well... i think i may consider going into the business of preaching... NOT
but for those who want to inform themselves, rather than being "scared away" because it is a big baad options market, here is some knowledge:
(you may need registration --free for 2 weeks-- thereafter $40.00 not bad.)
anyway it is an article that deals with LEAPS (Long-Term Equity AnticiPation )
I understand that AAII (American Association of Individual Investors) is a non-profit, and rather conservative organization. anyway, you make up your mind.
can people make money in the options market ? or is it a rigged game, carefully designed by a bunch of boiler room crafty and dubious operators ?
yes, there is a difference between investing and speculating, but so what ? to the ignorant, it might as well be potatoes from Idahoe (g)
so read on....
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Look Before You LEAP(S): What You Need to Know Before You Buy or Sell
By James W. Wansley, John M. Wachowicz Jr., and M. Cary Collins
If used properly, Long-Term Equity AnticiPation Securities can reduce the downside risk of a stock investment, and their long-term nature enables you to spend more time considering your option strategy.
What class of investment is most like a chain saw—useful if you are careful and know what you are doing, but extremely dangerous if you don’t?
Answer: derivatives. A derivative security is one whose value is "derived" from another security (called the underlying security).
The simplest—and most widely used—derivative investment available today is the stock option. And the newest member of the option family is the long-term option—LEAPS, for Long-Term Equity AnticiPation Securities. LEAPS have grown rapidly in popularity among individual investors as a result of the advantage they have over short-term stock options. In fact, the growth of LEAPS volume has been largely the result of individual investor interest. For 1993 the Chicago Board Options Exchange estimated that roughly 60% of all outstanding LEAPS options contracts were held by individual investors.
When used carefully, LEAPS have the effect of reducing risk for the individual investor. But like any investment, they must be thoroughly understood before they can be used effectively.
In what follows, our intention is to acquaint you with the language and mechanics of options in general, the advantages that LEAPS possess, and the more common LEAPS hedging strategies used by individual investors.
aaii.com
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Please note the date of the article, and check with your tax attorney/accountant for an update on the applicable law:
James W. Wansley is the Clayton Homes Professor of finance at the University of Tennessee at Knoxville. John M. Wachowicz is a professor of finance and M. Cary Collins is an assistant professor of finance at the University of Tennessee.
© AAII Journal January 1995, Volume XVII, No. 1
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More information on Options:
Futures Industry Institute:
fiafii.org (click on "Start") |
