What are the mechanics of buying the puts i.e. can you use etrade? And how much are they? Say the snp dropped 200 points, what would you make?

I have no clue about stock indices, sorry. But it would seem a good one to do a call on would be the CRB, [commodities basket] -

Another goodie would be gold calls out to Dec 2000...

I just spotted this on Kitco -

Goldteck (Don Wallenchuck Report) ID#432286:

This afternoon on T.V., the Stock Market Observer program on Channel 26, The U, out of Chicago, featured one of their regular market timers who also writes a newsletter. His name is Don Wallenchuck ( sp.? ) , and writes the Wallenchuck ( sp? ) Report.When asked what his forecasts were for the coming year ( I believe that was the time period ) , he said that after the Bank of England gold auctions are over, and the next 2 months of gold options expire, that gold will take off and he expects it to go right through $800 an ounce. He also said that commodity prices this year are going to skyrocket ( my words, can't remember his ) , oil is going higher, higher, higher, and interest rates are going to go up and keep going up. He said that all of these things are inevitable and there is nothing that anyone can do to stop them from happening. I can't remember his EXACT words, but, this is what he said, and he meant every word of it. The lady on the screen who is one of their regular interviewers ( she was talking with him on the phone ) , showed a smirk of disbelief as she ended the interview.

-- Andy (2000EOD@prodigy.net), January 16, 2000

Answers

You can buy stock index options (such as the S&P 500) on E*Trade, but you need to have a "margin" account, as opposed to a "cash" account. Trading options is very risky, so you should do some studying first, and only use risk capital. Risk capital is money you can lose with no effect on your life style.

When you buy an option you have to pay the current market value of the option, plus a broker's commission.

When buying a put option, you expect the value of the underlying index to decline. As the value of the index declines below the "strike" price of the option, the market value of the option continues to grow.

It probably is best to talk to a broker or an experienced trader to see if this kind of trading is appropriate for you.

-- Charles Moorehead (cmooreh890@aol.com), January 16, 2000.

You can buy stock index options (such as the S&P 500) on E*Trade, but you need to have a "margin" account, as opposed to a "cash" account.

####### thanks Charles, i do have a margin account with etrade #######

Trading options is very risky, so you should do some studying first, and only use risk capital. Risk capital is money you can lose with no effect on your life style.

####### I'm familiar with buying call gold and oil options on nymex, via a futures brokerage. So I'm assuming that snp options would be the sam? i.e. if a put at snp 1450 actually went up instead of down then the option would be worthless? the reason i ask is that a well known trader on kitco is recommending this trade... #######

When you buy an option you have to pay the current market value of the option, plus a broker's commission.

####### Any idea what an snp put would be at 1450? #######

When buying a put option, you expect the value of the underlying index to decline. As the value of the index declines below the "strike" price of the option, the market value of the option continues to grow.

####### thanks for replying, appreciate the help! #######

-- Andy (2000EOD@prodigy.net), January 16, 2000.

If the underlying index value goes up instead of down, the put option would of course lose value. It would not become completely worthless until close to the expiry date. This is because the option value includes a "time" value, which of course declines over time.

Here is a link to the CBOE, which you can use to find the current value of options with various expiry dates.

Link

-- Charles Moorehead (cmooreh890@aol.com), January 16, 2000.

Options are quoted like stocks with a bid and ask. You should be able to access them through your on line account if the company offers them. Many are thinly traded and should be avoided.

Remember, they can and do expire worthless.

Ray

-- Ray (ray@totacc.com), January 16, 2000.

Andy, There's also a Chicago Board of Trade S&P E-Mini futures contract that also has puts and calls that you can do through your commodity account. I'm sure that info is on line.

But you need to get past just buying out of the money puts or calls. Its a losing long term strategy. Time decay makes one pay.

-- Downstreamer (downstream@bigfoot.com), January 16, 2000.

Andy,

Another choice would be to short SPDR's. They are a highly liquid S&P proxy that trades like a stock on the AMEX. The stock symbol is SPY.

There are also QQQ's and DIA's which also trade on the AMEX. The former represents the Nasdaq 100 and the latter the DJI.

All three of these products can be bought and sold with virtually no premiums or discounts. They trade whenever exchanges are open, just as with any stock.

-- mike (maples@voy.net), January 16, 2000.

