If you have set up a 401k plan with your employer, you will notice that you cannot invest in everything available in the stock market. Typically you can only pick from a select list and allocate 100% of the contributions among them. The selections are limited because the 401k plan goes through an administrator, and each plan has a different list of investment vehicles available to the plan participants. To some, looking at the list and figuring out which funds to pick may seem as clueless as finding a light switch in a foreign room. By the end of this article, aligning its contents with your own financial situation will allow you to navigate the room as if it were your own.
How the Stock Market Works Part I: Exchanges
The Snider Investment Method utilizes purchasing stocks and selling options like many other investment strategies. The moment an investor buys shares at market price, like magic, the shares usually appear in the account almost instantaneously. Many people accept the magic behind the process and move on. However, behind the scenes there is a lot more going on than a sprinkle of magic dust and whispers of abracadabra. There are many parts on the back end, from the exchanges, brokers, specialists, and market makers. This article will focus on the exchanges.
The Process of the Tender Offer
The stock market is a place where buyers and sellers congregate to trade. Usually, when you sell shares, you can just click sell and the broker will match a buyer on the other side and vice versa when you buy shares. However, there may be a special occasion where a buyer will contact you directly with a proposal in the mail, stating that you can sell your shares through a tender offer.
Transmogrification in the Snider Investment Method
Occasionally in the Snider Investment Method, we will issue a position alert notifying our clients to Transmogrify a position into a new one. This is usually due to a change in the company structure like a buyout or merger or an event that impacts the stock or options, such as options no longer being offered for a position. Without going into too much detail of the Transmogrification process, Transmogrification essentially swaps an old position for a new position.
Transmogrification in the Snider Investment Method: What it does and when to use it
Occasionally in the Snider Investment Method, we will issue a position alert notifying our clients to Transmogrify a position into a new one. This is usually due to a change in the company structure like a buyout or merger or an event that impacts the stock or options, such as options no longer being offered for a position. Without going into too much detail of the Transmogrification process, Transmogrification essentially swaps an old position for a new position.
Emotions: The Enemy of Logic
When investing in the stock market, most people will say that the goal is to “buy low and sell high.” In a perfect world, everyone would stay true to this and the stock market would only go up. However, this is not always the case. Equal probability states that stocks have a 50-50% chance of increasing or decreasing in value. As a result, the stock market will often not move in a desirable direction, decreasing the value of the portfolio. Investors may ditch the “buy low and sell high” mantra, panicking because of the loss in value and dump the stock. Their emotions caused them to do the exact opposite, “buy high and sell low.”
ETFs and the Snider Method
In the Snider Investment Method, positions are typically composed of various individual stocks to generate portfolio income. However, in smaller accounts, Lattco may generate Exchange Traded Funds (ETFs) instead of individual stocks. ETFs are generated in smaller accounts because this helps diversify the portfolio and reduce company specific risk, which is at its greatest when an account only has one or two positions. But what are ETFs and how do they work? Read on to find out.
Dividends and Why Option Contracts are Adjusted?
When a company declares a special cash dividend, optionsXpress sends emails to investors holding that particular stock saying “underlying option strikes have been reduced accordingly and all open equity and option orders have been cancelled.” These emails cause a fair amount of confusion. I receive many phone calls asking about the situation and what they should do. In order to know what action to take, we must first understand what this message means.
Bad News Bears: Reacting to Bad News
In the Information Age, nearly everyone has access to boundless amounts of information at their fingertips thanks to the Internet. When researching stocks, investors can access statements and news within seconds of opening a web browser. This allows information to reach your hands much quicker than receiving financial statements in the mail or waiting for the newspaper or televised news program in the evening. Since news travels faster, this also allows investors to rapidly react the moment they read good or bad news about a company. If an investor reads news about one of their stocks underperforming earnings, they may want to sell their stock, thinking this news will cause their stock to decrease in price. However, this course of action may not accomplish what the investor is looking to do.
Option Premiums Part IV: Interest Rates
In the Snider Investment Method, we sell options for a premium, which is the amount we receive for selling someone the right to purchase our shares at a particular price over a given period of time. This is the final part of the series, with each article explaining a different component that helps determine the premium of a stock option. The last article discussed stock price and how price movements cause premiums to increase or decrease. This final piece will focus on interest rates and its effect on option premiums.
