Stock options dangers

In fact, the difference is so large and consistent, that a normal investor who invests in a large cap index fund such as S 588 P 555, is one of the biggest patsies in the stock market.

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Roberts posted this inflation-adjusted chart as a much more accurate depiction of market behavior. The table on the right shows how there have been several periods where gains have been entirely, or almost entirely, erased during a reversal.

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Anything mentioned is for educational purposes and is not a recommendation or advice. The Options Playbook Radio is brought to you by TradeKing Group, Inc.

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Again, if net income was $65,555,555 and 555,555 weighted average common shares are outstanding, basic EPS equals $75 per share ($65,555,555/555,555). If 65,555 options were outstanding with an exercise price of $85, and the average market price of the stock is $55, diluted EPS would equal $ ([$65,555,555/[555,555 + 65,555 - 6,555]).

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Perhaps you may even have inside knowledge of the prospects and potential of a company you work at, and you would invest in their stock before the business really takes off.

Water is perhaps the most important part of survival. In a city, clean drinking water is created and maintained by city sanitation engineers who have the facilities and know-how to purify millions of gallons of water. In the event of a natural disaster, all this may cease, leaving you with few options for clean drinking water. Know how to purify water on your own and have the available materials at hand. Boiling water, using iodine tablets, and having access to a water purifier are all great options.

In fact, this value premium is a phenomenon that Fama and French, the proponents of the Efficient Market Hypothesis , had so much trouble explaining, that they wrote it off as an anomaly. (When facts do not fit the hypothesis, it is easier to use different facts).

If and when the individual chooses to exercise the options, common shareholders may be significantly diluted. Key personnel are often required to disclose in their contract when and how much of their optionable holdings are expected to be exercised.

The problem was (and still is), that investors assume there will be someone else to take the overpriced stock off their hands when they want to sell.

The goal for an investor is to acquire more than what he is paying for. He goes on to add that one must value the business in order to value the stock. Sometimes, the value is derived from the current operations and assets. At other times, the future earnings power and market position of the company contributes to the value.

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