Anabel and I continue our slog towards the CFP exam (it's this month!) For today's peek into our studying, we would like to introduce you to the wonderful world of OPTIONS.
What are options? In simple terms, buying an option gives you the option to either sell or buy shares of a stock at a later point in time, at a set price.
- If you think stock prices will go DOWN, you can buy PUT options (think: "telling Moana she's terrible at investing is a real put-down").
- If you think stock prices will go UP, you can buy CALL options (think: "I will call up Moana and tell her I was wrong about her being bad at investing").
Buying options is cheaper than actually buying the shares of stock, but you will be paying a premium - and if the stock price doesn't go the way you think it will, your option will expire worthless and you lose all your money. On the other hand, if you are right about which way the stock price goes, you can stand to make a lot more return since options can be highly leveraged.
Does that sound like gambling? Well, there's a reason we've never talked with you about options before. They're a terrible idea! But if you're bored with lottery tickets and roulette, options can be a new and fun way to lose your money. And now we can tell you all about them, as Chris would say, "in nauseating detail".
Chris probably did something this month too but I'm going to be honest with you, with all these numbers floating around in my brain, I can't remember. I'm sure he's doing fine.
Much love,
Moana and the Natural Bridges Team
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