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Author Topic: How Leverage Makes Me 7 Times More Money  (Read 1519 times)
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tamo42
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« on: 2011 Feb 23, 09:39:00 am »



This morning I went through my usual ritual. I read the news of major events all around the world, I checked on the silver and gold markets, looked for any new plays today, and finally looked at my existing positions in the stock market.

Lo and behold, one of my positions, Duncan Energy Partners (DEP), was trading MUCH higher than it was yesterday. It closed yesterday at 32.62, and is now trading at 40.19. That's a gain of 8.50. It turns out that a firm has been amassing huge amounts of stock and now owns a majority. So now a formal buyout at a price of 42 is in the works.\

A gain of 8.50 on 32.62 is a return of 26%. Not too shabby.

But of course, I wouldn't be writing all this if that was all there was to it. If you've been following my posts on trading at all, you know that I don't buy and sell equities directly. I use the financial leverage of options. So what did my options do?

I bought June 30 calls back on January 13 for a price of $3.40. I sold them this morning for $10. That's a gain of 190%, which is a little higher than 26%. Wink

Now this was a total surprise so it's not something you can repeat every day, but I thought it was an excellent demonstration of leverage can work for you. But you must be careful, different kinds of leverage behave in different ways. However you choose to employ leverage, know what can happen, both good and bad.
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Neal McSpadden
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dobedo
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« Reply #1 on: 2011 Feb 23, 10:12:48 am »

Wow, that's amazing! You have an upside of 190% or more, and downside of only 100%. What a deal indeed. 
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tamo42
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« Reply #2 on: 2011 Feb 23, 10:45:01 am »

Yep, it's very nice that way. Realistically, because of the strategies I use, the chances of losing 100% are slim. And that's what trading is really all about, stacking the odds in your favor.
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Neal McSpadden
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badon
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« Reply #3 on: 2011 Feb 23, 01:55:57 pm »

Most of the strategies in use to prevent big losses are vulnerable to manipulated shakeouts designed to relieve you of your wealth at a bargain price. But, it seems that as long as you're aligned with the prevailing wind, the shakeout costs are sort of like paying a "toll" to the random thugs you meet along the way - for "protection", of course.
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« Reply #4 on: 2011 Feb 23, 02:32:27 pm »

Yep, the cost of insurance is simply the price of doing business.
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Neal McSpadden
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« Reply #5 on: 2011 Feb 23, 03:31:09 pm »

HFT/Market Manipulation/Fraud


I believe those words surmise what we all call today paper assets.  Always keep in mind they can always manipulate the price to the downside thus hitting all those stop loss for pure profits $$$$$$$$$$   BUT I personally use tamo42's strategy.  One play im doing is PBR (one of the biggest energy CO in the World today but most have not heard of PBR) Think OBA-MAD--think stock portfolio and think HUGE inside buying the past six months PLUS they found HUGE reserves of oil---We're talking Billions and Billions.  Please Google what Im saying before calling B$ =P. 


Anyhow, enough of my rant and here we go.  PBR Strike price $45 Jan 2012 expiry.  I bought a few options for $1500 and im already up $700+.  My play from this would be to play it safe and look for weakness first BUT with all the $hit thats going on in the middle east---lets just say," Not good not good at all...".  I purchased PBR only a few weeks ago. 

DYODD PLS but im super confident that my $1500 will translate to @ least $3500+in six months if not i have until Jan 2012 so no big deal =)  I know tamo42 knows about my put options (hint its near its all time high and profit margins are getting squeezed so hard due to the rise in commodities).   



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badon
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« Reply #6 on: 2011 Feb 23, 09:31:34 pm »

I'll be interested to see updates on this play as it progresses. I think oil prices are headed higher in general.
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If families are a problem for the system, then we must reject the system, not the families.
Founder of the Coin Compendium (forum, blogs, calendar, images, donate, contribute).
LBC makes you rich, with a free ebay gift certificate awarded every month!
The Coin Compendium and the china-mint.info forum, censure, disclosure.
Do not PM questions. Answers should be publicly available.
Backup is not enough. Protect your data with MultiPar.
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Badon effect: type 1 to 8, type 9.
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tamo42
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« Reply #7 on: 2011 Feb 23, 10:18:15 pm »

Well this particular play is done. The buyout was at 42, so that's the price it will slowly approach as the deal is finalized.

Oil in general is in for a ride though.
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Neal McSpadden
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badon
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« Reply #8 on: 2011 Feb 23, 10:19:12 pm »

Well this particular play is done.

Should I read that with a Yoda voice?
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If families are a problem for the system, then we must reject the system, not the families.
Founder of the Coin Compendium (forum, blogs, calendar, images, donate, contribute).
LBC makes you rich, with a free ebay gift certificate awarded every month!
The Coin Compendium and the china-mint.info forum, censure, disclosure.
Do not PM questions. Answers should be publicly available.
Backup is not enough. Protect your data with MultiPar.
Writer of LBC Chinese coin investment articles (list).
About me: User:Badon - MediaWiki.org
Badon effect: type 1 to 8, type 9.
I type faster on a TypeMatrix.
Use my work. Give credit.
Coin, medal, whatever!
Coin storage advice.
FreeArc is amazing.
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tamo42
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« Reply #9 on: 2011 Feb 23, 10:41:24 pm »

Should I read that with a Yoda voice?

[yoda]
Particular play done, this one
[/yoda]
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Neal McSpadden
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