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Wrong again. Paper losses are not real until
you realize them. I have several stocks that are down on paper but due to
various option strategies my total position is positive or breaking even no
matter what the market does and I have no risk of a margin call.
Using margin is buying shares on credit. If
you buy 500 shares at 50.00 you will need to put up $12500.00. If the
stock declines so that your total portfolio is valued below 40% your broker will
ask you to make a payment on the credit you used. As with anything you buy
on credit you will be expected to pay for it eventually. If you spend more
on margin than you can afford you are being as irresponsible as if you spend
more on credit cards than you can afford.
When you calculate net worth you must subtract
monies owed in loans, including margin loans. Again GREED and IGNORANCE is
the main reason people get into trouble with the use of margin. You can
not spend unrealized gains, that is exactly my point.
To make this educational let's look at your
previous example. You purchased a stock at $50 that went to $100. If
you are greedy you hold the stock and hope it goes higher. If you are
smart you purchase an at the money put(s) with the longest expiration
reasonable. To pay for the put(s) you sell and out of the money call, say
a 110's, with a shorter time to expiration, repeat selling the calls to reduce
the cost of the puts (to 0 if possible) each time they expire.
Now you are well hedged. If the stock
declines the puts will protect you from large losses and the short calls
will decline in value to $0.00 at expiration. If the stock goes above 110
you could be exercised for a profit of $60 and the puts would still have some
time value remaining and that can be recovered by selling
them.
THERE IS NO EXCUSE FOR TAKING LARGE LOSSES, except
GREED, and IGNORANCE (you can hedge against fraud)!!!.
Good luck and good trading,
Ray Raffurty
<BLOCKQUOTE
style="PADDING-RIGHT: 0px; PADDING-LEFT: 5px; MARGIN-LEFT: 5px; BORDER-LEFT: #000000 2px solid; MARGIN-RIGHT: 0px">
----- Original Message -----
<DIV
style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black">From:
Steve
Walker
To: <A title=realtraders@xxxxxxxxxxxxxxx
href="mailto:realtraders@xxxxxxxxxxxxxxx";>realtraders@xxxxxxxxxxxxxxx
Sent: Thursday, August 01, 2002 12:12
PM
Subject: Re: [RT] bear market stats
How do you calculate "net worth"? Can you spend
unrealized netgains....look at your margin statement. Are paper
losses real? I restmy case.>>> <A
href="mailto:r.raffurty@xxxxxxxx";>r.raffurty@xxxxxxxx 08/01/02 11:07AM
>>>Wrong, wrong, wrong, wrong, wrong, wrong, wrong, wrong, wrong,
wrong,wrong, wrong, wrong, wrong, wrong, wrong, wrong, wrong, wrong,
wrong,wrong, wrong, wrong, wrong, wrong. If you believe this,
STOPINVESTING/TRADING NOW. You are in great danger.You are
only "wealthy" on paper. You have NO wealth until you
takeprofits. A bank will gladly loan you money on 50% of your paper
wealth,then sell 100% of the position (or whatever % is required to make
THEMnor you whole if the stock drops below 40%) at any cost to
you.Good luck (you'll need it) and good trading.Ray
Raffurty ----- Original Message ----- From: Steve
Walker To: realtraders@xxxxxxxxxxxxxxx Sent: Thursday,
August 01, 2002 11:34 AM Subject: Re: [RT] bear market
stats Wealth does disappear to the extent the market moves
higher afterthe purchase and then retreats.
>>> r.raffurty@xxxxxxxx 08/01/02 10:30AM >>>
Recently the Democrats have been harping on the 7.7 trillion loss in
market cap. This shows a total lack of understanding on how
markets work. If a person is stupid enough to by stock
in Dr. Coop.com (fill inyour favorite dead stock) at $80 they
deserve to drive a Dodge Omni with 100,000 miles (they probably paid
2995.00 for that too). The point is that the 7.7 trillion
dollars did not disappear, itjust changed hands. The
uninformed and greedy sucker ALWAYS gets clipped. CNBC just ran
a report about a couple that lost 75% of their accountin
JDSU. Their kid wants to go to Duke University, so they are
moving, riding the subway, etc. He was man enough to admit it
was hisfault, but fell short of admitting it was GREED, pure and
simple, that madehim buy an over priced stock and IGNORANCE that
prevented him from protecting his position with options or even
stops. The person(s)who sold him JDSU at the top are
driving the Porsche because theyrecognized that the market could
not go parabolic for long. If there is a case of fraud, a stock
holder would have a legitimate complaint and new laws may address
some of this by returning illgotten grains to investors (if the
feds can find the assets). However inmost cases this is
not applicable. The vast majority of losses are causedby
GREED coupled with IGNORANCE. Now the great masses are crying
totheir congress man "They never told me I could
lose". Good luck and good trading, Ray
Raffurty ----- Original Message -----
From: SLAWEKP@xxxxxxx To:
REALTRADERS@xxxxxxxxxxxxxxx Sent: Thursday, August 01,
2002 6:03 AM Subject: [RT] bear market
stats
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