No other financial tool enables one to reap as much, as fast, while protected with limited loss...as a Put Option. They are wonderful IF you call a move at the right time.

-- Joseph Almond (sa2000@webtv.net), January 16, 2000.

Andy,

At:

CBOE Option sets

you can get all of the current numbers for a given CBOE option set in a single ascii file.

SPX is their symbol for the S&P 500, DJX is their symbol for the DJIA

If you download these for several days, you can get a glimpse of how the bids and asks change as the index moves. However, it may be better to follow them for a few months to get a better feel for how quickly your money can disappear. :-)

Heed the cautions; you can lose lots of money, quickly, with decaying time premiums on otions.

Jerry

-- Jerry B (skeptic76@erols.com), January 16, 2000.

>>As the value of the index declines below the "strike" price of the option, the market value of the option continues to grow.<<

Not necessarily true. This common fallacy in understanding option pricing is the cause of many losses.

For example, if the market does not go down but volatility goes up, the option premium goes up. However, more likely, the market drops and time decay and volatility decreases, you can lose everything except the intrinsic value.

You can play option on the SP indices on the CBOE thru a stock margin account or options on SP500 index futures on the CME. I figure 99% of retail customers lose money trading options on either market.

-- Sandwich (anon@anon.anon), January 16, 2000.

Sandwich makes an excellent point, which can be extended as shown in the following example.

The S&P 100 Index (OEX) is at around 800. A February 600 put costs around 1/2 (i.e., $50). If the stock mix of this index were to drop steadily such that the OEX were at 610 when this put expired, the value of that put at that time would be zero. Moreover, the drop could be so gradual to preclude ever closing the position with a profit. However, if the OEX had dropped to 500 by the option's expiration date, the option in question would have been worth 100 (i.e., $10,000).

Moral: those options that are furthest from being in the money may offer the potential of enormous gains in terms of percentage, but those returns would require a very pronounced change in the underlying index over a very short time interval.

-- David L (bumpkin@dnet.net), January 16, 2000.

Above it is mentioned that one can buy and sell the indexes with "diamonds" and "spyders." These can be sold short which is a negative bet with a lot of liquidity and more simplicity (for beginners).

-- Squid (ItsDark@down.here), January 16, 2000.

Let me add a few words of caution regarding selling anything short, especially for newcomers: if things move quickly in the "wrong" direction, you can lose more than you might have expected.

Jerry b

-- Jerry B (skeptic76@erols.com), January 16, 2000.

Andy and Others,

Theres a good article on Don Walanchuk and his forcasting record over at Individual Investor Online at: http://www.individualinvestor.com/mag/default.asp?sec=openbell&artnum= 1526&month=January1999 And Wolanchuks website is at: http://www.wolanchuk.com According to what I've heard and read he's one of the best market timers in the business! George Soros uses his services and thats good enough for me!

Zguy

P.S. I hope my Web Addresses above Hotlink to the sites, if they dont I would sure appriciate it if someone out there would show me how to make it happen for my future postings?

-- zguy (gold@limitup.com), January 16, 2000.

Andy -

Frankly, unless you're willing to lose all the capital, the short answer is "Don't". I would think someone who seems as committed to preps and prudence as you (you ol' goldbug, you) would have no truck with options.

I don't mess with 'em at all, primarily because everything I read says that you have to make a good investment of time and even lose some money just to get the hang of this market. Options are "big dog" country (not you, Russ) and are only successfully used by those who taken the time to learn how they move.

Your choice, of course.

-- DeeEmBee (macbeth1@pacbell.net), January 16, 2000.

Lets see if this worrks for Wolanchucks URL.

WOLANCHUK

-- zguy (gold@limitup.com), January 16, 2000.

SUCCESS! Wolanchuks link works perfectly! So here goes with the Individual Invester link for the ARTICLE on Wolanchuk.

Zguy

-- zguy (gold@limitup.com), January 16, 2000.

Thank You Diane and Z1X4Y7!!!!!

Zguy

-- zguy (gold@limitup.com), January 16, 2000.

One more link to a interview with WOLANC HUK back in March of 1999, with him calling for Oil to keep rising until we have to drive electric cars, and Gold going to over $800.00 per ounce!

Zguy

-- zguy (gold@limitup.com), January 16, 2000.