Re: OT:Gold shares

In article <3rqNk.28713$4u2.8040@xxxxxxxxxxxx>,
"alt.smokers.cigars" <dhannes@xxxxxxxxx> wrote:

Call options are the "right but not the obligation" to buy at a certain
price, e.g. the strike price. For example, if the spot gold is trading at
$781 per ounce, the December 850 future might be trading around $6 or
so--that means, for $6, you have the right to buy gold at $850 per ounce--if
gold goes to $860/ounce, your contract will soar to $10--a 67% return; if
gold does not go up that much, or goes down, your contract expires
worthless.

These are known as derivatives, as their value is derived from the value of
another investment.

You could also buy the December 750 Call, which would be worth
$35-$40--again, if gold continues to drop, you are only out the $35 or $40
per contract; if it soars, you make money.

Note--you will pay more for the future contract than the actual price, e.g.
a December 750 Call with gold at $781 an ounce will ALWAYS sell for more
than $31...usually 10-20% more at least. Also, as the contract nears
expiration, it is less likely to reach the strike price and will likely
decrease in value.

Most times, no one ever exercises their right to buy the gold...they just
sell the contract at a profit or loss before the expiration date.

Btw, all this is true regardless of if your "shares" are in a mining
company, gold futures backed by real krugerands, Exxon stock or an index.


Andrew Tobias' _The Only Investment Guide You'll Ever Need_ is *STILL*
the greatest treatise on this and related subjects. I typically keep a
few copies around for giving to folk; drop me a line with your snailer,
and I'll fire one off to you.

--
Please take off your pants or I won't read your e-mail.
I will not, no matter how "good" the deal, patronise any business which sends
unsolicited commercial e-mail or that advertises in discussion newsgroups.
.

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