Not having a clear goal leads to death by a thousand compromises – Mark Pincus
Not having a clear goal leads to death by a thousand compromises – Mark Pincus
True Success is liking yourself liking what you do and liking how you do it
Meaning of Success: “See your goal, understand the obstacles, create a positive mental picture, clear your mind of self doubt, embrace the challenge, stay on, show the world you can do it.”
“The greatest ignorance is to reject something you know nothing about”
If you are invested in Equity Markets or Mutual Funds, it is wise to be AWARE of the derivative product called ‘Options’.
Options have seen increase in popularity over the past few years. Television shows like CNBC, NDTV Profit, ET Now etc devote a significant amount of time discussing option strategies for investors. Investors and traders are attracted to options due to the low cost involved. There is a possibility of high return potential in case of options trading as well. However there is an equal or more probability of downside of trading in options which needs to be understood as well.
Let us take a look at a few of the more popular strategies for buying options.
Types of Options
Call options give an investor the right to buy shares at an agreed upon price. Investors that buy calls are not obligated to ever exercise the option. Call options can be owned for as short as a few days or long as a year. Investors that purchase call options are bullish on a particular stock.
Put options are just like call options except they give investors the right to sell shares of a stock. Bearish investors buy put options so that they can benefit from a stock that they expect to decline. Watching the activity in put options is a great way of judging when investor sentiment is turning bearish.
Buying call options are cheaper than buying shares of stock.
Call options allow investors to buy shares of a company for a much cheaper price than buying the actual shares themselves. For example, say you wanted to buy 125 shares of LNT (Larsen and Toubro) at 1700. Your total cost would be Rs 2,12,500. I have taken the figure of 125 shares because lot size of LNT is 125. (Pls note that futures and options are bought in lots)
A cheaper option would be to buy call options. You could buy one CALL option of Jul 2010 series , strike price 1700 (lot size 125) for Rs 50. Your total cost would be Rs 6,250 (125 shares x Rs50). You would only pay Rs 6,250. If shares of LNT are higher than 1750 (Strike price + cost of purchase Rs 50) by series end, you could exercise the option and make a profit. If not then you can just let the option expire. Your total risk is only Rs 6,250. For this investment you could control 125 shares of LNT.
Buying put options can limit your downside risk.
Buying a put option is a great way for investors to limit their downside risk. It is like taking insurance against your assets.
Let’s say you already owned 125 shares of LNT and the stock is currently at Rs 1700. Let us assume that you are sitting in good profits, you are afraid that the stock is going to decline, and at the same time you do not want to sell your shares.
You could protect your profits by buying a put option.
You could buy one PUT option of Jul 2010 series, strike price 1650 (lot size 125) for Rs 50. . If shares of LNT are lower than 1650 (Strike price – cost of purchase Rs 50) by series end, you would exercise the option and make a profit. By doing this, you have unlimited profit potential on downside and at the same time have limited your losses (which is depreciation of holdings of LNT against profits made by the PUT option.)
This strategy is known as a protective put strategy. If the stock drops substantially, you can always exercise your put option. If shares rise you can do nothing and just let the option expire.
Put investors can also employ a married put strategy. A married put strategy is when an investor buys shares of a stock and buys a put option on the same shares at the exact same times. The stock and option are considered married since they were both purchased at the same time.
If used properly, options can cost less, limit risk, and have the potential for higher returns.
Many investors are completely unaware about options. The intention behind this article is to make aware of the basics of options. Nevertheless, One should definitely understand the implications and understand the risks involved before buying or trading in options.
ps: I have used the example of LNT (Larsen and Toubro), because it has been on my radar since it broke out of 1700 range earlier this month. More here …..
I will cover selling options and implications later sometime.
“No amount of talking or reading can teach you swimming. You will have to get in the water.”
There are these little general rules which are applicable and useful for decision making and taking actions. And these simple rules are applicable in so many aspects of life, they are just some small reminders, some common-sense stuff which are really useful.
And yes most of them are applicable in investment planning as well.
a. Perfect Plan – Forget it.There is no such thing as a perfect investment plan and no such thing as a perfect time. The right time is now. Tomorrow is and always will be uncertain. Perfectionism is the enemy of action. Do not let perfect investment plan or a perfect time to invest stop you from starting.
b. Analysis Paralysis – Too much thinking will often result in getting stuck.Some thinking is good — it’s good to have a clear picture of where you’re going or why you’re doing this — but don’t get stuck thinking. Just do.
c. Get the Broad Picture and Start. You need to get the broad picture in your mind. You need to understand your future requirements or what do you want to achieve (goals). You need to know the time you have to meet those requirements. And, then you should have the broad plan to meet the goals. Once you have the broad picture. Get going.
