Derivatives (Options Market) & Tech Companies?

[emrecez24]

I'm new in the financial sector, trying to get a better grasp of derivative markets, such as futures contracts and options.

Let's say that I have $100,000 to invest.

Then let's assume that I'm interested in Twitter stock. At $20 at the IPO, I can buy 5000 shares. But I want to use leverage, assume risk and own more. Let's say that my prediction is, by the end of the month, the Twitter stock price will be up. Same for the end of the year.

How do I use the options market to make this bet? Please lay out possible scenarios - how much leverage can I use, how much can I make in a year using my initial $100,000, or how much can I lose.

Thanks!

[john]

Nobody knows because Twitter hasn't started trading yet to say nothing of Twitter options. Nobody knows how expensive the options will be (except me - I know they will be ungodly expensive and only a noob would buy them to gain leverage on Twitter).

Leverage is nothing. All pros can buy Twitter with as much leverage as they want. Trying to gain leverage by confounding it with a volatility bet when you are a noob to capital markets is seriously dumb.

[Christopher]

It's a lot more complex then you think. Get a book and understand, that, even with the best wishes to your investments, you must understand that if you had $100,000 to invest you still shouldn't put all your eggs in the same basket. In other words, my friend, you should find a broker. But I'll tell you this, after Facebook went public.... just study their history, oh, and graphs. And when you open the book of finance, you'll see that rule #1 states that - first in, first out! Good Luck.

[David]

A good approach would be to learn investing first. "Trading" is a whole different world, and derivatives are even more "advanced trading." Would you sit down at a professional poker table without even knowing the rules or strategy or risk? Why give your money away? You won't learn a thing wasting your money. Only perfect practice makes perfect, not just any kind of practice. Using leverage to compound your mistakes makes little sense, but a newbie has no way to know this without learning something first.

If you want to trade, you've got a lot of reading to do. It will take several books and several months or years to develop a satisfactory trade plan and test it on a simulator. You need to find your personal time frame and risk level. You need to develop setups with a better probability of success than a 50/50 guess which way Twitter will go. Or just go to Vegas where it is fun losing money. If you start making simulator profits, then you might be ready to risk your own money, otherwise, revise the plan. Trading is certainly not gambling or rolling the dice on a guess. Neither do we "predict" anything. That would require us to be clairvoyant.

From one mentor:
Most traders we speak with have learning curves that have cost them between $15,000 and $70,000 and up to two years in time.

Investing
Read a good book, like Investing For Dummies, available at your local library for free.
http://www.investopedia.com/university/beginner/
http://yourportfolio101.com/index.html/links/menu.html
http://www.howthemarketworks.com./
http://stockmarket.makemoneyideas.in/
http://beginnersinvest.about.com/od/inve...ng_101.htm
http://www.fool.com/School.htm
http://beginnersinvest.about.com/
http://www.ehow.com/topic_558_investing-...nners.html
http://www.dummies.com/Section/Content-S...t+analysis

You can also type “how to invest” or "how to trade futures and options" in the Search Y! Answers box at the top of this screen and get lots of answers.