As somebody who is investing for one, sophistication is beyond me. However, I got a great tip about a video that explains options trading for the uninitiated. It is very clearly narrated by experienced options trader Dean Mouscher for … ta da! the uninitiated! Check it out: http://masteroptions.com/?p=3
The video reminds me that I was going to do another What Do Words Mean? So, here is the latest:
What Do Words Mean? Part deux
Dean, in the video mentioned above, uses the word in the standard, correct, easy-to-understand way. He uses it to mean simply how wide the price swings are for a given stock or, by extension, for the market as a whole. However, there’s been a slight shift in this plain meaning. Now, volatility is often, not always! used to mean prices are going down. Up is simply up, volatile means down. Always look for context while you are reading financial (and other) reporting.
Due to the increased business and market reporting that has come about over the past 10 to 15 years, nobody wants to say anything negative. So, they start blurring the meaning of words.
It used to be a no-no to say anything negative about banks. I even heard it was illegal to do that – might start a run on the banks, you know. And most people don’t, or at least didn’t back in the day, know that banks do “fractional” banking, lending out way more money than they have on deposit. That’s because bankers know that not all depositors will want to pull out the money they have put in the bank at the same time. That would be a bad thing called “a run on the bank.”
We saw runs on banks in 2008 in Scotland and Iceland, when it became clear some banks there were in trouble. This was at the time the entire world banking system was on the verge of toppling. Many of our more pessimistic analysts are still waiting for that to happen.
It’s become okay, sort of, to say negative things about stocks these days, even though analysts still run the risk of losing their jobs if they do. Does anyone remember how many analysts’ jobs were actually threatened by irate CEOs? Also, other departments of the same firms the analysts worked were issuing ratings for bonds the same companies were offering. A bad analysis could threaten that profitable bond issuing business.
The general investing public got mad about all those rosy projections, so analysts have felt safer in being more honest. They have also gotten way more sceptical about analysts in general.
Just remember, when you’re out swimming with the sharks, you have to keep all your wits about you.