By Rita Warren
I have been investing in the stock market for over 20 years now, and I have had good years and bad in terms of profitability (which is what determines good years and bad in the stock market). 2009 was better than 2008, which was disastrous. 2010 is shaping up positively so far, but by the time you read this, that may not be the case. That’s how volatile the markets can be. But making a profit last year and this (so far) has given me the courage to explore something new in the investing world: trading options.
Trading options means the right (but not the obligation – in other words, you can walk away from them and not execute the buy or sell) to buy or sell an underlying asset (i.e., stocks) at a specific price on or before a certain date. That’s all I’m going to tell you about this kind of investment…because I don’t get it. I read those words in the paragraph above, and I understand them individually, but when you put them together, I have no earthly idea what they mean in terms of my investment schemes and plans. Like the famous cartoon of “what the dog hears,” I hear “blah blah blah options blah blah blah.”
This is not a good sign. This is not the way you make money in the stock market. It’s difficult enough to be profitable when you know what you’re doing, when you can easily execute buying 100 shares of Apple Computer at the market, trade order good through the current day. That I understand. But I can’t for the life of me figure out these things called options.
I bought books. I read up on the Internet. I thought about it. I even put in a minimum trade to buy 2 measly contracts of Verizon (VZ), the July 2010 contract. Now, if you put a gun to my head, I couldn’t tell you what I did. The cursor of my computer just took over and selected from the various options being offered me on my online brokerage account webpage, and voila! The trade was done. All I had to do was figure out what exactly I had done.
So yesterday the value of that options trade increased by $12. I have no idea why. Did Verizon stock go up or down, and how did that affect the options contract? I don’t know. I truly don’t know. I am at the mercy of the visible results I see at the end of the day on my brokerage account website page to see if I did well or badly that particular trading day.
That’s not good.
If nothing else, as an investor we should at least understand the trades we are making and why. Maybe the lesson learned here is that, unless you know the investing procedure and plan you are trying to execute, the only execution will be your own. Instead of trying to learn something new with real money, play around. Read and study and ask questions, but don’t invest your hard-earned capital unless and until you are at least proficient enough to understand what the trade was that you made! This is Kindergarten Investing, not even Investing 101.
So I’ll continue to watch the small investment I made in my account on Verizon futures contracts (it’s down $6 this morning as I write this, but of course I have no idea why), continue to study options as an investment procedure, and continue to do what I know: buying and selling stocks.