All the planning will take you nowhere unless you take that first step, no matter how small it is.
d. Keep things Simple and take Small Steps. Small steps always work. Little tiny blows can break down that mountain. And then each step counts. Keep the big picture in mind, but start by taking small steps.
Understand the advantage of Investing Early here.
The Little Rules to successful action To be contd … Part 2.
SIP or Systematic Investment Planning is a concept. It means that you periodically invest your money. It inculcates discipline, takes out the emotional part of decision making and allows you to seamlessly participate in investing.
However, many people associate or assume that Sipping is available only with Mutual Funds. Thereby, they miss the whole essence of what SIP is all about. Indeed, mutual funds offer automatic withdrawals from your bank account to be invested in Mutual funds. And they promote SIP (albeit, not aggressively, you see, they want you to make the payments upfront and not by SIP).
However, it is to be noted that SIP is a concept and can be applied while purchasing shares or equity as well. Yes, you heard me right, you can SIP in stocks.
There are many cases, when you would want to SIP in equities like – (a) You want to build your own portfolio of stocks with a tilt towards a particular sector (b) You are a Buy-and-Hold type of Investor (c) You are interested in investing in good Dividend Yielding Stocks (d) You do not want to incur the annual AMC charges in the range of 1.75 -2.5% on your portfolio value year after year which all the actively managed Mutual Funds charge. Check this post. (e) You are interested in investing in ETF’s (Exchange Traded Funds) etc.
There could be ‘n’ number of reasons where you are interested in investing in stocks. Once you have made up your mind that you want to invest in equities, you can go about doing a Systematic Investment Plan for your equity investment.
10 Steps to SIP in Stocks :
1. Decide on the intervals (or periods) in which you would like to SIP. eg: Monthly 25th of every month
2. Decide on the periodic SIP amount you would like to invest e.g.: Rs 14,000/- every month
3. Use a Calendar to set reminders. (I am a google addict You can use google calendar) or use whatever means (Physical Calendar, tell your wife etc.)so that you will receive a reminder call about the periodic investment. And you can set aside the funds to be allocated for investments.
5. Decide the amount to be allocated to each asset e.g.: Rs 2,000/- each.
6. And that’s it you are all set to start sipping. Execute the Plan. Once you get a reminder Just go ahead and buy the assets.
7. Do a periodic review of your purchases every quarter in order to assess the performance.
8. Have a performance yardstick. Aim for good returns (Hey, there is no harm for trying to beat the index by a couple of percentage points year on year).
9. Measure your performance against the returns. Review.
10. Apart from TIME-WISE SIP, you can also go a step ahead. You can also do a PRICE-WISE SIP as well intelligently. If there is a > 10% drop in price of a stock between your two planned purchases, you can go ahead and pick up the stock and skip the next installment of that particular stock.
Eg: You pick up Rs 2000/- worth of Cairn India @ Rs 200/- on 25-Jan-2010. You have plan of picking up Rs2000/- worth of Cairn India on 25-Feb-2010. However , if Cairn India were to drop by > 10% or more in Jan itself , then go ahead and pick up in the stock in Jan and skip the Feb-2010 installment.
There are many Index ETF’s which are available and which are a good, low cost alternative to mutual funds which you can (or rather should) avail.
Understand what type of Investor you are, if You are the Saver Kind of Investor, go ahead SIP in Stocks. Step-by-Step over a period of time you would have created a portfolio of stocks which will generate income for you in form of dividends and which will also appreciate with time to generate wealth over a period of time.
A very powerful video, worth sharing, which inspires and gives the message — Don’t Give Up! Don’t Quit. Live Your Purpose. Be Determined. Be decisive. Be Relentless. Be Focussed. Be Intentional. Live your passion. Live Your Dreams. Be in this moment. Enjoy this wonderful video.
Credit : Author : Edgevolution
The Best Investment you can make is on yourself. These 12 tips (In no particular order)will definitely enrich you in the long run and make life successfull, peaceful and happy