The great utility of options trading

A financial option is a purchase contract with which both complex and simple strategies can be carried out, as well as used as a hedge for simply bullish or bearish positions of stocks or other financial products (commodities, interest rates, etc.) both long as short term.

Purchase of a Call. Go up in value and go up in profits

If, on the other hand, we think that a security is going to go down in the future, what we do is buy a put. Buying a put gives us an assured sale price at a future date. If we are correct with the price drops of this value, the put premium will rise and we will obtain certain benefits since we have the right to sell the shares at a price higher than the current one. If we make a mistake and the underlying goes up, our losses are limited only to the money we have paid to buy the put. We cannot lose more. The value can go up without limits and our losses are limited only to what we have paid for buying the put option.

Brief description of a financial option

A financial option is a contract of sale. In general, the contract is equivalent to 100 shares for each contract, but this may vary depending on the underlying or market to which its value is derived, be it a commodity, index, future, currency, value, interest rate, etc. The price is agreed in advance and for a certain date in the future.

Some sort of digital options like binary options are versions of simplified options that can be used for very short term speculation, with average returns of 75% to over 500% for the most speculative contracts. You can see some excellent examples of binary options and an explanation of how it works here.

Option trading is very similar to buying shares of a security because we think it is going to go up, or when we sell short (sell without having the securities in the portfolio) shares of a security because we think it is going to go down, with financial options we can also bet due to rises or falls in values. But instead of buying or selling said shares, what we do is buy a contract that allows us, but does not oblige us, to carry out a series of possible actions that include:

  • Buy or sell shares of a security (or other underlying) at an agreed price (strike price) until a maximum future date (expiration or expiration date)
  • Sell ​​our options contract to another trader before the contract expires.
  • Let the contract expire without any additional financial obligation.

With financial options we can carry out both complex and simple strategies, as well as use them as hedges for simply bullish or bearish positions of stocks or other financial products (raw materials, interest rates, etc.) both long and short term.

Why Trade options?

As we have discussed above, investors and traders can trade options for different reasons, but the main advantages of trading with them are:

  • Buying options is much cheaper than buying or selling stock (stocks). We get more leverage with our money
  • With options we can ‘buy time’ to see the development of a market / value that worries us, especially in times of uncertainty and turbulence.
  • Options can protect us from market downturns, securing our initial purchase price. Excellent coverage

For example, if we think that a security is going to trend upward, we can buy a call that gives us a guaranteed purchase price at a future date. If we succeed with the price increases of this security, the premium of the call will rise and success is assured since we have the right to buy the shares at a lower price than the current one. If we make a mistake and the value falls, our losses are simply limited to the money we have spent to buy the call. Nothing more. The value can drop to zero and our losses are limited only to the price of the call.

Purchase of a Call. Go up in value and go up in profits. If, on the other hand, we think that a security is going to go down in the future, what we do is buy a put. Buying a put gives us an assured sale price at a future date. If we are correct with the price drops of this value, the put premium will rise and we will obtain certain benefits since we have the right to sell the shares at a price higher than the current one. If we make a mistake and the underlying goes up, our losses are limited only to the money we have paid to buy the put. We cannot lose more. The value can go up without limits and our losses are limited only to what we have paid for buying the put option.

IMF warns states against the use of private cryptocurrencies

Nevertheless, it is recommended that governments consider using blockchain-controlled money

The International Monetary Fund (IMF) warns states in its blog about major risks in the course of using private cryptocurrencies as a currency. At the same time, the monetary authorities called for the use of blockchain technology to improve financial services to be considered. A month ago, El Salvador caused a stir because it was the first country in the world to allow Bitcoin as legal tender.

