Yet again, we are going to describe another financial instrument of variable revenue of slightly habitual use on the Stock market. Perhaps on markets like NYSE, Bovespa turn out to be a less sophisticated topic but at the time of evaluating risk and figure out the real value of these structured instruments, the average investor of this country it decides not to consume this product for his high volatile nature and low liquidity that this market has. Also it needs from a financial mature knowledge.

There are two types

Options Call (buy)
Options Put (sell)

Whereas the first ones grant to the holder (buyer) the right to acquire actions at a certain price or price of exercise (strike) from the moment of his buy until a certain date, date of expiration of the right of buy. The Put’s grants to the holder the right to sell a certain strike, preserving the owner the possibility of exercising it in the same time period earlier mentioned.

In order to execute an options call; we need to take three decisions

1.On what stock to buy the option
2.To what date of expiration (date of exercise)
3.On what price of exercise

We buy of an options trading call on stocks of a company that quotes on the stock market named COMPANY,
The advisable thing is to go in search of prices of strike near to the current quotation of the stock, if the Company stocks quotes to the current date at $1,53 US dollars we might be buying options on a strike of $ 1,44.
The cost of buying the options call on market might be quoting in $ 0,03 which indicates that a lot of 100 stocks would have a cost of $3.00. We can choose one with due date November 20.  Then, the buy would be:

COMPANY:  call, 1,44 => strike = $ 0,30

And there become detached the first reasoning to bear in mind.
Entire cost of the operation the end (expiration)

Strike: $ 1,44 + option trading call  of $ 0,03 = $ 1,47

Stock price on open market = $1.57

What value would we take in this operation? The result would be a positive of US $ 0,06 per stock. Logically this simple operation of arbitration is not lasting on the market because it would do that investors attracted by this profit will enter making to raise the cost of the options trading call. Although obviating for a moment this analysis, the buyer making use of his rights to execute this option on November 20 would be getting the stocks for a value of $ 1,47 when on the open market, taking ceteris paribus, his price might be $ 1,53.

Which would be the intrinsic value of the Call? $ 1,53 minus  $ 1,44 = $ 0.09  which would be a minimal value of reference.

This value should be, a priori, of $ 0,09 but with this assumption we are falling in the wrong  hypothesis of which the price of the stock would remain invariable, without possibilities of rise for example. This pushes us to explain the behavior of two investors, of whom one possesses the stock ‘A’ and other the call ‘B’.

The first one ‘A’ had a cost of buy $ 1,53 and the second one ‘B’ of $ 0,09. If on t November 20 the price of the action raises 10 %, of $ 1,53 to $ 1,68. The first investor sells the action at this last price and the second one executes his right of buy: both drawers of risk came to the same profit: $ 0,15.

Investor “A”: $ 1,68 minus $ 1,53 = $ 0,15
Investor “B”: $ 1,68 minus $ 1,44 minus $ 0,09 = $ 0,15

Of this we can clearly see that investor ‘B’ invested way less capital that ‘A’ where the last one also bought an asset of risk that it produced much less, and his opportunity cost in placing the money between these two products might have been an opportunist in another laying of short term. The same assumption is also a copy to the fall of the stock and the result is identical, Investor ‘B’ loses only the value of the call, which in this case is of $ 0,03 whereas the holder of the action might see his value even more diminished in the stock.

This assure us that the price of the call will be bigger than its intrinsic value and the difference between the entire value of the premium and the intrinsic value will be the VT (value time) that is the reference just that measures the value of the money for the mere temporary course.
Of course the financial world is in it continues search of the exact value of time and what forces move it, modifying the value of the options trading calls. On slightly liquid markets these calculations, although they are calculated, the  price often does not reflex the value of the option on the market to a true date.

Closing the example, in percentages of yield, whereas the investor ‘A’ obtained only 10 % the holder of the call, investor ‘B’ gained 67 % => margin of the operation ($ 0,15 minus $ 0,09) / $ 0,15.-

Different companies will offer different reinvestment options if you decide to do DRiP investing with them. You may have an option to reinvest only a portion or percentage of your dividends, rather than reinvesting the whole lot.

