question: Batra on Hartmann show

[shireen]

Did anyone hear that segment during hour two of today's Hartmann show? He mentioned a company that trades gold but i did not catch it. Anyone know which one he was referring to?

He suggested doing a call option (selling options on the gold purchase) -- has anyone done that?

[A HERETIC I AM]

1. I did not hear the show you are referring to, but here's a little about Call Options;

What you wrote:
"He suggested doing a call option (selling options on the gold purchase)" Is known as "Covered Call Writing" where you own the shares (or the commodity) and you sell the option for purchase at a future date at a specific price. It's known as a "covered" call because you own the shares - if the holder of the option - the person buying what you sold - decides to exercise it, you will be forced to sell the shares. Since you own them, the call is "covered". Selling a call when you don't own the shares is known as being "naked" and this has enormous potential for loss.

Example; (purely hypothetical and admittedly, simplified)

You buy 100 shares of XYZ company stock at $10.00 per share. You sell a call option for June with a strike price of $10.50 and the option sells for $.10/per share. This effectively lets you buy 100 shares of a ten dollar stock for $9.90 per share. (you paid $1000 for the 100 shares and received $10 for selling the option.)

The seller of the call wants the share price to stay the same or fall.
The holder or buyer of the option wants the share price to rise.

If it rises above the strike price, the holder can now exercise and buy shares trading for say $11.00 for the $10.50 strike.

The holder of the option has the right but not the obligation to exercise.
The seller of the option must accommodate if the holder exercises.

Writing covered calls is relatively low risk but you must be willing to part with the security, should you get called away. It is an effective strategy for enhancing income on a dividend paying stock that tends to trade fairly flat or in a narrow range - GE for instance.

Of all single sided options transactions, buying a call has the most potential for gain, because there is no theoretical upper limit to how far a stocks price can rise. Selling naked calls has the most potential for loss for the same reason.

Options are not for the timid or the inexperienced investor. Options on commodities, ie. Gold, doubly so. Someone unfamiliar with how they work would be well advised to read extensively on how they work before entering into such a contract. Options trading privileges on investment accounts are extended, as a general rule, only after a specific account approval process.

[rhett o rick]

2. I heard the show. He was talking about something called ETF's

Exchange 'something' Funds. He was specifically talking about using for investing in euro's and using call options with them. The specific fund I believe was FXE.

Thom mentioned that there are similar ETF funds for gold. I haven't had a chance to investigate further and I am leaving for weekend. Hope that was of some help.

[A HERETIC I AM]

3. "Exchange Traded Funds"

ETF's can be traded just like individual stocks - they can be sold short, bought on Margin and there are options available on them, both Puts and Calls.

Barclays iShares is one family, as is Invesco Powershares

[rhett o rick]

6. thank you. nm

[shireen]

4. thanks for the info, HereticIAm,

I assume these transactions must be done via a broker, and it's not something that can be done online by myself? (Not that I'm planning to do it -- the amount i have in savings is even less than the loose change that Warren Buffet would have in one of his old coats! But I'd like to learn more about how the rich get richer.)

Thom also does commercials for ITM trading, which sells gold coins.
http://www.itmtrading.com/
Would just buying a bunch of coins and storing them in a safe deposit box be another option?

BTW, the Batra interview is available at the KPOJ Hartmann archives.
http://www.620kpoj.com/cc-common/podcast/single_podcast.html?podcast=hartmann_nationwide.xml
Audio is stored in 1-hour segments. Batra's interview is 5/2/08 - Hour 2. (Hour 1 is Bernie Sanders, which is always excellent and worth a listen!)

[A HERETIC I AM]

5. You can most definetly trade Options in an Online account

If you do trade them in an online account, you are still using a Broker, just not necessarily one in an office right up the street from you.

TDAmeritrade, Scottrade and Schwab all provide Options trading privileges in online accounts.

To reiterate the point about risk I mentioned above, it is important to remember that the purchaser or holder of the option, be it a put or a call is subject to less risk of loss than the writer of the option because, as I stated, the holder has the right but not the obligation to exercise. The seller or "writer" of the option MUST comply if he either has a contract Called away or Put to him. Having said that, there is no obligation on either side to hold the contract till expiration. You can always sell away what you bought or buy back what you sold.

As I said, they aren't for the timid, but that does not mean you can not become familiar enough with them and how they work so that using options can indeed be profitable, whether the market is rising or falling. Just do your homework.