Faster payment transactions

The IMF blog post entitled “Cryptoassets as National Currency? A Step Too Far” states: “New digital forms of money have the potential to enable cheaper, faster payments, financial inclusion improve, increase resilience and competition among payment providers and facilitate cross-border transfers. “

The post also addresses that some nations are considering taking advantage of these benefits with the abbreviation of accepting cryptoassets as either legal tender or even “second (or possibly only) national currency”. IMF experts Tobias Adrian, director of the money and capital markets department, and Rhoda Weeks-Brown, general counsel and director of the legal department, vehemently reject such plans.

Your biggest concern is the volatility of cryptocurrencies. “It is unlikely that cryptoassets will prevail in countries with stable inflation and exchange rates and credible institutions,” argue the IMF authors. “Households and businesses would have very little incentive to price or save in a parallel crypto asset like Bitcoin, even if it were given legal tender or currency status. Their value is simply too volatile and has nothing to do with the real economy. “

Counterproductive choice

This volatility would complicate markets rather than improve them. “If goods and services were priced in both a real currency and a cryptoasset, households and businesses would spend a lot of time and resources deciding what money to hold instead of engaging in productive activities,” warned the IMF -Specialists. Similarly, government revenue would be exposed to exchange rate risk if taxes were quoted in advance in a cryptoasset while spending largely remained in local currency or vice versa. This potential imbalance is damaging macroeconomic stability.

Furthermore, cryptocurrencies would not solve the problems that lead nations to adopt foreign currencies as legal tender. According to the blog post, a country that imports a foreign currency as its own would “import” the credibility of foreign monetary policy and hope to bring its economy and interest rates in line with the international economic cycle. However, both are not possible in the case of widespread acceptance of crypto assets. In addition, it is uncertain who can be held responsible for security incidents or fluctuations in the value of Bitcoin.

“Not advisable abbreviation”

The IMF authors conclude that blockchain-backed currencies issued by central banks can provide cheaper and more comprehensive financial services than private cryptocurrencies. Governments should use new digital forms of money while maintaining stability, efficiency, equality and environmental sustainability. Trying to make existing crypto assets a national currency is an inadvisable shortcut.


European stock markets ended lower on Tuesday and Wall Street was also moving in the red, penalized by mixed results from companies in Europe and a wait-and-see environment linked to the two-day meeting of the US Federal Reserve, while weights heavyweights in the United States must publish their financial accounts in the evening.

In Paris, the CAC 40 ended down -0.71% to 6,531.92 points. The British Footsie fell by -0.42% and the German Dax fell -0.64%.

The EuroStoxx 50 index lost -0.92%, the FTSEurofirst 300 -0.57% and the Stoxx 600 -0.54%.

The attention of investors is mainly focused on the meeting Tuesday and Wednesday of the Monetary Policy Committee (FOMC) of the Fed, after which the central bank could give indications on the high level of inflation and its program. asset repurchases.

In the meantime, the International Monetary Fund (IMF) on Tuesday confirmed its forecast for global economic growth of 6% for 2021, raising its estimates for the United States and the euro zone but revising downwards those for several countries in development, facing a resurgence of the COVID-19 epidemic. The forecast for France is 5.8% this year.


At the time of the close in Europe, the Dow Jones was down 1.98%, the Standard & Poor’s 500 by 0.72% and the Nasdaq by 0.42% after all three finished the day before on all-time highs for a second. consecutive session.

Investors are therefore now cautious before the publication in the evening of the results of heavyweights of the rating such as Apple, Microsoft or Alphabet. Amazon will release on Thursday.

For Randy Frederick, head of the Schwab Center for Financial Research, the markets will be on a wait-and-see basis until the publication of some of these results, especially as expectations are high because the results compare to 2020, a full year. COVID-19 pandemic.

Tesla is down more than 3%, despite better-than-expected second-quarter results, as the U.S. automaker said component shortages remained a major cause for concern.


In Europe, the session was driven mainly by a salvo of mixed results, although China’s regulatory backlash against several sectors, including education and technology, continued to heckle the markets.

On the Stoxx 600, only three sector indices escaped the slump with very small gains.

