longs and shorts are actually only available on certain stocks (they need to be a year old I think). They are listed on the stock exhcanges so if you were to have adirect link to the exchanges you would have no problem with people buying and selling shorts. My questions relate to if we will be charged transaction fees for these, whether we will be charged taxes (to make it more relistic - probably a short term 40%) and also if there is a limit to how much of your portfolio can be in one stock (I would say not more then 30%). I am assuming we would have all other financial instruments as well such as bonds, T-bills etc.
AJ- longs are basically speculating on a stock price rising. So you pay someone a certain amount to borrow their stocks (generally they are sold in hundreds) at a specific price (called strike price) for a certain period. During this period if the stock prices rise above the strike price, you could "sell" the stocks, give the owner the strike price you agreed on and pocket the difference between the stricke price and the price at which you sold the stocks. So for example i buy 100 longs on stock xyw for $2.00 at a strike price of $20 for 1 yr (lets assume the current price of the stock is $18.50)- my cost is $200 + my brokers transaction costs. Within a month the stock price rises to $30, I sell the longs at $30, pocket the difference between that and the strike price (100 x $10 = $1000).
Essentially shorts are the opposite but the same thing - then you are the one loaning out the shares (that is you are betting the price of the stocks would fall below the strike price) .
What shorts and longs give are basically greater risks and leverage. So you can own a hundred shares for way less then the actual price and the risk is much higher as well.
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*Originally posted by hmcq: *
longs and shorts are actually only available on certain stocks (they need to be a year old I think). They are listed on the stock exhcanges so if you were to have adirect link to the exchanges you would have no problem with people buying and selling shorts. My questions relate to if we will be charged transaction fees for these, whether we will be charged taxes (to make it more relistic - probably a short term 40%) and also if there is a limit to how much of your portfolio can be in one stock (I would say not more then 30%). I am assuming we would have all other financial instruments as well such as bonds, T-bills etc.
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transaction fees will be USD15/per. Wouldnt taxes be diff for different countries? I dont think we have any taxes here in Australia on short term trading, hence people do a lot of day trading. It'll get too complicated. Why should we limit one stock to 30%? Athough you'll have spend atleast $500 per stock (aussie rule).
You are refering to puts and calls, and they are options on stocks. I don't think that we should do options, as the intraday pricing can swing wildly, and they are difficult to account for in a simple exercise such as this. ( a Put (short)is a contract that someone sells you so that you benefit if the stock declines below a certain price. A call (long) is the exact opposite. ) Puts and calls are generally called "derivatives", and can be enormously complex to understand and benefit from. Because the nature of the pricing can be described by a formula called the Black-Scholes model, prices vary according to length of the contract, volitility of the stock, risk free capital rates and other factors, generally refered to as the "Greeks". The end of the day prices for options are generally available in financial papers, but it is not uncommon for option pricing to vary as much as 30% in a day. You can also be short puts, by selling them to someone who thinks the stock will decline. By selling a put, you are actually bullish (it is like a double negative). Trust me, it is way too complicated.
A true short is something different. Lets say that you "short" 100 shares of Cisco at $20. If the stock price of Cisco declines to $18, and you close out the short at that price, then you have made $2 per share times 100 shares or $200 total. Conversely if Cisco rises to $21 per share and you close the trade, you have lost $1 per share, or $100 total.
Just like buying only you benefit if the stock price declines.
Taxes should be excluded. If we are going to do a 6 month contest, all transactions will essentially be short term gains. Let's just see who can make the most amount of money in the allotted period.
When you sell a "covered" option you are doing so to generate cash, and a little additional income on stock you already own. If you own Cisco and the stock is at $19.5, you could sell a call with a strike price of $20. for maybe $.50 per share. If Cisco closes below $20 you get to keep the premium (the .50 ) and your stock. If the stock closes at $21 on the expiration date you will get to sell your stock to the call holder for $20 (.50 higher than it was at the time you sold the contract) and you get to keep the premium. Thus you are, for an agreed upon period of time, agreeing that you will give up some potential future profits iin return for a fixed payment from the buyer of the call. ( American options are good only for one agreed upon date, usually the third friday of any given month. European options are good ANY TIME up until the expiration date.)
