Stock Trading

I wrote an OTM covered call and the stock price rose to the strike price.

The option has not yet been executed and I am wondering what a good method would be to preserve the gain in case the stock price drops again?

The option now has quite a bit of time value so closing that position will eat away at half of the stock gains.

Is the best choice to just wait and hope the stock price doesn’t fall?

I would think that you would hope that the stock price does fall before expiration. That way you get to keep the stock, keep the premium, and write another call. The best of all three worlds. Of course you can indeed buy back your call and pocket the 1/2 you made in the premium and also sell your stock and pocket the gain you made on the stock. That is an option.

I would like to know where someone can get information about how to analyze if a stock is at a buying price or selling below it’s intrinsic value, better know as value investing.

Google Finance has a feature that you can plug in specific numbers and it’ll do all the calculations for you.

I understand that many institutional investors buy lots of shares the day a company announces good news. Usually, the next day, the stock price retreats a little, only to eventually go back up. Why does this happen?

As you would appreciate, the current market price of a stock reflects its earning capacity on a per share basis; commonly called the EPS or earning per share and the price to earnings multiplier the investors are willing to pay for the said stock.

When there is good news with regard to the stock; which is not as yet reflected in its increased earnings per share (EPS) it is discounted for through an appropriate increase in the price to earnings multiplier (commonly called the P/E ratio or multiplier). Subsequently, when the results are declared; there may be an increase in the EPS and the P/E multiplier for a period of time would remain at the same level as earlier; thereby causing the stock price to show an increase.

The price fall with regard to the stock under study experienced thereafter most likely would be the result of selling caused by investors booking out their profits at these higher price levels of the stock in question. However, after that period of selling the stock price stabilizes and moves up to reflect the new EPS and P/E multiplier the investors are willing to give it.

Sincerely,

Akash

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I need a stock price calculator which calculates stock price based on company performances (eg. it gives stock price when you input company’s assets, cash, revenues, total number of shares, etc.) It would also be good if it could count dividend yield (again based on needed values which can be imputed).

By the way – I am not looking for portfolio calculators which calculate returns and portfolio values, I just need to examine company shares price based on the accounting details I have about it.

I don’t think you will find such a program. A stock price is set by the market, not by a direct calculation based on a company’s financial statements. The closest you can get is to calculate a company’s EPS (earnings per share) and then look at the typical multiple other companies in the same industry have. This would give you a predicted stock price.

I understand why companies issue stock, and I understand the importance of the stock price for buying and selling. But after a company issues stock and receives payment, does the company still derive monetary benefits when the stocks are sold/purchased on the stock market?

because behavioral finance suggests that people prefer stock prices within a certain range.

if people like the price of your stock, it can increase liquidity, and unlock shareholder value – which is, of course, the reason that management exists.

a share of BRK-A is fairly illiquid. but if you go to the other extreme, and think about penny stocks, there are some regulatory hurdles for people who want to buy/sell your stock.

so management has to care about their stock price, because they have a fiduciary duty to their shareholders.

Ok, I’m looking at a particular stock, the current price is $0.10 and the asking price is $1.75, why is that?

That is a low volume stock.

The last time a buyer was interested in the stock from your example they bought the stock at $0.10.

Now the cheap $0.10 stocks are all gone and the only ones left for sell are the $1.75 stock. Buyers don’t wants to pay that much. Most people will wait until another seller is willing to sell the stock for $0.10.

Things like this happen all the time in the stock market but the high volume of buying and selling hides it.

We all know the gas prices are… basically crazy. A stock today for BP gas is $70.23! If I understand correctly. What is the lowest stock price for BP gas from the past five years? Winner gets five points!

It closed at $35.37 on January 27, 2003.

In other words, what happens to the company if the price of their stock dramatically declines? I don’t understand why it would effect the company? I would think it only effects the stockholders but not the actual business itself.

The stock price will impact any options or restricted stock that management and employees are given as compensation. Also, many large US company Boards use stock price as a measurement of achieving objectives. So it may affect management and operations from that perspective.

Actual changes to the balance sheet or P&L will depend on if the company has any type of share buyback program. Last thing – sometimes, net worth of a company is also listed as a covenant on its borrowed money (debt), so if the equity value falls significantly, the company may default on its debt.

I heard that the day the dividends are paid..the stock price drops the same percentage amount..Is this true? If so, what is the advantage of buying dividend stocks? Will the price go back up the very next day?
Thanx!

The price falls on the ex dividend date. That is the last date in which you will receive the dividend if you trade the stock. When you purchase the stock, that dividend payment is included. The day after, the former owner would receive that payment.

Why buy dividend paying stocks – if the market is flat, you are receiving a yield on your money. Otherwise your money wouldn’t be growing at all. Dividends are also taxed less than your income. Dividends also are taxed lower than bond coupons.

More specifically, what technical indicators would you use to identify when a blue chip stock( or any large cap stock) has an overextended price based on a five day period?

Compare the price/earnings ratio to other stocks in the same industry.