Devesh works very carefully through the operations of options in a portfolio ("Deep Dive," which might be read first) and the complexity of assessing their contribution ("The Options Conundrum"), both of which complement his March overview essay.
Lynn takes on tax-efficient long-term investing (two recs follow) and updates us on the disappearance of Fidelity New Millennium ETF and the launch of a new active ETF suite that incorporates and transforms a couple earlier funds.
The Shadow shares word on a slew of liquidations. a handful of "oh god, we're not green!" repositionings, some rechristennings and the industry's miscellaneous adventures.
I write a bit about happiness, satisfaction, envy, Kahneman, Munger, GoodHaven, Pinnacle, volatility ... and Trump Media's potential arrival in your portfolio.
Fairly major pieces on quality and infrastructure are pending. I'm incredibly frustrated by the consistent lack of professionalism among advisors and their media relations staff (looking at you GMO ... Lazard ... Impax ... and others). I'll continue outreach in hopes of offering more richly informed essays May 1 than I could April 1.
With cheers to all,
David
Comments
An investor is a stock? Is this a typo or am I missing something ? I think the intention of the sentence is to convey that the investor expects the share price to increase. Have I got that right? Sometimes investing jargon is like secret code to an ordinary person who is an outsider to the investing "industry".
It should have been, "An investor is long a stock at whatever price they buy the stock."
The a was misplaced.
Here's the relevant para:
A Twist in Strike/Price
An investor is long a stock at whatever price they buy the stock. (i've fixed the "a" in here)
Not so with Options. Each Option comes with a Strike Price. At the Option expiry, one compares the Strike price of the Option vis-à-vis the then Stock price to determine if the Option expires in-the-money or out-of-the-money.
Here's the intent of the writing:
Stocks and Options behave differently. While a stock investor buys a stock and that buying price becomes their Basis, that is not the same with Options.
If I buy a Call Option on Apple, here's how the Basis works.
Suppose Apple stock is at 169 right now per share
Suppose I buy a call Option on Apple at 175 that expires next month.
Next week Apple announces a great product and the stock goes to 190 per share.
When my Call Option expires, I "exercise" my Call Option at 175.
That means my stock Basis is 175. It is not 169 (when I bought the call option), nor is it 190 (where Apple stock is on Option expiry date).
It's 175 because that the Call Strike of my option.
What is Apple was to go to 150 next week and stay there until my Expiry Date instead of 190?
Well, then I would not Exercise my call option on Apple. I would lose my Call Premium and walk away. I would have never bought Apple. Not at 169, not at 175, and not even at 150.
Thus Stock Purchases and Option Purchases have a different paths.
With Option purchases, the ending Stock Price and the chosen Strike Price matter.
Jargon:
Is this a lot of jargon. It might be. Only each one of us can be honest with ourselves about what's too much jargon and terminology. In general, if I don't understand the jargon involved, I simply do not participate in the product offering. I don't have to know everything to make money. Just one or two things really well.
I agree with your assessment that it is better to invest in what one understands or is capable of understanding. I understand the concept of long and short as a type of bet on an expectation of a particular occurrence. It seems I am not capable of understanding why taking a long position on a stock would, should or even could be thought of as *being* that position. To my little mind "is long a stock" is an ungrammatical and strange expression. Being "long on a stock" or "long about a stock" makes colloquial sense. But to be "long a stock" registers as jargon.
@YBB - It might just all depend one's familiarity and acumen in dealing with all matters re:options. I sometimes feel like I get it and then all the circuits seem to smoke all at once. However, if you want to ever talk about plants or wood deterioration in particular I'm your guy.