15k to 20k in 12 months

BlazingSaddler

Hi all,

If you were aiming to make 5k on a 15k investment in 12 months, how would you go about it?!, a little fed up at this stage of seeing interest of €20 per month in the old savings account.

soddy1979

Take a look around at what you think will make significant moves over the next year and then take a long option position. You will pay a premium for the long option position, which will protect the majority of your downside but allow potential upside to your investment.

Before I start let me make clear I don't think the below trade is a good idea (I don't think commodities are going to drop so much in price), I'm just using it as an example of how you could achieve this type of return while limiting the risk to your capital.

For example, DBC is trading at $24.11. You think the price will collapse over the next year to $10 so you could buy Jan 12 put options at strike $23 for 2.45 per option. 5 contracts would cover 500 shares and cost a premium of $1225. If the share price is above $23 in Jan 12 you will lose your $1225 as your options will expire worthless. If the price is below $23 in Jan 12 you buy 500 shares in the market and sell them immediately for $23 and ($23-$10)*500 minus the option premium minus $555 is your profit. If DBC is indeed trading at $10 you will make $13*500 - ($1225 + 555) = $4720

YouWantWhat

If you want to lose your money, start trading PUTS!!

soddy1979

YouWantWhat wrote: »

If you want to lose your money, start trading PUTS!!

Explain?

YouWantWhat

Only people with vast knowledge and experience of the stock market should consider trading options. PUT options increase in value as the stock price falls. However, PUTs lose value from the minute you buy them, as the spread is normally much greater than that of a stock, and the intrinsic value also decreases, and eventually they can expire worthless. To trade these you need to know what to buy, what strike price, and most importantly when to sell, whether in profit or not.

And lets face it, companies with options worth trading are normally large companies, with good management, where the emphasis is always increasing the share value.

The fellow that started this thread sounds like he is relatively inexperienced in the stock market, to suggest trading PUTs is ludicrous.

soddy1979

I'm pretty sure I explained to him he could lose his entire option premium in my first response.

Long put options puts a defined maximum on his loss.

How do you suggest the OP aims for a 33% 12 month return? Going for this type of return you are going to have difficulty achieving it anyway, but I'm all ears for listening to your suggestion of trying to achieve it.

DBC is a commodity ETF by the way.

YouWantWhat

As you probably well know, there is no get rich quick scheme, even though many people out there would lead us to think so.

If this fellow wants to make money, for example in the stock market, the first thing he needs to do is get educated, understand the industry and make decisions for himself, and I would suggest that this will take longer than a year.

To trade options, I would suggest putting no more than 20% of his capital on this type of trade. If he knows what he is doing, it can be very profitable, but like anything else, if the profits are big, so are the loses.

soddy1979

I erred in my calculation on outlay and profit below. The $555 should not be included in any calculation.The OP's outlay was under 20% for this trade (it's under 10% now).

YouWantWhat

Soddy,

from the example you gave above, I would suggest that you stay away from PUTs yourself.
Firstly DBC has been in an upward trend since March 2009, and is likely to hit $30 before it ever goes to $10. You should never trade PUTs when a stock is in an uptrend. Secondly, the delta should be preferably more than 70, and thirdly, in this example you shown us DBC $23 strke price has no open interest. A recipe for losing all your hard earned dosh!!!

The spread in this example is 35c and the delta is 50, taking account of brokage etc. the price would have to drop more than a dollar before you even breal even.

D-Generate

YouWantWhat wrote: »

Soddy,

from the example you gave above, I would suggest that you stay away from PUTs yourself.
Firstly DBC has been in an upward trend since March 2009, and is likely to hit $30 before it ever goes to $10. You should never trade PUTs when a stock is in an uptrend. Secondly, the delta should be preferably more than 70, and thirdly, in this example you shown us DBC $23 strke price has no open interest. A recipe for losing all your hard earned dosh!!!

The spread in this example is 35c and the delta is 50, taking account of brokage etc. the price would have to drop more than a dollar before you even breal even.

Eh he said that this trade was definitely not a good one in his original post!

sodd1979 wrote:

Before I start let me make clear I don't think the below trade is a good idea (I don't think commodities are going to drop so much in price), I'm just using it as an example of how you could achieve this type of return while limiting the risk to your capital.

The example was illustrative, not a recommendation.

Puts and calls can be very good if you know the amount of capital you are willing to risk. Placing stops in equities doesn't necessarily mean you will get out at your stop loss limit. They also allow someone with limited capital trade at high leverage.

YouWantWhat

I hear what you are saying, and I would read it as a disclaimer to cover himself, but is this really an example to be demonstrating to a novice?

soddy1979

As D-Generate said. It was an illustrative example and most certainly not a recommendation.

I agree with YouWantWhat also; I believe that the OP would be much better served educating himself then aiming for such high returns in such a short period. Hopefully the OP would realise that trying for such returns is going to involve a high degree of risk.

I'm not so familiar with options that I know why you have recommended a delta greater than 70 for the option (I presume you mean less than -70), so could you tell me why?

Options aren't for everyone, but they do provide a certainty to your downside if you are long either a put or a call. The risk becomes infinitely larger if you write naked calls by the way.

YouWantWhat

Soddy,

I'm by no means an expert on PUTs to be giving advice, and I don't trade them. The delta is the amount the option price will rise or fall for a $1 movement in the stock. eg. if the option has a delta of 50, if the stock price goes up or down $1 the option price will go up or down accordingly by 50c. The most lucrative delta to have when buying an option is between 70 and 90.

T Corolla

Wait for the sterling to drop at christmas and buy some. I bought 15k of sterling at christmas 2008 for and I traded it back in the summer and made 1100 euro's tax free.

Raskolnikov

I suggest you readjust your expectations a little. Warren Buffett, the greatest investor of all-time has an annual return of 15% since 1957.

Do you think you can be twice as good as one of the richest men in the world?

T Corolla

Its a matter of doing some investigating and looking to not be greedy. In the boom I made money on currency exchange . The worst I made was 200 Euro's in a year. Thats alot more than any bank will give in intrest

Raskolnikov

T Corolla wrote: »

Its a matter of doing some investigating and looking to not be greedy. In the boom I made money on currency exchange . The worst I made was 200 Euro's in a year. Thats alot more than any bank will give in intrest

Fair play on making that cash, but you made it through speculation. Currency trading is a zero-sum game, so after middle men costs, most speculators will inevitably lose money.

T Corolla

Raskolnikov wrote: »

Fair play on making that cash, but you made it through speculation. Currency trading is a zero-sum game, so after middle men costs, most speculators will inevitably lose money.

You know your stuff. I had to sit on dollars for some time now and looks like I'm going to loose on them. What kind of investments would you work on. I made some money on Intel shares as well. The thing with them is the sellers fee is very low(5c per share).

nice1franko

step 1: buy GKP.L
step 2: wait
step 3: profit

Raskolnikov

My money is in savings accounts or stocks, that's it. I used to buy a lot of "turn -arounds", they're companies who have hit trouble and who've seen share price declines. I've had some successes, some failures with that. Quite frankly, I'm getting turned off the idea in investing in them because it requires a lot more work to study and keep track of. Increasingly though, I feel myself being drawn more towards investing in quality companies who are still relatively cheap for some reason or another. My results with these companies are as good as the turn around companies surprisingly. I also sleep better at night knowing that I own one of the best insurers, best banks, best retailers, etc. in my portfolio. I will still buy businesses in distress if they are cheap enough, but have decided I'm going to keep a core portfolio in quality business that could be 4, 8 or 16 times they size they are now in 20 years time.