Friday, May 2, 2008

Investment Update

On Thursday, after the Fed announced a rate cut and indicated future rate cuts were on a hiatus, the market reacted unexpected, crashing after about 30 minutes of upward momentum. I thought this was the wrong way to react to such a positive economic indicator, and I bought more Dow Jones Industrial Average ETF Call Options.

Today, the market thought about the news, and reacted very positively, ending over 13,000! This helped me make a quick one-day profit. The following is my current position:

In the month of April, I've netted $555.24 in trading profits, or about 6.5% of my original loan, surpassing my monthly 6% return goal.

I will be taking my profits out around middle of May to pay back principal, and fees on the loan.

7 comments:

Anonymous said...

Random Q: The description of each option... are the $ numbers right? If the unit price is 62c for one of the QQQQ on 4/29 shouldn't the total price be $62 not $48?

I am not totally familiar with options, but I thought you had to buy 100 times the unit price per contract?

Finance Guy said...

Took me a bit, but I understand your question.

Yes, options are bought in 100 contract blocks, so when I say 5, that means 500.

The $48 you are seeing is not the cost of the contract. That is the strike price of the contract.

See my option faq for more: http://startingyoung.blogspot.com/2007/12/options-faq-part-1-what-art-thou.html

Anonymous said...

So when you bought QQQQ options at 62c, *100 = $62 (let's use x1 (not x5) for ease of the example) and the strike price was $48, you bought in at a price already above the strike price?

Does this mean it would have to really decrease before your contract would be voided?

Sorry for the confusing wording on the last question.

So - the 62c example again... you paid $62 for the option of cashing in the contract before the stock reached $48? (x5 of course)

::still confused but getting better::

Thanks for your help with this; I enjoy your blog.

Finance Guy said...

Anonymous, please read the option faq link I provided.

A $48 strike price refers to the QQQQ ETF, which at the time was about $46 and some change. The 62c you pay is for the contract which provides you the option to buy QQQQ at $48 a share at a certain time in this case, May.

Anonymous said...

SOrry, I read your Options post, and I was still confused.

Thanks for clarifying.

R@SpillingBuckets said...

Is the 555 after tax profit or is that the 388?

Finance Guy said...

The $388 is my estimated profit after tax, using an assumed 30% tax rate.