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Financial Markets For The Rest Of Us An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds |
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Page 217 losses. This translates to heavy losses for the short sellers while the shareholders (long positions) enjoy the higher stock price.Momentum Buying - Momentum is a condition where there is a considerable difference between the buy and the sell orders in a given period of time. This period could last from a few minutes to a few weeks, and it is hard (if not impossible) to predict when it starts and when it ends. Once the momentum buying or selling starts it could create a feedback loop that continues to move the stock price in one direction until a stable position is reached. The stock price continues to move up as more investors may decide to get in on the action. The higher the price goes the more investors buy the shares in hopes of continuing upward price movement. Of course, once the momentum buying reaches its peak, sellers may move in and a period of momentum selling could ensue that drags down the stock price, leaving the last buyers with regret. Momentum buying is risky and not recommended for those with weak stomachs. Options Expirations - We will discuss options in the next chapter. For now suffice it to say that stock options are a form of stock derivatives with time limits.While normally they are not exercised, they can be converted to actual stocks by buying or selling their underlying shares at a fixed price. At their expiration date, their underlying shares could see more action as the option holders may exercise their options to buy or sell shares. Others may buy a certain stock to sell options on it. This extra volume created by options expiration could turn into an upside or downside movement for the stocks. During a certain day of expiration known as triple-witching, three types of instruments expire: individual stock options, stock index options, and stock index futures . Stocks usually see plenty of volume and volatility on triple-witching days, which happen once per quarter. Insider Buying - We already discussed how illegal insider trading works. That is when an executive or someone in the know within a company based on not-yet-released information buys or sells the … |
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