Investing Basics: Insider Selling, Options, and the FDIC  
============ THE MOTLEY FOOL ============
                        INVESTING  BASICS        
                    Tuesday, November 20, 2001
rshapiro@enron.com
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IN THIS ISSUE
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- Q&A: Is Insider Selling Significant?

- Q&A: What Does "Insured by FDIC" Mean?

- LESSON: Options 101
	
================================
SPONSORED BY: Ameritrade
Ameritrade brings you the market's most valuable commodity:
Knowledge.  Get a free 6-month Morningstar.comÂ®
Premium Membership when you open an account.
http://www.ameritrade.com/o.cgi?a=xbx&o=rkg&p=/html/mstar.fhtml

================================YOUR QUESTIONS ANSWERED 

Q. Should an investor be concerned if one or more officers of a 
company sell shares of its stock that they own? 

A. Although it may look like a red flag, it isn't necessarily 
one. Many executives today receive a large part of their 
compensation in stock options. So when they have to buy a house 
or make a college tuition payment, they sell some shares. They 
may also be trying to diversify their investments, not wanting 
to have too much of their portfolio in one company. 

On the other hand, one insider (or many insiders) selling might 
indeed signal a loss of faith in the company. If you're worried, 
you might want to take a closer look at the company's recent 
performance. Perhaps fire up your computer and see what people 
interested in the company are saying about it online, on message 
boards. 


Q. What does "insured by FDIC" mean, and what does it NOT 
insure? 

A. The Federal Deposit Insurance Corp. (FDIC) insures our 
traditional checking, savings and money market accounts (as well 
as CDs) held at banks and thrifts for up to $100,000. Note, 
though, that the FDIC does not cover stocks, bonds, mutual 
funds, life insurance policies, annuities and the like. For 
these, check with your financial service company to see what 
kind of insurance may be provided. 

Learn more about the FDIC at their website. To make sure you are 
stashing your short-term cash in the most profitable place, 
check out our Savings Center. 
http://www.fdic.gov/
http://www.fool.com/savings/savings.htm

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THIS WEEK'S LESSON 

OPTIONS 101
Imagine you want to invest in Legume Gas Works (ticker: BEANZ). 
You can buy shares the usual way -- or you can buy options. 
Here's an introduction to options. 

There are two main types: calls and puts. A call gives you the 
right to buy a set amount of shares at a set price within a 
certain period of time (often just a few months). For this 
right, you pay a price premium. Puts are similar, but give you 
the right to sell shares. 

If Legume is selling for $50 per share and you expect it to 
rise, you could buy "October $55" call options for it. Let's say 
you snap up calls to buy 100 shares, for $6 each, or a total of 
$600. If just before your options expire Legume is selling for 
$65 per share, you can exercise your options and buy 100 shares 
for $5,500. Then you can keep them or sell them for $6,500. 

If you sell, you make a $1,000 profit, right? Nope. You paid 
$600, remember? So your profit is down to $400 -- less, when you 
account for trading commissions. 

Options are risky. If Legume stays at $55 or falls, your $600 
would be entirely lost. It has to top $61 per share -- $55 plus 
$6 -- by October for you to profit. 

Some folks like options because of the leverage they offer. They 
point out that if you only have $1,000, you can only buy 20 
shares of a $50 stock. Alternatively, that $1,000 could buy many 
more options tied to hundreds of shares of stock. True enough. 
With options, though, timing is critical. If things don't go 
your way in a short-term time frame, your option will expire 
worthless. 

Most options expire unexercised and worthless. (Those most 
likely to profit from options are the ones who "write" or sell 
the options.) That's because options are really about buying 
time, not stocks. If you're sure that Legume's stock will rise, 
you're probably best off buying its stock. Then if it doesn't 
behave as you expected it to, you can either sell the shares or 
hang on patiently. 

Options are not for beginning investors, and even more advanced 
investors might consider steering clear. 

You can read more about options at this Motley Fool FAQ.
http://www.fool.com/FoolFAQ/foolfaq0055.htm


================================
SPONSORED BY: Ameritrade
Ameritrade brings you the market's most valuable commodity:
Knowledge.  Get a free 6-month Morningstar.comÂ®
Premium Membership when you open an account.
http://www.ameritrade.com/o.cgi?a=xbx&o=rkg&p=/html/mstar.fhtml

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