401K Financial Planning

Benoit G asked:

I’m new to stock option and considering the following strategy and would like to know if I’m missing any flaws to it:

A stock ABC is selling for $42 with an average 10yr growth of above 10%. Stock call for $44 expiring in one year are selling for $3 (bid price) and the bank stock pay a dividend yield of ~5%.

If I buy 100 shares of that stock and sell the options from a year from now, assuming the stock reaches 52$ or above, will I really make 5% divident + $3 from options + $2 from the price increasing? Thus an %5 + 5/42 = ~11% return from betting on the share price increasing only 2$(+5%) in one year?

I understand that any profit above $44 will be lost when closing the option position and that I may potentially loose money if the stock was to drop below the $42 original price - $3 option price ($39) but is this my only risk of loosing money or am I missing something fundamental?

To me this seam like a position that is a lot safer then simply buying shares.


Question posted courtesy of: Florence

john12 asked:

I am biginer in stock market but have fairy good knowledge from reading over the internet from different sites. I have fund of 7000 - 10000 for investment in stocks. I generally go to check on Yahoo, MSN, AGedwards, Motely fools site to know about company and picking stock for investment. My idea is to wait for particular stock to rise 2 - 3 dollar per share price and sale it and pick another stock. In a year my aim is to get 1000 - 2000 dollars as gain of my investment.

My questions are -

a) Am I doing the right thing or is there any better idea ?

b) Generally I fill up 1040EZ form for IRS, but with this kind of stock trading and transaction of say 10 - 12 per year saling stock and making small gain at short interval. What kind of form I need to fill up for IRS ?

c) For stock trading and educating self for filing IRS return - where should I get information on IRS publication ? As how to file return and what to consider for paying gain tax.

d) I use H & R block software


Question posted courtesy of: Keith

kundoggydawg asked:

Ok let say i want to buy a stock option, and the stock currently at 43.50… I want to buy a call option on this stock and i think it will go up, so would it be smarter to buy it at the strike price 40.00 or 42.50….the break even price for the 40 is 43.80 and the break even price for the 42.5 is 44.30.

Now im only buying this stock for the short term, considering stock options expire this friday im only going to hang on to it for this week, im just confused with the fact of the “break even price” Because i want to buy it at the 42.5 stike because its a lot cheaper than the 40.0…wouldn’t i make more if i buy it at 42.5? even though the break even pricce is higher?

Or what is the stock goes up to 44.00 even, would i still make money on the 42.5 strike, because the stock went up but it didnt reach its break even price


Question posted courtesy of: Tom