There are many advantages of DRiP investing. First of all, because companies allow you to buy small amounts of stock, you don’t need a big bank balance to get started. Sometimes you can get into DRiP investing with as little as one share in the company.

Another advantage is that DRiP investing takes care of the investment process for you, to some degree. This is because of the automatic reinvestment scheme. You don’t have to tell anyone to invest your dividends in more shares. This is all taken care of for you.

In some cases you can even do DRiP investing without having to pay fees that you would normally have to pay if you were to invest in the company’s shares.

Lastly, you should always remember that investing money should be seen as a long-term strategy rather than a get rich quick scheme. And DRiP investing implicitly encourages you to take that long-term outlook. With DRiP investing, it’s not as easy to shift your investments from one company to another, so you are motivated to stick with a good thing over a long period of time. This will pay off in the long run.

Basically, there are five steps on how to invest with penny stocks. The first thing to do is to search the net with discussions that will educate especially a newbie in the trading process and get yourself some housing software. It is important to look for free sites with forums instead of those require payment. Next step is to determine which brokerage firm. Stocks must be bought from an experienced broker. Then, learn the SEC rules regarding the activities in the stock market. Approval for the transaction, agreement, current market prices of stocks, and monthly account statements must be provided. After starting to invest, earnings should be just up to 10% of the total capital invested. It is vital to keep in mind that penny stocks are very risky investment but if attentive enough, profits will start coming.

Many large companies nowadays started only on penny stocks using small outlay of cash. With their little amount of cash as investments, they are able to make millions. These are becoming popular too since investors see much potential with them.

The prices of medicines and drugs are usually always stable because people constantly get sick. Patents, FDA processes and other procedures that medicines have to go through is a contributing factor as to why prices stay the same. If economic crisis is crippling the economy, invest on pharmaceutical and health care companies. Aside from this, you can also focus your attention on luxury brands. They are usually immune from price fluctuations because they are considered to be class products and not a commodity. Companies who manufacture specialized products like heavy-duty mining equipment may be able to resist deflation as well. Concentrating on those products with patents can earn you a lot of profit. In a world where computers are becoming fast essential, investing in companies that manufacture them can help you reap big rewards. Some of these companies even offer special high-level consultations. They have an edge over other companies that produce similar products because in times of economic crisis and deflation, what they charge for consultations is enough to make up for the losses.

In times like these, buying or selling stocks may be the last thing you would like to do with your money. However, you will find that not all companies suffer from the woes of deflation. Investing in the companies mentioned above will be enough to sustain your earnings for the duration of any unfavorable economic situations.

What goes up must go down, and inevitably what goes down will eventually come up. It doesn’t have to, but it always does. The trick is to read the signs, and prepare your self and your portfolio for the change. All markets including stocks, bonds, real estate, and technology work in cycles. The only thing you can count on, is that they won’t remain static. They always change. If you keep investing and borrowing the way you’ve always been doing, eventually your going to get burned. Just ask all the victims of mortgage for foreclosures and the sub-prime fiasco.

Probably one of the hardest lessons learned from this particular recession, is don’t gamble with the big stuff. In other words, don’t take stable big dollar funds (like college education funds) and go big on emerging technology startups. The risk is just too great. Sure, someones going to pipe up and tell me a story about how they had a friend of a friend who made hundreds of thousands of dollars overnight doing just this sort of thing. The problem is, nobody ever talks about the times they gambled and lost. It doesn’t make for nearly as interesting a story. Know what you can afford to lose, and don’t go beyond that.

Things can happen pretty fast these days when it comes to investments. Thanks in large part to the role computers play in investing. I was looking at some software the other day, that automated Forex trading for day traders. It’s pretty remarkable how a computer program can watch fluctuating stock prices, and buy and sell all on it’s own. It’s also a little bit scary, when you realize that this is real money it’s playing with. You really need to know what your doing, before you let computers empty out your bank account.

Another painful little lesson we investment types have learned from this downturn, is that there is no such thing as a sure thing. The traditional conservative blue chip stocks were also hit painfully hard this time. Diversification is important here, even if you stay away from the riskier start up stuff the venture capital types like to dabble with. The bottom line is do your due diligence, and always be aware. You need to stay current and don’t always listen to what the experts have to say. Eventually, even they get it wrong.