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Politics : About that Cuban boy, Elian -- Ignore unavailable to you. Want to Upgrade?

To: marcos who wrote (8593)	7/16/2000 10:03:14 PM
From: X Y Zebra	Respond to of 9127

Sure there's risk, lots of it, and i agree completely that the word speculation is more appropriate than the word investment ... but if you are going to be generalistic enough to paint all sub-5.00 stocks as having higher risk than reward potential, then i would take it one tiny step further and paint all equity issues as such. Indeed, they ALL have risk, but the difference is, in what form can you reduce the risk between the two sets. And what is the probability of each event taking place. Probability will determine what is the best bet. For example: Stock investing/speculating is about making money, nothing else. Forget fundamentals and individual issues. In general, there is a 50/50% chance of a specific event taking place. Will a stock go up ? A = 50 % UP 50% down. How can we put the odds in our favor ? Premium on an option, Why ? Because we receive the money up front, and therefore, if the stock goes down, the option will expire worthless you keep the premium, which, although from the taxable point of view is a separate transaction, in essence the premium softens the loss in the underlying price reduction. AND you can do that all over again, next month (on most issues, you can do this ALMOST every month.) If the stock goes up, then you may get the stock called away, and you have limited your profit potential to the difference between your entry point and the chosen strike price, (plus premium received). The premium has reduced the losing side of the equation, and enhanced the winning side. TO what extent... well, I have heard different opinions. From an optimistic 80 % / 20 % [this is more anedcdotal], to a more realistic 60% / 40% ratio, on the seller's side of the option. (Remember that the buyer of the option has to overcome the premium, the bid/ask spread and commission costs.) Since bb stocks do not have options, you are left with a 50/50 chance. Now, if you start taking into consideration other aspects on individual issuers, then imo the case for the bb worsens. But... as you said, if that is what you like and feel comfortable doing, then, bb (for you), will always look like a reasonable bet Re: Options... ... lots to learn in this regard start here: On line courses: cme-courses.com cme.com Option courses at the Merc (Chicago Mercantile Exchange) cme.com The main difference between options on futures and options on equities is that in calculating "fair value" in the price of an option, equities receive dividends whereas future contracts do not. Also there is the CBOE: cboe.com This site explains many concepts that are essential in order to understand options trading. I believe they also offer you a basic software cd that contains not only the principles of option trading, but a formula to calculate option prices given specific factors. Very helpful. I will search for Elian's articles so as to stay on topic. However, the above can be more than a start for cubanos to start re-learning capitalism. btw... There is a poster sold by the CME asking three questions (with three respective pictures) 1. How come there is no Moscow Mercantile Exchange ? 2. How come there is no Peking Duck Exchange ? 3. How come there is no Havana cigar exchange ? they are quite funny in what they show in each of the three picturess, obviously bias towards Capitalism g Making the case for capitalism. The CME, CBOT, CBOE, NYSE etc, these are the best example of pure Capitalism at work. while we're waiting for the metal to rise from the ashes ... I hope you are not holding your breath... g p.s. If the Chicago boys would have their way, they would create futures contracts and options on the questions When will Cuba turn Capitalist ? or better... Is there a god ? g WOW ! imagine the money I would make selling premium every month, against the Apostles of Delusion, buying their options, (until the god would show irrefutable proof ) g EVERY MONTH. hmmm that is an idea, imagine the possibilities !! so many gods so little time !