Monday, June 14, 2010

Experiment with Options using call options

Instead of investing all of one's capital into stocks that are almost at the end of their rallies, for example CMG , starbucks and netflicks , i thought may buying call options would be better. Since it puts less money at risk and the profit margin is greater. If one thinks that stocks are trailing at the end of the rally and one does not want to use the whole capital to risk and the economic conditions are vagary, I am thinking call options( if one thinks stocks will rise) is a good idea.

I am taking the guidance of " Options for the Beginner and Beyond" by Edward Olmstead. It is good book to start with and easy to understand. It also provides examples to show how to use options that fix different situations.

I probably will invest in Call options in stocks above their 30 MA and rising higher. Since I thought buying these stocks is putting too much risk on the capital. These stocks have rallied from the past 1 year to 6 months and almost doubled. Can one predict to what price they would rally? It is impossible to say  when they will stop rallying.

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