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Tuesday, December 29, 2009

How to trade in futures market?

The futures market offers the opportunistic investor the option of using small amounts of their own money to control large amounts of products, including gold, currencies, and agricultural commodities.

A futures contract is a legally binding contract to deliver, if you are selling, or to take delivery, if you are buying, of a specific commodity, index, bond, or currency at a predetermined date or price. A futures contract can include everything from a standard size amount of wheat, oil, or a country's currency. The amount and date of delivery of the contract are specified, though in almost all cases delivery is not taken as contracts are bought and sold for speculative or hedging purposes.


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Monday, December 28, 2009

Investment Strategy: The Investor's Creed

Fascinating, isn't it, this stock market of ours, with its unpredictability, promise, and unscripted daily drama! But individual investors are even more interesting. We've become the product of a media driven culture that must have reasons, predictability, blame, scapegoats, and even that four-letter word, certainty. We are a culture of investors where hindsight is rapidly replacing the reality-based foresight that once was flowing in our now real-time veins... just like downhill racing, grouse hunting, and Super Bowls.


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Sunday, December 27, 2009

How To Trade Stock, Timing Is Everything

The following article lists some simple, informative tips that will help you have a better experience with how to trade stock.

Aim for the best timing in stock market trading. It is the only option for a successful stock market investor learning how to trade stock.


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Thursday, December 24, 2009

How To Undertake Free Stock Research

Stocks are not constant. They increase, decrease and disappear. In fact, investing in the stock market is a risky endeavor not to be taken lightly. You name it-- you may start out happy with the high standing of your stocks and after an hour or two turn sad because your stocks have somehow lowered down below their original value. They may actually plunge, slamming down to the lowest values fathomable. You may emerge feeling depressed that you’ve lost an investment that you’ve worked hard for and had much hope in. For this reason, investing in stocks can be both exhilarating and disconcerting.


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Wednesday, December 23, 2009

Investor Awareness Campaigns: A Look at the Other Side

So you've signed up for a newsletter which promises to give you great stocks picks. Trust their stock picks and you wont miss out on the latest stock market darling. You dont want to miss out on another company who's shares have moved up over 100%. Follow their advice and you will never have to do your own due diligence again!

If only it were that simple!


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Saturday, December 19, 2009

Is Day Trading For A Living Your Cup Of Tea?

If you like working with other people's money, then maybe day trading for a living is what you should be doing. This type of trading works daytime hours only, from the moment the stock market opens at 9am until it closes at 4pm in the afternoon, you can do a lot of trading in that amount of time. Or maybe you want to do day trading for livings with your own money, that way if you loose it, then you have no one to blame but yourself. However, it may be a good way to watch your money grow too. The following is the basic definition of what day trading is all about. Maybe it is your cup of tea, maybe not, only you can decide.

What is Day Trading?

Day trading for a living is when you take a position in the markets with a view of squaring that position before the end of that day. Day trading for a living mean a trader usually trades many times a day looking for fractions of a point to a few points per trade, however, by the end of the day he or she will close out all their positions. The goal of the day is to capitalize on price movement within one trading day. Unlike investors, the day trader will hold positions for only a few seconds or minutes, and never overnight.


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Thursday, December 17, 2009

How to Use Annual Report

There are many steps in calculating the fair value of a company. However, before we even do that, it is imperative to know how a company earns its profit. Does it do that by selling to consumers? licensing its technology to other companies? or extracting natural resources from the ground?

The sensible way to do it is by reading the company's annual report. What is an annual report? Annual report is yearly publication by public companies to better inform investor about the company's line of business. Annual report gives investors a glance of the company's line of business, financial health as well as management's strategies for doing business.

Let's look at CNET Networks Inc. The company trades in the NASDAQ market with symbol: CNET. What does CNET do? I know CNET owns cnet.com. But do you know that it also owns download.com, MP3.com, ZDnet.com and News.com ? How do I know that? Yep, you guess it. CNET's Annual Report will gives you all that.


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Wednesday, December 16, 2009

Is Online Trading In Your Future?

So you've heard about the stock market right? How about the foreign exchange market or forex for short? What about day trading? Did you know that there are now very affordable ways to be your on broker by doing online trading? That's ok not many people who don't do this stuff every day know much about this otherwise excellent opportunity too make many investment dollars. So you are getting in at a good time before there is a glut of investors creating competition and parity and driving profit potential way down.

