High Volatility Investments

Penny stocks and options are high volatility investments that both the merchant and the long term attract investors due to the small amount of capital needed to make compared to the less volatile higher priced stocks made ​​significant gains . The long -term investor buys to believe that the value of a company over time and share with them will increase a share. When he buys an option is usually to reduce in possession of the underlying equity risk. See the short-term trader at things a little differently . Usually appears a trader for large percentage price movement over a short period of time . Great rate , short- term to find both options and certain penny stocks . Movements

Penny stocks are often defined as stocks priced under $ 5 . It is often implied, but not necessarily the case , that penny stocks are micro - caps with capitalizations of less than about $ 250 million. Penny stocks can be found across the full width of the capitalization of micro cap to large cap stocks . For example , Sun Microsystems ( NASDAQ : SUNW ) met the definition of a penny stock for much of 2004 , the trade between $ 4 and $ 5 . In the autumn of 2004 , the trade between $ 5 and $ 6 per share , capitalization was more than $ 18 billion . The price of a large cap $ 18000000000 stock would hardly be expected to move by a large amount over a short period of time. The largest percentage daily winners of say 50 % or more are usually stocks that started at $ 5 or less . But they are mostly micro caps .

As a group, micro cap penny stocks avoided by large funds because prices are too easily influenced by extensive and sales orders and capitalization are too small to affect bottom line of a large fund . Buying more than 10 % of a listed company carries with it certain responsibilities knowledge . Large funds have to wait until the stock prices typically rise above about $ 20 before they can be seriously involved without moving the price and still have price movement impact on their financial results . The small investor has a distinct advantage over large fund managers when an early position in a good micro cap penny stock .

Short -term options are most appropriate when the underlying stock price higher , say above $ 50 . Although it is more likely that a micro cap penny stock will get 50% in a single day than it is for a higher priced stock , the typical 5 or 10 to leverage that options provide only makes it necessary for a higher priced stock to move 5 % to a 50 % gain in the corresponding option price to see. There are several additional considerations involved in the choice of an option. Not least of these is the market environment . When well chosen , options for higher priced stocks offer the same great daily price movements of penny stocks . Lower-priced shares must move through a greater percentage to a similar percentage movement to see. The corresponding option They are likely to do so only if they micro cap penny stocks .

James Andrews publishes Pointer Trader shares and options newsletter . One can read about choosing penny stocks and options on
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