, build data-driven applications, and share data” (Yahoo Finance). Lemonade Inc. is an internet-based insurance company, I personally use them for renters insurance (don’t judge me for renting). GoodRX provides information and tools that enable customers to compare prices and save on their prescription drug purchases.

What’s your thoughts about these four stocks and the tech sector in general? Is it time to buy the dip or wait? Is the stock market starting to bounce back? Leave me a comment and let me know your thoughts.

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Friday’s Weekly Market Wrap Up 5/21/21

This was a rough week for the cryptocurrency market. I wrote about the almost $1 trillion that evaporated from the crypto market in my last post “Crypto Market Meltdown“. This plunge was primarily driven by news that China is cracking down on institutions involved in any cryptocurrency activities. Bitcoin has come crashing down from its all-time high of over $64,000 per coin on April 14th down to around $36,400 as of now. This news came in the wake of Elon Musk criticizing Bitcoin for the energy required to run their blockchain, which was also very damaging to the price of Bitcoin.

On Friday morning, Apple CEO Tim Cook took the witness stand to defend his companies control of their App Store. In case you’re not familiar with the case, Apple is currently involved in an antitrust case where the makers of the popular videogame Fortnite, Epic Games, are arguing that Apple’s practice of charging a 30% commission on app developers that make at least $1 million a year violates antitrust laws. This battle started in August 2020 when Fortnite was removed from the Apple App Store after Epic Games added its own payment option for in-app purchases, which violated Apple’s rules requiring developers to use their purchasing system. Tim Cook emphasized Apple’s public commitment to privacy and data security as key reasons for its tight control over the App Store.

Many investors are increasingly worried about inflation, which has helped cause the recent downturn in the stock market over the past few weeks. The S&P 500 and NASDAQ have had a mixed week full of up and downs, but both ended the week slightly down less than half a percent. Wednesday was a rough day for both the stock market and cryptocurrency market, although the stock market got close to being back to where it started the week. Tech stocks have underperformed the market average, but does this just mean buy the dip?

I recently bought the dip and picked up some tech stocks including Snowflake Inc., Lemonade Inc., GoodRX, and DraftKings Inc. and they all appear to have hit a floor price and are slowly bouncing back, hopefully. These could be a few stocks to keep an eye on. That’s my thoughts and opinions anyways, but this is not financial advice.

The digital artist beeple recently released an amazing picture of two barbarian looking fellows eating around a fire with a giant dead bull in the background entitled, “Crypto Winter”. I feel like this image sums up many investors’ feelings about cryptocurrencies at the moment. I currently have some Bitcoin, Ethereum, Cardano, and Polygon in my crypto portfolio but I don’t plan on adding until the market starts picking back up. I plan on not selling and diamond handing these until they hopefully have another massive bull run like we experienced over the past few months. What’s your thoughts on the current state of the cryptocurrency market? What’s your thoughts on tech stocks and the stock market? Leave me a comment and share your thoughts!

Image by beeple (Twitter @beeple)

Crypto Market Meltdown

I woke up this morning and checked on my Coinbase account like normal to see what’s going on with my portfolio and that was a rough way to start the day to say the least. Cryptocurrencies have been on a down trend for the past week or two so I wasn’t expecting much but the massive drop that occurred this morning at 6am Pacific was an eyeopener. We all know the cryptocurrency market is notorious for being volatile and having big swings up and down, but this was a massive spike down where Bitcoin bottomed out at $30,000. Bitcoin hasn’t been that low since January of this year.

What’s causing the crypto market to meltdown? Multiple factors have led to the downturn in the crypto market but this morning there was news that China is banning all cryptocurrency related activities. The three organizations authorized by Chinese regulators to oversee their respective industry segments: the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China, released a joint statement that bank and payment institutions cannot conduct business related to cryptocurrencies, specifically banning activities including cryptocurrency registration, trading, clearing and settlement.

