Only I am going to use GS500's instead of BS they throw about. So y'all can understand.
1. You have a GS 500, say its value is $1000. I am going to take that GS500 and give it to someone - lets call him .... sub prime ... who will give you $150 a month for a year. If he does not we'll take the GS500 back right. Yes, that is a Mortgage backed security. MBS. Only problem is, sub prime is a sorta ... squid ... and a crack addict, and a escaped felon, and cannot ride or maintain it ... Now AIG said this GS500 will always be worth $1500. When the squid crashed, AIG went belly up cos you wanted your 1500 back.
2. OK now you have this $1000, and I am selling you this GS500. I will say that you can make money off the GS500. This is like a stock. The way you make $ is, after I get your $1000, I will peddle the GS500 to other people for $1500. Then you can sell you GS500 to them for 1500. see how you can make $$, easy as pie.
3. These GS500's are going crazy up in $$. Now you dont have $$ for a GS500, and you dont need a GS500. But you want to make $ on the GS500. You buy an Option. So, for $10 you get a right to buy a GS500 for $1500 by a certain date. If GS500 is selling at 2000 on that date, you made yourself $500 in cash. You are buying a call option. You can also buy a put option. Say you think GS500's are doing bad, and will go down in value. You can buy the right to sell a GS500 for $1500 on a certain date. I'll charge you $10 for that, and if it sells at 1000 on that date, you make $500 in cash.
OK I started out being sarcastic and ended up being serious. That is because this crap is boring as death. Even sarcasm can die in the world of finance.
OK I will follow it up (I know y'all are dying for the next series of stuff) and post about more and more.
Cool.
Buddha.
:o
:o
:bowdown:
:laugh:
Now that its all crystal clear to y'all here is the next few ...
4. Remember in Call option under point 3 - You're buying the right to buy a gs500 at 1500 bucks on a certain date - except you buy it from suzuki - like a price lock. That = a warrant. Only its not a few months away. Like on october 10 2012 you have to buy a GS500 for 1500 from suzuki.
5. You have a GS500, Your friend has a Yamaha R1. You're borrowing his R1, and he's borrowing your GS. The maintenance and benefits are all tied to the borrower of each. That predictably is called a swap. This is what bit the school districts in PA a year or so ago. They got taken by Morgan Stanley once the value of what they held plummeted and what they had traded off went up. Like you trade him your GS500 and he trdes you his R1, and promptly the R1 blows up. Bingo. moral of the story, dont F*(k around with swaps.
Cool.
Buddha.
bravo
Good job in splaining it to us. :thumb:
the main thing I always keep in mind about the stock market is this:
shares are sold by people who are convinced the stock is getting ready to go down,
to people who are equally convinced that the stock is getting ready to go up.
only one is going to be right.
BeSafe
PJ
Thank you. I work with people who have no concept of how stock prices work, much less how the whole stock market, banks & the financial world operate. I'm far from an expert, but I do get the picture.
My co-workers: "Our stock is $50, but Walmart is only $40. We are better than Walmart!"
Me: "No, it doesn't work that way. It's apples and oranges. Walmart is worth billions of dollars, and we are worth about $200 million, and Walmart is profitable and we are losing money and customers every quarter."
Co-worker, with eyes glazed over: "No! I saw the price yesterday! Our stock is worth $10 more than them! You don't know what you're talking about! I'm gonna buy some of our company's stock! Maybe $500 worth"
Me: Hits head on wall, weeps for the future of our country. "Go ahead, Sparky. Knock 'em dead, Rockefeller!"
Quote from: PuddleJumper on September 18, 2008, 05:21:58 AM
Good job in splaining it to us. :thumb:
the main thing I always keep in mind about the stock market is this:
shares are sold by people who are convinced the stock is getting ready to go down,
to people who are equally convinced that the stock is getting ready to go up.
only one is going to be right.
BeSafe
PJ
All markets are that way. Cars, bikes, food everything. Back to the days of barter, the guy with 300 lbs of rice needs the veggies and chicken and toothpaste more than 250 lbs of rice ...
Fundamentally stocks are even more flawed than that.
Literally your stock is worth more cos I will talk it up and unload it on someone for more, and when you sell it for more I'll take a bite.
Cool.
Buddha.
ok let me be the positive voice here. if you keep your portfolio broad and have the time to ride the market you will make money. you just have to be patient and smart. don't be greedy, don't try and jump on one stock and take your time. some of the best time to buy is when the stock shaZam! tanks like some are doing now. the last time you want to buy is when stock is rising or inflated.
No ... no hell no ... keep it narrow ... maybe gold or commodities.
There is a surge in oil comming that will make the $147 high look like a joke ... remember, bulls are extremely sharp and happen after several see saw's ... there is very very little baggage, only the faithful are left because they dont sell into every rally. For a bit more refuge do 50 % gold+metals, 50 % commodities with atleast 25% oil.
Bear markets OTOH, have everyone selling into every rally and they take everyone wiht them, and have tremendous baggage. An oil bear market will effectively kill several countries around the world. I cannot wait for that day, but it may not ever happen ... iran, russia and venezuela need to be wiped off the face of the earth. An oil bear will do it ... but wont happen atleast for 10 more years. Russia may have gotten to high ground by then.
Cool.
Buddha.
Quote from: frankieG on September 18, 2008, 08:45:36 AM
ok let me be the positive voice here. if you keep your portfolio broad and have the time to ride the market you will make money. you just have to be patient and smart. don't be greedy, don't try and jump on one stock and take your time. some of the best time to buy is when the stock shaZam! tanks like some are doing now. the last time you want to buy is when stock is rising or inflated.
Exactly! There are thousands of "buisness minds" all trying to find the next hot stock sector or company to make zillions of dollars when it rises, and jumping around usually means you are buying when things cost too much or not sticking with it long enough to realize profits, just chasing your tail. You may get lucky sometimes, but more often than not you will lose. I actually pump more money into my 401k at times like now because it goes farther- you can buy more stocks for the same money when the values are depressed as they are now, and eventually (it may be 10-20 years) when the economy has gone full boom/growth cycle those stocks will provide me a great return. Sure, sometimes you get hosed when a huge company goes fun bags up but that's why the stock market is risky- the more diversley you invest the less succeptible to massive stock crashes you are. Buy! Buy! Buy!
that helped a lot.. thanks buddha!
And If I tell you buy the GS500 its going to go up in value, and tell the other guy buy GS500 puts cos its gonna drop in $$ ... that = securities fraud.
And If I tell you buy the GS500 its going to go up in value, and sell GS500's on the open market ... I'll be Angelo Mozilo, and I'd be bribing Senator Dodd and several others to stay out of jail. Its also called a pump and dump ... not just for 1 night stands any more ... nor is it only for septic sucking service ...
Cool.
Buddha.