Since the beginning of the year the S&P 500 is up nearly 8 percent. This quick jump in the stock market has taken place depite the fact that much of the debt crisis remains unresolved in Europe as well as in Washington. China’s economy is showing signs of slowing while inflation fears could lead to a surge in emerging markets. All the while a presidential race is heating up and the prognosticators are calling for all sorts of calamity. This surge has sparked frenzy in the media bringing about predictions from financial pundit bulls and bears.
Understanding the Rights of Option Buyers
Options are the bread and butter of the Snider Method. If you are a Snider Method Alumni, you most likely have a solid understanding of the reasoning why we sell options, but you are probably less familiar with the strategy of those who buy options. Recently, I have received more questions than normal about the rights of those who buy options and how they work. I will address a few of the most frequently asked questions.
Volatility and Risk – The Missing Link
Which stock would you rather own:
– Stock A has a return of 15.8%
– Stock B has a return of -11.5%
I’m assuming this is pretty much a no-brainer, right? In the example above, there’s no way you would choose Stock B over Stock A. So let me ask the question again, but this time, I’ll give you a little more information.
Gold Rush
I recently wrote about how Cash was Today’s Hottest Investment. I made this assumption based off the billions of dollars investors are adding to cash accounts (checking, saving, and money market) and removing from equity funds. This is a great way to track investor behavior. Although cash seems to be where investors are moving money, I hear the most questions about Gold.
Employee Stock Options
Employee stock options have been a hot topic recently due to Facebook’s filing for an Initial Public Offering (IPO). Employees of Facebook reportedly own about 30% of Facebook from the stock options they have been issued over the years. Based on the most recent valuations 30% of Facebook is worth about $30 billion and analyst predict over 1,000 Facebook employees will become millionaires when Facebook goes public. Even if you weren’t lucky enough to get in on the ground floor of a multi-billion dollar company like Facebook there is still a good chance you have been granted stock options at some point in your career if you have worked for a publicly traded company. We often have clients ask us what they should do with the stock options they have been granted and how the process of exercising them works.
