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As long as we’re close to Festival (or in it?), what are “SPY call options” and what is their purpose?
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How anons weather the storm 🇺🇸⛈ pic.twitter.com/MpgIa7IpBX— 45🇺🇸 (@45F0RLIFE) October 29, 2020
SPY is the stock symbol for the Standard & Poor 500 mutual fund index: it buys price-weighted shares in the entire top 500 US companies as defined by Standard & Poor.
(Just like the DOW is a weighted average of 30 Industrials.)
A call option, is you not purchasing the index itself, but purchasing the right to BUY so and so many shares of the index (in increments of 100 shares), at a specific agreed-upon price, on or before a certain date.
You are betting on the movement of the market. If the S&P is currently (say, to make it simple) $100/share, you can purchase the right to buy shares (say) in 30 days or less, at $105/share.
You buy the right to, but not the obligation to.
Right when you buy them, it's not worth very much: you could buy the S&P at $100 share all on your own, so why would you buy the right to pay even MORE for it?
Well, if Trump wins and the stock market goes hyper again, because people realize they won't be taxed and regulated and illegal-immigranted to death, and the S&P index shoots up from $100/share to $130/share?
All the sudden, the right to buy it for only $105/share becomes a screaming deal, doesn't it?
If Biden wins, and the S&P drops down to $80 a share, all you've lost is the money you used to buy the options: which is a lot less than if you had owned the actual stocks, and then watched them fall.
SPY is an exchange traded fund that tracks the S&P 500 index. Similar to a mutual fund, except it can be traded like a stock... most mutual funds limit the amount you can trade in and out as well as the timing.
A call option is an option to buy a stock at a given price on a given day. So say a stock is at $9 today. I buy a $10 call for January for pennies on the dollar of the actual stock. I don’t own the stock, but I own the right to buy it on that dat at $10. If it is over $10 + my cost then I profit. If it is under $10 I lose my investment but I don’t have to buy it at $10 as it is cheaper to buy art the current price. I don’t need to buy the stock - if it’s above $10 prior to the day I can just sell the call itself at a profit.
So I bought calls for the exchange traded fund SPY due in mid January this past week when the market was down, I fully expect the market to pop back in November and December. The reason I don’t buy SPY directly is I can only afford so much, the call gives me additional leverage as it is much less then the actual stock price.
I plan to sell the call much earlier then January, and buy an even higher March dated call with only a portion of the profits, while taking the rest of the profit and my initial investment and putting it into high dividend stocks currently depressed - such as a REIT (real estate investment trust), Energy (Exxon has a 10% dividend right now, or Transportation (airlines and cruise lines are getting killed right now).
If I loose - it will mean we are all loosing either because Trump lost or because the Deep State is intentionally tanking the market and I got my timing off on when it would come back - If Trump wins - It will come back.