According to a Forbes article released today written by Jonathan Ponciano, “The value of the world’s cryptocurrencies dropped about $50 billion, or 2.5% immediately after the announcement, pushing the week’s staggering losses to roughly $500 billion from a Wednesday high above $2.5 trillion.” The statement was reiterating a 2017 ban on the same cryptocurrency related activities but the fact that China sounds serious now had a massive impact on the crypto markets.

The incredibly fast rise of cryptocurrency values was sure to lead to a market correction, which is what I think we were experiencing the past week but this news from China could be signs of worse things to come. According to that same Forbes article, US Securities and Exchange Commission Chair Gary Gensler has suggested that his agency may be gearing up for a crypto crackdown in light of the market’s recent volatility. This would be disastrous if the US were to implement any type of regulation on the crypto markets, prices and values would plummet.

What’s your thoughts on Wednesday’s big drop caused by the news from China? Do you think this is the end of cryptocurrencies or is this just a dip to buy and diamond-hand through? Leave me a comment and let me know your thoughts.

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Investing 101: Cryptocurrency

The hottest topic in investing news is cryptocurrencies. I previously discussed how to get setup on Coinbase to enable you to start investing in crypto. But many people still aren’t sure what exactly cryptocurrency is. It’s a little complicated and technical but I’m going to break it down so it’s simple and understandable.

Wikipedia defines a cryptocurrency or crypto as, “a digital asset designed to work as a medium of exchange wherein individual coin ownership records are stored in a ledger existing in a form of a computerized database using strong cryptography to secure transaction records, to control the creation of additional coins, and to verify the transfer of coin ownership.”

Basically all cryptos use blockchain technology, which is essentially lots of computers linked together over a cryptography secured network, to store and verify all transactions involving that particular cryptocurrency or coin. So any transactions involving let’s say Bitcoin, are recorded on the publicly shared Bitcoin ledger, and that ledger is verified to be accurate by all the other computers on that blockchain network. That’s why crypto is considered a decentralized currency because it is regulated by all the computers on the network instead of by a central bank.

The process of verifying transactions is often referred to as “mining”. So when you hear people say things like “Bitcoin mining” or they’re a “crypto miner” they aren’t talking about breaking rocks with pickaxes. People are rewarded and incentivized to verify the transactions on the network, or mining, by receiving small amounts of that cryptocurrency that they are mining. Bitcoin mining for example requires the use of many high-powered computers to secure and verify its network, which also consumes a lot of electricity. Bitcoin mining in particular uses a specific form of mining called proof of work, which is what Elon Musk now infamously tweeted about on 5/12.

Tweet by Elon Musk

There are two different methods used for crypto mining, proof of work (like Bitcoin) and proof of stake (like Cardano). Proof of work involves one party proving to other parties (validators or miners) that the transaction is legitimate through complex mathematical calculations. These complex mathematical calculations require a lot of computational power and energy usage. Proof of stake is similar to the proof of work process but requires much less computer power and energy usage. Instead, the validators must own large quantities of the cryptocurrency in order to validate it. This prevents hackers from attacking the network because the attacker would need to first acquire a large amount of tokens/coins which means they have a large stake in that cryptocurrency and should then want to see it gain value.

Besides the computational power and energy usage required, Bitcoin has also been criticized for having a slow block time (the amount of time to verify transactions). Bitcoin has an average block time of 10 minutes, whereas faster networks like Ethereum have a 14-15 second block time. Bitcoin was the original cryptocurrency, but since it was first created in 2009, many new altcoins have been created and come onto the market. What’s your thoughts on Bitcoin, altcoins, or cryptos in general? Leave me a comment and let me know.