Among the companies that published Monday evening, the world number one in luxury LVMH reported an 84% jump in its second-quarter sales organically, to 14.7 billion euros, thanks to the Louis Vuitton and Dior brands . The title, very volatile during the session, however ended down 0.56%.

Dassault Systèmes (+ 1.32%) finished at the top of the CAC 40 after the upward revision of its growth forecasts for this year.

On the SBF 120, Lagardère (+ 8.12%) was driven by its results, while at the other end of the spectrum Worldline (-8.91%) posted the largest drop.

In London, Reckitt Benckiser, at the back of the FTSE, fell 8.43%, also signing one of the biggest pullbacks of the Stoxx 600, along with Randstad (-6.04%) in Amsterdam and Logitech (- 9.86%) in Zurich following the publication of their results.

In mergers and acquisitions, two sources familiar with the matter reported that the owners of Europcar Mobility Group were in advanced negotiations with Volkswagen with a view to the takeover of the first by the second. The French vehicle rental specialist finished with a gain of 3.72%, while the German manufacturer fell 2.13%.


Pending announcements from the Fed’s meeting, the ten-year Treasuries yield fell four basis points to 1.2344%, a sign of investor caution.

Its German equivalent, a benchmark on the European market, is virtually stable at -0.443%.


The dollar index fell 0.28% against a benchmark basket, while the euro rose above $ 1.18.


On the oil market, prices are hesitant with a barrel of Brent stable at 74.34 dollars, while that of US light crude fell to 71.63 dollars.


End of Federal Reserve FOMC meeting, monetary policy release at 8:00 p.m. and press conference at 8:30 p.m.

Shares under 5 dollars 2021: opportunities for small investors

Just because a stock costs little doesn’t mean it has to be cheap. Some companies deliberately issue the largest possible number of shares. The advantage: With shares under $ 5 in 2021, small investors can spread their risk very well.

Experts recommend investors to diversify their capital broadly when investing money in the stock market. In this way, investors can better distribute the risk and do not run the risk of losing everything at once if a company, industry or region is not doing so well economically. “Broadly diversified, never regretted!” – that is the relevant stock exchange rule. The aim is therefore to distribute the fixed assets as possible across different asset classes, industries and countries. But this is not so easy when the financial possibilities are limited.

If the budget available for the system is only around 1,000 dollars, then you can only buy three Adidas shares, for example, since one Adidas share costs more than 300 dollars. One possible solution: You concentrate on stocks under 5 dollars. In this way, many different stocks can be bought even with a small budget. A diversified portfolio of securities is then in your own custody account. It is therefore worth taking a closer look at stocks below 5 dollars in 2021 as well.

Why are there stocks under 5 dollars at all?

The fact that a share costs less than 5 dollars does not automatically mean that it is “cheap”. Rather, whether a share is cheap or expensive is generally measured by how the price is in relation to profit. The rule of thumb is: If the price-earnings ratio (P / E) is below ten, a share is considered cheap, and if the P / E ratio is above 30, it is expensive. However, the values ​​can vary greatly from industry to industry.

There are several factors that affect the price of a stock. For example, companies determine the number of shares offered for sale when they go public. The higher the denomination of the share capital, the lower the purchase price of the individual share. However, the denomination does not change the value of the share or the company. Investors should take a closer look, however, if the share falls below the mark of 5 dollars as a result of a corporate crisis.

As with all securities, the following applies to shares under 5 dollars: inform yourself well before buying! Is the low price the result of a price loss that can be attributed to poor corporate governance or does the industry in which the company operates have little growth potential? Then there is no future price increase that would justify an investment.

How do I find the right stocks under 5 dollars?

In order to avoid unnecessary costs through frequent buying and selling of securities, every investor should define clear evaluation criteria as the basis for his selection. For stocks under 5 euros, there are essentially two stock-picking strategies that come into play: value investing and growth investing. In the first case, the investor focuses on undervalued companies and the qualities they contain. Important key figures are, for example, the price-to-book ratio (P / E) or the price-to-earnings ratio (P / E), which set the price in relation to the book value or profit.
»Xiaomi share: A lot of growth for less than $ 5.

