Wednesday, April 14, 2010

2K to 10K Update #1

          I streamlined the format used for the 2K Challenge.  The Price is the current/last price the security was selling for.  The Strike is the price which the security was bought for.    The Price Costs is the the Price*Shares-Trade Fees.  The Strike Costs is the Strike*Shares+TradeFees.  <+/-> is the Price minus the Strike.  [<+/->] is the Price Costs minus the Strike Costs.  Trade Fees is 8.95 + X with X being any other exchange fees charged.  In the cases of GLD and SLV it was $.05 and $.04 respectively.

          Ever since the subprime mortgage crisis started some traders have turned to commodities in particular precious metals as a hedge against a weakened dollar.  That was a definite thought when I turned to the ETF's GLD (Gold) and SLV (Silver) which follow the precious metals.   
          In the case of GLD (which is officially not part of the challenge but added to show how the chart will works) I could only work with 30 shares.  If you notice, even though GLD increased $3.54 per share because I only 30 shares my profits were limited.  Following a trend I waited till GLD increased to over $110 and sold it.  If I had 100 shares as opposed to 30 shares I would of made a profit of $517 as opposed to $88.25.  Noticing this I decided to go with SLV, an Exchange Traded Fund (ETF) that follows the price of Silver in the market place.  I was able to purchase SLV for $17 a share on 3/18/10.  I then sold it on 4/9/10 for 18.03.  Even though the Price had only increased by $1.03, because I had 100 shares I was able to get $103 unrealized gain and the official profit of $85.06. 
          What does all of this information tell us?  Its an important lesson and is an extremely obvious yet important thing to keep in mind and that is the # of shares.  Even though GLD's price increased by almost $4 I only made $80 due to the small # of shares.  To further highlight this fact, SLV's price only increased by $1.03 because I owned more shares I was able to theoretically make the same amount of  money.
          What is the final lesson to take from this event?  I will make it a priority of mine to make sure that I have at least 100 shares per security.


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