A covered put is exactly the opposite. That is you are already short the stock, and you sell a put, giving up future profits if the price drops in exchange for a fixed payment.
"Naked" option selling is much riskier than "covered". Let's say Cisco is at $19.5 and you sell a call with a strike price of $20 for $.50 and immediately the stock surges to $30 by expiration day. The call holder can then demand his stock at the agreed upon price of $20. But you do not have the stock!, that is the "naked" part. So you must go to the market, buy the stock for $30 and then turn around an be required to sell it for the agreed upon $20. Thus you would lose $10 per share, less the premium you collected of .50 for a net loss of $9.50. So the difference between "covered" and "naked" option sales is that the covered sale has very limited profit potential, but limited risk, while the naked sale has limited profit, but unlimited risk (but an infinite possibility of return on equity as you are sellin something that you do not already have.
Phew!
By the way, ownership of a stock either up or down is refered to as a long or short, while ownership of an option ( a contract where by you could later own the stock long or short) is called a put or a call. If you buy a call you are "long the call" if you are selling a call you are "short the call".
Got it?
If we have not already reached the conclusion that we do not want to deal with options in this contest I could launch into a discussion of how these various derivatives can be layered at different time frames and prices and in different directions to form straddles, strangles and butterflys. OK?
I blv its nothing I would understand in the little time I have…So I just skipped it. Lets start with the basics first, I’ll add more features if we have a fair bit of interest in the whole thing.
You gentlemen can carry on.
Btw…this is how it looks right now. What needs to be added or deleted?
Who me so how does the software update the records when a person buys something? is it automatic?
Ohioguy. i would love to hear about straddles and buterflys if you can explain it. I get a bit confused with the terminology but puts and calls I sorta understand and from what you are saying, longs and shorts are basically naked puts and calls where you own the underlying stocks.
A mechanism needs to be added for the shorts. A column with L or S should suffice. The calculation of the portfolio value needs to be slightly different. A simple if statement should suffice, for example in Excel format this would be the statement. if(long,short, then,(number of shares*(current price-purchase price)=current profit), (number of shares*(purchase price(short)-current price)=profit)) While not in precise Excel language, it gives you the drift that profits for a short are calculated in an opposite fashion from owning a stock long.
So that if you sold(short) Cisco at $20 for 100 shares, the value in your portfolio would be $2000. If the stock price DECLINES to $19, you would have a profit of $1 per share times 100 shares or $100. Thus the total equity value would be the purchase price(short) of $2000 plus the profit of $100 or a total value of $2100 would be reflected in the total equity column for this stock.
Hcmq,
Rather than get into a long dissertation here, I will try to find three good web sites for you. Larry McMillan and Bernie Schaeffer are the gurus of options and both have excellent web sites. The CBOE is the actual exchange that manages most of the option activity, and they have some great tutorials, as well as some downloadable software that allows you to build and calculate the value and the profitability of various options profiles.
Quick note on the terminology. Long and short are basic terminology describing the direction from which a stock movement would describe profits. There is no real thingy that could be called a long or short. You can be long or short a stock, and you can be long or short an option.
In a covered call for example you own the stock, so you are "long the stock". Then you sell the call, so you are "short the call". In a naked call you would NOT own the stock, but you would still be "short the call".
Don’t mean to duck the questions on Advanced topics, read from the above list and PM me if you have questions. Most of these sites describe what you want to know in more detail than I could do in a post.
I think for the first pilot fantasy league, lets keep it simple. You get $10,000 to invest. Pick up stocks of your choice. Use the whole friggin' balance. What are you gonna lose, anyway?
Buy and sell as much as you want. At the end of six months. We close the first fantasy league and see how much is the net worth of the $10,000 at that point.
No longs, no shorts, no puts and no calls. Just buys and sell stocks of public companies in the designated few stock exchanges around the world (depends on which SE's who---me can pull the prices from).
Let's say the market declines for the next six months, and almost every stock goes down. In that case you may be better off not buying a single stock, but just holding cash. At least if you are able to sell short, you could make a profit in a declining market.
I blv its nothing I would understand in the little time I have…So I just skipped it. Lets start with the basics first, I’ll add more features if we have a fair bit of interest in the whole thing.
. You guys have 5 days.