Hello friends, in today’s article we see chapter 19 of one up on wall street book. in chapter 19 author discuss about the new derivatives of stock market i.e. Options, Future, and Shorts Selling. So let’s start chapter 19 of one up on wall street book.
Future, Options, and Shorts Selling:-One Up On Wall Street: Chapter 19
Options: Options is the financial instrument, which have ability to buy and sell in decided price, with time period, is known as options.
Options give the power to deal buy and sell at decided time frame, some time its benefited or some time is not.
Future: Future is also the financial instrument, the contract is established between buyer and seller at decided price, is known as future.
let’s take the example of former, if former want to sell his rice to the other person, so they make the deal on future price, let says, buyer say, i will buy this rice at 20 rupees per kg, whatever the price in future is show, they have to buy the rice at 20 rupees, so this is the contracts. (One Up On Wall Street: Chapter 19)
Shorts Selling: Shorts selling is the technique of selling and buying, in generaly, we are all first buy the stock and then sell the stocks, but in shorts selling, you have the power to sell stock first and buy later. so whatever you sell the stock you can get that stock from the broker. the best shorts selling in history is done in 2003 to 2007, this full detail discuss in movie, i.e The Big Shorts
So financial instrument have some merits and demerits, so future and options have some merits and demerits.
So let’s understand what are the author says, about that (One Up On Wall Street: Chapter 19)
Remember some point on this stuff:
- The worst thing in options is that , you were right but you still lost all your money because they event happened after options date expire.
- Author say, it’s a wastage of talent, time and money
- Peter Lynch says, doing shorts selling is have the unlimited risk, because you buy the share when they fall, but if share goes up, so there is no limit of going up, so there is the unlimited risk. (One Up On Wall Street: Chapter 19)
- Future may be beneficial, let’s understand, if A former want to sell wheat or rice crop in future at fixed price, so there is beneficial, or any distributor want to buy that wheat and rice, so they can buy on fixed price.
- So peter lynch says, options is the worst things, just imagine of GlaxoSmithKline Company, company have the patent of rare cancer and you know that come in news stock prices goes higher and you buy the options. So option is things that expire at time period. So you have to buy regularly, that options after expire there dates. So if you are right then but that options is expire and news come, and stock price is goes up but you lose the premium because that yours buy in options.
- So author says, this is the wastage of time, Money and effort of all things when come in the Options.
- So author says, Stock is atleast finance the company, that have it’s some business. So whatever you do in that company as speculation or anythings, so they have the some business. So you are buying the stock is doing of finance the company, but if you are come in OPTIONS there is nathing finance to the company or anythings, but they finance the broker and their house and there EMI. (One Up On Wall Street: Chapter 19)
- Shorts selling:
In Short selling the down side is high or unlimited and there is no limit of lose, because they is no also no limit of stock is go up at any price and you get unlimited lose.
Author give the example of Robert Nilsson, they make the shorts in international company, that stock is 70 cents and they increase upto 70 dollar, so he get 100 bagger lose, and they lose the 20-30 millions dollar in short selling.
So be careful doing shorts selling.