Prosper Newsletter: June 2007 > Stock
You understand that the following information is educational in nature and is not intended to be legal, accounting, or tax advice. You are responsible for your own financial decisions and should consult your own legal, accounting, and tax advisors before making your financial decisions.
Orders
During the last decade, stock market investing has made an evolution. In years past, stock market investors relied on brokers and brokerage houses to manage their stock portfolio. While this option is certainly still available, many are turning to Internet-based brokers to manage their own portfolios. Often, interaction with an actual person is limited at best
Because the Internet-based brokers allow investors to take control of their portfolios, it is essential that the investor understand the different orders that are available and exactly what each order is used for. The investor should also understand that there are many opportunities to use multiple orders to increase the control that he or she has on the stock.
Remember that these orders are not strictly limited to Internet-based trading. A traditional broker also uses these same orders to carry out the investor's stock strategies. Understanding orders will help any investor. We will highlight many of the orders that you should be aware of and give you an idea of what each order does. We will first review some of the basic orders that are available. We will also look at some of the other orders that you may choose to use in your investment strategy. First we will identify some of the terminology that you should be aware of when discussing orders.
Terminology
All or None– instructs the broker that the entire order must meet the criteria or the entire order is cancelled.
Day Order– sets a specific time in which the order may be carried out. As the name suggests, it is usually only one day.
Good Until Cancelled– keeps an order open until it is filled or the investor cancels the order. Often, good until cancelled orders also carry a time limit but it is much longer than day orders. The individual broker sets the time limit.
Option Trades– allows the investor to purchase or sell options.
Stock Trades– allows the investor to purchase or sell stocks.
Trigger– the price or event that causes a stock to be purchased or sold.
Overnight Success
I have to gloat. AAPL has been good to me. I funded my OptionsXpress account this month. The funds became available for trading 2/5/07. I began trading in AAPL Apr 07 $85 call options as shown on the attached. I made several smaller trades - each time for a profit. This week, I had sold all but 5 contracts on 2/20/07. I liked the priced and bought a total of 45 more contracts on 2/20/07, even though it was inside the 60-day expiration window. Then AAPL started ramping up the next day (yesterday). I eventually sold all 50 contracts for about $7500 in profit in less than 24 hours. I'm sure a more astute and experienced trader would be able to resist pulling the trigger as soon as I did. But I was thrilled with the profit and so I sold about half of the position and then set a tight trailing stop on the other half. Both of which soon sold and left me smiling!
I like this game. Through my other account, I was also holding 500 shares of AAPL stock with a cost/basis of around $40,000. It ramped nicely and made me about $2k in profit. The options cost me about $24k and made me a profit of $7.5k.
Gee! I wonder which looks more promising... AAPL stock $40k capital, nets $2k profit or options with $24k capital nets $7.5k profit...
Joe D.
This last month was another great month for the stock market. We are reaching all time highs on the DOW a few times a week. Earnings season had much better than expected reports this past month and a half to help the rally. There are a lot of companies that are buying back their own stock making less stock available in the market and the demand is still very high. For these reasons the market has been incredibly strong and holding these new levels.
Some market sectors to keep your eye on are almost any oil sector and wireless phones. With oil prices approaching $70 a barrel, ongoing geo political concerns, and low inventory levels we expect this sector to continue rising for the next couple of months. With the launch of Apple computers new I-phone just a month away there is a lot of excitement not only in Apples stock but in other wireless carriers as well.
This is a great time to be in the market, with all the good news out there don't get too one sided. With the recent momentum in the markets many investors are just jumping in. Take your time and make good decisions in your trading. As the summer months approach there may be some downside coming our way. Keep a close eye on your charts and be ready to play some downside in the upcoming months.