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Weekly Friday Wrap Up 5/14

It’s been a couple weeks since I’ve done a wrap up (blame MBA exams and projects) but I need to talk about some huge news stories that have happened over the past week. The month of May has lived up to the old saying of, “Sell in May and get away” because it has been a bloody red couple of weeks for the stock market. The tech sector has experienced the brunt of the massive sell-off. Even after the biggest companies around, like Google, Microsoft, Amazon, and Apple, posted massive record earnings, their stock prices all dipped.

Yesterday and today have started to see a rebound for tech stocks but the markets are down for the week overall, down 1.6% for the S&P 500 and 2.8% for the tech-heavy Nasdaq. The S&P 500 and the Dow started the week by suffering their worst three-day losses in almost seven months. Prices have also been falling over the past couple weeks over increasing fears of inflation, especially in the price of raw materials like metals for microchips, lumber, and crude oil.

As always now days, cryptocurrency has been a main topic in investing news. The biggest news is Elon Musk’s tweet announcing that Tesla has suspended accepting Bitcoin as payment due to “environmental concerns”. I’ve heard rumors that this is actually a deliberate action by Elon Musk to bring the price of Bitcoin down because he’s fighting with a hedge fund that has options on Bitcoin and that same hedge fund was involved in tanking the price of Dogecoin and Tesla stock prices. So the rumor is he deliberately tanked the price of Bitcoin to get revenge on them.

I personally think since the price of Bitcoin has dropped and is still on a declining trend over the past month and week, it makes sense to stop accepting it if it’s quickly losing value. But he took the announcement a step further by saying it was due to the environmental impact of the proof-of-work process used to secure the blockchain network, and that he is, “looking at other cryptocurrencies that use <1% of Bitcoin’s energy/transaction.” Some people are confused because Dogecoin, which he has publicly supported, also uses the proof-of-work process, although they use scrypt-based technology which is slightly different than the SHA-256 based equipment used to mine Bitcoin.

This past week has seen a lot of ups and downs in both the cryptocurrency and stock markets. What’s your thoughts on “sell in May and get away”? Have we reached the bottom level prices where it’s time to buy the dip? What are your thoughts on Elon Musk’s tweet and the future of cryptocurrencies? Leave me a comment!

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Elon Musk, A.K.A the Dogefather

Elon Musk was on Saturday Night Live this past weekend and of course he talked about Dogecoin. As you may or may not know, Elon Musk, the CEO of Tesla, is an avid cryptocurrency fan. And his favorite crypto is of course Dogecoin. I discussed Dogecoin in a previous post. There was such a big buildup whether or not Elon Musk was going to talk about Dogecoin before the show that some casinos in Las Vegas let you bet on if he said it or not.

And of course Elon Musk talked about Dogecoin on SNL. The first mention of it came in his opening monologue where he was talking about getting his mom a birthday present at which time his mother said “I hope it’s not Dogecoin”, and his response was, “It is.” In one skit, Elon was playing a cryptocurrency expert where he tried explaining multiple times was crypto and Dogecoin are, ultimately saying, “it’s a hustle.” All of this was meant as jokes and to be funny, which I personally thought the episode was hilarious, but there were definitely some serious real-world reactions to his appearance.

The price of Dogecoin (DOGE) was steadily climbing all week in anticipation of the SNL episode. The price of Dogecoin started out at $0.39 early Monday morning and reached its peak all-time high of $0.74 on Friday night. The price was expected to reach its peak on Saturday during or after the show. But starting at 11pm on Friday night, the price started dropping.

Dogecoin’s value was fluctuating all day Saturday and finally at the time the SNL episode ended, the price looked like it officially jumped off a cliff. Its price dropped from $0.66 down to $0.46 in just 10 hours. The price has gone up and down since then and is currently trading around $0.45.

The hype around Elon Musk’s SNL appearance was similar to the hype building up to 4/20/21. And like “Doge Day 4/20”, the SNL hype train also culminated in an early fizzle. I personally like the usefulness of Bitcoin and Ethereum, but I struggle to see the value in most altcoins. What are your thoughts on Dogecoin and altcoins in general? Leave me a comment and let me know.

