Gold and Oil – getting ready for a surge in 2010
Latest News about traditional investments.
Lee Lowell, Stock and Commodity Options Specialist with Investment U, evaluates the commodities market – specifically the demand drivers of gold and oil, and how to play them.
Lee Lowell (Investment U):
If you’re looking for some calm during the market’s ongoing storm, don’t expect to find much in the commodities sector.
Not that this is a bad thing.
If you know what you’re doing, commodities offer some of the most lucrative and potentially explosive profits anywhere in the investment world. And because simple supply and demand is the key driver for many of these everyday products, it’s a sector ripe for volatility and speculation from hedge funds and large institutions.
Heck, you only have to look at the oil market to see that in action.
It’s not uncommon to see prices cycle from highs to lows and back to highs again in a relatively short time. And it’s this rapid-fire, rollercoaster movement that causes many would-be commodities investors to park themselves on the sidelines, rather than risk their cash.
But this is often a mistake – particularly since there are some quick and easy ways that investors can take advantage of the world’s commodities. So let’s see what 2010 has in store…
Why The Price of Oil Is Headed Back to $100
It wasn’t long ago that oil prices blasted to all-time highs around $147 a barrel (July 2008, to be exact).
But they then set off on a remarkable decline that culminated with the price sinking to lows around the mid-$30 level by early 2009 – a full $115 or so lower than the record high, which equates to a staggering $115,000 move in equity on just one contract.
But as the chart below illustrates, oil has spent most of 2009 busily clawing back a sizeable chunk of the downward move – and I expect that trend to continue in 2010.
Click here for both the oil trends chart and the rest of Mr. Lowell’s article on Investment U.
Original source for this article: Contrarian Profits
Stock Option Valuation Part 3 of 5
Here are the Latest Traditional Investment News.
In this lesson we will cover how the strike price of an option affects its value.
**Concepts to Remember**
“Call options” increase in value when the underlying stock it’s attached to goes up in price, and decrease in value when the stock goes down in price.“Put options” increase in value when the underlying stock it’s attached to declines in price, and decrease in value when the stock goes up in price.
Strike Price
The strike/exercise price of an option is the “price” at which the stock will be bought or sold when the option is exercised.For example, an IBM May 50 Call has a strike price of $50 a share. When the option is exercised the owner of the option will buy (Call option) 100 shares of IBM stock for $50 a share.
In the previous lesson we revealed that the strike price is one of the factors that affect the options value, particularly its relation to the current market price of the stock.
The strike price is part of the option contract it does not change, however the stock price fluctuates on a daily basis.
There are three different terms for describing the stock price to strike price relationship:
- Out of the Money
- At the Money
- In the Money
Out of the Money (OTM)
A Call option is said to be out-of-the-money if the stock price is lower than the strike price of the option. For example, suppose the stock price is $40 and the strike price is $45. You would have the right to “buy” the stock at $45. If you exercised your right and bought the stock for $45, you would already be at a loss (out of the money) of $5.You wouldn’t want to exercise your option because you could buy the stock cheaper on the open market. It is out of the money, exercising it poses no benefit to you.
For Put options it’s the opposite. A Put option is out-of-the money if the stock price is higher than the strike price of the option. For example, suppose the stock price is $40 and the strike price is $35. You would have the right to “sell” the stock at $35. Why would someone want to buy a contract to sell a stock for $35 when they could just sell it for $40 on the open market?
At the Money (ATM)
A Call or Put option is at-the-money if the stock price and the strike price are the same. Or it’s the strike price closest to the current stock price. For example: Stock price $40, Strike Price $40 or Stock Price $40.98 and Strike Price $40.In the Money (ITM)
A Call option would be in-the-money if the stock price were trading above the strike price. For example, suppose the stock price is $40 and the strike price is $20. You would have the right to “buy” the stock at $20. If you exercised your right and bought the stock for $20, you could immediately sell it for $40 on the open market and make (be in the money) $20.Another way to explain it is that you could say your option is $20 in-the-money because you can exercise your option and buy the stock for $20 less than the current market price.
A Put option is in-the-money if the strike price is higher than the market price of the underlying stock.
How ITM, OTM, and ATM, Affect the Option Value
The more an option is in-the-money (ITM) the more expensive it will be, because it has more value to the holder. This value is called intrinsic value.The farther an option is out-of-the-Money (OTM), the cheaper it will be.
An at-the-Money (ATM) option, price wise, is in the middle and is slightly cheaper than an “ITM” option.
Your particular investment strategy will determine if you pick an ITM, ATM, or an OTM option.
That’s it for this lesson. I’ll be offline for a few weeks recovering from shoulder surgery so I will continue the series when I return.
Happy Trading, Travis
http://www.pursuingwealth.com/
If a traditional investment – such as Stocks, Bonds, ETFs, Proprieties, Precious Metals – is not for you then you should check our Foreign Exchange and High Yield Investment categories.