In the second case, in growth investing, on the other hand, the investor looks for companies that have particularly high growth potential, which are often young companies with new business models. Here, investors look at the price-earnings-to-growth ratio (PEG for short) and earnings per share (EPS for short).

In sight: 5 stocks under 5 dollars in 2021

Anyone who invests their money in young companies must be aware that many start-ups hardly make any money in the first few years, but in the majority of cases they make losses. At Tesla, after going public in 2010, it took around nine years for the company to generate profits for the first time in three consecutive quarters. The price has now risen from $ 17 when it went public to more than $ 600.

The worldwide boom in shares prices last year largely bypassed Telefónica Deutschland. The rate fluctuates permanently between two and three euros. However, the low price has a positive impact on the dividend yield. For the past financial year, Telefónica Deutschland is paying investors 18 cents per share, which corresponds to a dividend yield of 7.5 percent. This makes the Telefónica share one of the stocks with the highest dividend yield in Germany in 2021. And the company has already announced: A dividend of 18 cents per share will also form the lower limit for dividends for fiscal years 2021, 2022 and 2023. In the first half of 2021, the O2-branded mobile operator recorded a significant increase in data usage. Customers also use their mobile phones outside of their home WLAN networks to stream videos or music – and book larger data packages. Telefónica Deutschland predicts that this will intensify with the new 5G mobile communications standard.

Xiaomi is a Chinese electronics products manufacturer. The share price rose in the past year parallel to the generally positive stock market development. Nevertheless, the share still costs significantly less than five euros. In Asia in particular, it is customary to issue more shares and make the prices so investor-friendly. What speaks for the company: It is broadly based. In addition to smartphones, Xiaomi produces a wide range of networked everyday devices – such as fitness bands, vacuum robots and flying drones. The company has also had sales partners in Germany since 2019. That seems to be paying off: Europe has emerged as a growth driver for the Chinese company.

Paion is a biopharmaceutical company from Aachen with an additional location in Cambridge. Paion develops and markets drugs for the treatment of cardiovascular and nervous diseases. The approval of an anesthetic for the US market had the stock rise by 27 percent last summer. However, the price jump had not led to a permanently higher price level. The share is currently around two euros – and is waiting for the next positive company news.

The tourism group TUI could benefit from the recovering holiday business after the corona lockdown in the medium to long term. After the price slide below the 5 dollars and to the all-time low of 2.42 euros, most of the negative future scenarios are likely to be priced into the paper. Together with rising travel bookings and future global easing, it stands to reason that the share will also gain momentum again in 2021. In March the price briefly exceeded the 5 dollars, but is currently below 4.50 dollars. In April, TUI issued a convertible bond for refinancing, which the company now intends to increase further. Anyone who invests in TUI shares will probably need more patience than they might originally have thought.

The hotel comparison portal Trivago was also – unsurprisingly – hit hard in the pandemic. Sales had slumped to a quarter, the net loss in 2020 was in the three-digit million range. The price of the Trivago share fell to 1.05 euros. After tough austerity measures and the end of the corona pandemic in view, the price of the company, which was founded in Düsseldorf in 2005, rose continuously for a few months. But since March the Trivago share has been available again for significantly less than 5 euros. The same applies here: Investors need patience. At some point the travel industry will recover and business will pick up again.

Risks with stocks under 5 dollars

For investors who invest in shares under 5 dollars in 2021, the same rules apply as for all stock pickers: You must expect losses at any time due to a company decision or a market slump. A total loss on the stock exchange cannot be ruled out either. Basically, you should only invest money in the stock market that you can get over losing in an emergency. Stick to decisions – even in times of crisis. Investors often lose more money through the costs and fees associated with hectic buying and selling than through price losses. A closer look at the company, knowledge of your own risk tolerance and a steady hand usually have a positive effect on the total return.