Investing Information |
High Volatility Investments
Penny stocks and options are high volatility investments that attract both the trader and the long term investor because of the small amount of capital required to make substantial gains as compared with less volatile higher priced stocks. The long term investor buys a stock believing that a company's value will increase over time and the stock price along with it. When he buys an option it is usually to reduce the risk in owning the underlying stock. The short term trader looks at things a little differently. Typically a trader looks for large percentage price movement over a short period of time. Large percentage, short term price movements can be found both in options and certain penny stocks. Penny Stocks are often defined as stocks priced below $5. It is often implied, but not necessarily the case, that penny stocks are also micro caps with capitalizations of less than about $250 million. Penny stocks can be found across the full range of capitalizations from micro caps to large cap stocks. For example, Sun Microsystems (NASDAQ: SUNW) met the definition of a penny stock for much of 2004, trading between $4 and $5. In late 2004, trading between $5 and $6 per share, its capitalization was over $18 billion. The price of a large cap $18 billion stock would rarely be expected to move by a large amount over a short period of time. The largest percentage daily price gainers, of say 50% or more are typically stocks that started from $5 or less. But they are typically micro caps. As a group, micro cap penny stocks are avoided by large funds because prices are too easily affected by sizeable buy and sell orders and capitalizations are too small to affect a large fund's bottom line. Buying more than 10% of a publicly held company carries with it certain insider responsibilities. Large funds must wait until stock prices rise typically above about $20 before they can become seriously involved without moving the price and still have price movement impact their financial results. The small investor has a distinct advantage over large fund managers when he takes an early position in a good micro cap penny stock. Short term options are best suited when the underlying stock has a higher price, say above $50. While it is more likely that a micro cap penny stock will gain 50% in a single day than it is for a higher priced stock, the typical 5 or 10 to one leverage that options provide makes it only necessary for a higher priced stock to move 5% to see a 50% gain in the corresponding option price. There are several additional considerations involved in choosing an option. Not the least of these is the market environment. When chosen properly, options for higher priced stocks provide the same large daily price movements of penny stocks. Lower priced stocks need to move by a larger percentage in order to see a similar percentage move in the corresponding option. They are only likely to do so if they are micro cap penny stocks. James Andrews publishes the Wiser Trader Stocks and Options Newsletter. One can read about choosing penny stocks and options at http://www.wisertrader.com © 2004 Permission is granted to reproduce this article, as long as, this paragraph is included intact.
MORE RESOURCES: Unable to open RSS Feed $XMLfilename with error HTTP ERROR: 404, exiting |
RELATED ARTICLES
Consolidation Period The economic data reported Fri showed continued above trend growth with disinflation (at the core level, excluding food and energy) in the second quarter. Real output growth has slowed from about 4% in 2003 & 2004 to just over 3 1/2% so far this year, while a core inflation rate fell from 3% last quarter to 2%. Why You Need To Buy and Sell Gold Coins (Part 1) The Value of Gold in a Era of Paper Assets, Stocks, Bonds and Mutual Funds.. Exchange Traded Funds They call 'em ETFs.There are hundreds of them. Approaches to Investing Here is a small summary of the three major approaches to investing:1. Fundamental AnalysisTruly superior companies exist, are sometimes undervalued by markets, and can be identified by mostly financial research. Reasons For Joining An Investment Club Whether you're a novice investor or an experienced stock picker an investment club may be beneficial to growing your investment portfolio. This article explains what an investment club is, why you should have an investment program and finally why you should join an investment club. Investing in Car Dealerships: How to Do It Right The financial characteristics of the automobile dealership are attractive:". . Investing Pointers for Neophyte Investors If you know next to nothing, how do you go about the business of investing? The first thing you need to know about investing is, how much do you really know? If its' not much, then you will need to read extensively to educate yourself.To become well-informed, you should read up on the basics. In a Time of Need As I take my leisurely walk with my dog through the older section of the local cemetery, I pause to read the details on the barely legible, weathered headstones. I am fascinated with the dates, for I know each stone has a story to tell, a history of its own time and place, but only enough space for identity. Before You Start Investing There maybe several reasons why you to want to invest your money. You may want to retire early, want to build your own business in the future, or to pay for your kid's education. Investing: Do You Want To Make Money, Or Would You Rather Fool Around? It always amazes me how much stock market investors resemble horse track bettors. Some are very conservative, willing to trade low returns for relative safety. Remembering TEOTWAWKI and Learning from It Its only been about 5 years since we had major scares in the marketplace regarding Y2K. You might recall that many computer systems were not programmed to be able to understand the change from 1999 to 2000. Sitcom Investing A fickle stock market encourages good-humored mockery.Recently, as I watched the premiere of a sitcom, an obvious omission breached television etiquette. Advice for International Investors on How to Safeguard Their Profits What are the risks?Today, investors are increasingly turning to global markets to find opportunities for profit, giving urgency to the issue of protecting returns from foreign exchange risk. While there are many excellent investment opportunities to be found all over the world, volatility in the currency markets can and does affect the profitability of these investments. Realistic Investing Expectations Over the long term stocks have provided us with great average return results. But this average return masks a great deal of volatility, because returns have fluctuated within a very wide band. Chinas Inscrutable Currency Strategy Purpose: Expose Opportunities for Smart InvestorsThe move by China's central bank to drop the yuan's rigid peg to the dollar on the day of my return after a three-week trip to Asia left a host of questions unanswered. The basket of currencies that will allegedly determine the value of the yuan going forward was not disclosed. Investing Online Has Its Rewards: Find Out How To Take Advantage Of Them Computerized investing. Online investing. Ask The SEC Who is the SEC and why should I ask them anything? The Securities and Exchange Commission in Washington, DC is the government bureau that regulates the securities industry. They make the regulations that all stock exchange listed companies, brokerage houses and mutual funds must follow. Penny Stock Investing The Nature of Penny StocksFor anyone new to investing in penny stocks, you should first be made aware of the differences between these micro-cap stocks and the more conventional blue-chip and mid-cap investments. Unlike buying shares in a large, stable company like Ford or IBM, you are dealing with speculative investments. Angel Investors: Who They Are & When Are They Appropriate Angel investors are individuals who invest in emerging business ventures. Angels typically provide both capital and know-how to companies who are in either their start-up or expansion phases. Almost Anyone Can Open A Roth IRA! The Roth is kind of weird until you get used to it in terms of how much you can put in (contribute) each year depending on how much you earn (compensation). Because of this you really have two limits, one dealing with your compensation and the other dealing with your contribution. |
home | site map | contact us |