Photo by Vance Alm

Friday’s Weekly Wrap Up 4/30

Friday marked the end of a great month for the stock market. The S&P 500 for example finished the month of April up 5.29%. The S&P 500 experienced its biggest gain this past month since November 2020. This past week however was filled with a mix of ups and downs for the overall market and today ended down for many big names.

Earnings season is in full swing and this past week (4/26-4/30) was full of some of the biggest companies around releasing their earnings statements. I discussed some of the big tech names that beat expectations more in detail in my last post. Some companies like Amazon and Google experienced record gains that immediately had a huge positive impact on their stock price. And there were also some companies like Twitter that didn’t meet analysts’ expectations and have had a sharp drop in their stock price. Twitter went from trading around $66 per share down to $55 overnight.

In IPO news, Endeavor Group Holdings (EDR), the parent company to the UFC (Ultimate Fighting Championship), PBR (Professional Bull Riders), ELeague, and the Miss Universe pageants among other things, released its IPO on Thursday 4/29. EDR had a target price of $24 and has done well in its first two days of trading. Endeavor’s price ended at $27.56 on Friday evening. This could be a good IPO to jump on early considering the growing popularity of the UFC and ELeague.

In cryptocurrency news, Bitcoin (BTC) had a good rally this week and is up almost 7%. Bitcoin started the week trading around $50,000 and is ending the week finally being priced above $57,000 again. Ethereum (ETH) has had a great week by setting new all-time high prices for itself over the past few days. Ethereum has been consistently trading above $2,700.

It’s been an exciting week in the investment world with a lot going on between the stock market and cryptocurrency market. What do you think was this week’s biggest story? What are your thoughts on this week’s earnings report news? Leave me comment and let me know.

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Tech Giants Crush Earnings Report Expectations

This was a huge week for giant tech companies including Apple, Google, Microsoft, Facebook, and Amazon just to name a few. They all released their quarterly earnings statements, and they all beat expectations. Many of the companies reported huge double digit growth. A full list of the different companies that reported their earnings this week can be found online.

Amazon (AMZN) for example performed better than expected and just reported a 44% increase in their revenue. The bar was set high for them this year with expectations for their Q1 revenue to be $104.57 billion. Amazon had first-quarter revenues of $75.5 billion last year and they absolutely demolished expectations when they reported $108.5 billion for Q1 this year. Their earnings per share (EPS) are $15.79 versus the $9.69 that was expected.

Alphabet Inc (GOOG), which is Google’s technical corporate name, also reported fantastic numbers. They were expected to have an EPS of $15.82 and they almost doubled it by reporting and EPS of $26.29. Alphabet’s revenue for Q1 was $55.31 billion vs. $51.70 billion expected. Google’s revenue rose 34% from the same period last year. The good financial news caused their stock price to skyrocket overnight from around $2,300 per share up to above $2,400 per share.

Tesla (TSLA) was another company to beat Wall Street expectations this week. Estimates for their EPS were expected to be 0.79 and they actually reported 0.93 this quarter. Tesla’s revenue was $10.39 billion vs. $10.29 billion expected. This is up 74% from a year ago. Unlike Alphabet and Amazon that experienced a sharp rise in their stock price, Tesla has been on a downward slope ever since reporting their earnings.

Some analysts are skeptical about Tesla because they had some other ways of generating revenue besides normal car and solar panel sales. Tesla made a profit of $101 million this quarter from selling some of the Bitcoin it had previously invested in. Tesla also recorded $518 million in revenue from sales of regulatory credits during the period. The company did this while also delivering a record 184,800 Model 3 and Model Y cars.

The tech sector all had an amazing quarter, including Tesla. They beat their record of vehicles delivered in a quarter while making some smart business decisions to generate extra capital. What are your thoughts on Tesla and all the other earnings reports that were released this week? Leave me a comment and let me know.

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