In the foreign exchange people exchange their money into different (foreign currencies) according to how they think the economy of that country compares with others and/or the public perception there of. Just like in the stock market if you buy low and sell high you make money. And the potential is there to make a lot of money in online trading depending on how knowledgeable you are about international economies and how current events affect people and their confidence or lack thereof in any given economy. People who know the systems whether it is the stock market or foreign exchange and are therefore willing to invest and assume that risk, will make money.


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Tuesday, December 15, 2009

Increase Your Trading Profits

Do You Want Increased Profits? Then Go After Decreased Losses!

Hello, this is Bob Eldridge and I'd like to share with you a frequently overlooked source of profits from your trading. It's a simple concept yet so very important if you expect to be able to continue trading for any length of time! The concept is that of controlling both the number of losses you have and the dollar amount of those losses. I realize that statement sounds so obvious that you might be tempted to put this article away in favor of a night of bad television, but please stick with me here. I'll share some things with you that you probably don't expect to find here!

To better visualize the concept I'm describing, picture a large washtub, the kind you probably remember from your childhood. Now imagine the difficulty of filling the washtub if it has several 'six-inch' holes in the bottom! No matter HOW MANY garden hoses you have filling it up, the water is running out faster than it's going in!! Now imagine plugging each of the holes, one at a time. Plug the first one and the difference is almost imperceptible. Plug the second hole and you begin to notice that there is less water splashing on the ground. Plug the third and you actually may see the water level in the tub begin to rise ... just slightly, perhaps, but rise nonetheless! Plug ALL the holes but one and the difference becomes measurable! Now that you're down to one hole, let's begin to repair it a piece at a time. First we cover HALF the hole ... while the tub still leaks, you can now tell there's more water going INTO the tub than running out the bottom. Patch half the remaining leak and you begin to adapt to the idea that it's OKAY if a little water comes out, just as long as there's more going in than coming out!


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Monday, December 14, 2009

Know Your Broker Before Trading Online

Proper investment strategies should always include researching your broker, but in today's world of new technologies and online investment, what questions should you be asking?

The following are some key questions to ask your broker, which can save you both time and money:

* What tools are available from your broker? Stock quotes, news, charting, level II data and advanced order types are among many key tools for traders. Be sure your broker has the tools you specifically need.

* How fast are orders being executed? Keep in mind that online trading can significantly speed up the order process in comparison to placing orders over the phone.

For example, RushTrade offers Direct Access Trading, which allows you to direct your order to the execution venue of your choice. This can result in faster executions, improved price and greater control of your orders.


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Sunday, December 13, 2009

4 Benefits of Long Term Trading vs Short Term Trading

Both short term trading and long term trading can be effective trading strategies, however, long term trading has several significant advantages. These include the effect of compounding, the opportunity to earn from dividends, reduction of the impact of price fluctuations, the ability to make corrections in a more timely manner, less time spent monitoring stocks.

1. Compounding

Time can be investor’s best friend because it gives compounding time to work its magic. Compounding is the mathematical process where interest on your money in turn earns interest and is added to your principal.

2. Dividends

Holding a stock to take advantage of payouts from dividends is another way to increase the value of an investment. Some companies offer the ability to reinvest dividends with additional share purchases thereby increasing the overall value of your investment. Additionally, dividends are more a reflection of a company's overall business strategy and success than volatile price fluctuations based on market emotions.


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Growth and Value: What's the Difference?

While the majority of American investors understand the importance of diversifying across growth and value investments, few are able to achieve a passing grade on a test of their knowledge of the differences between the two, according to a new American Century Investments survey.

Test your knowledge with the Growth & Value IQ quiz below:

1. Which best describes a growth stock?

a) Stock that offers guaranteed rate of growth tied to consumer price index.

b) Stock in a company specializing in agriculture, lumber, landscaping, and other organic products.

c) A stock in a company demonstrating better than average profit and earnings gains.

d) All of the above.


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5 Advantages Of Long Term Trading

Both short term and long term trading can be effective trading strategies, however, long term trading has several significant advantages. These include the effect of compounding, the opportunity to earn from dividends, reduction of the impact of price fluctuations, the ability to make corrections in a more timely manner, less time spent monitoring stocks.

1. Compounding

Time can be investor’s best friend because it gives compounding time to work its magic. Compounding is the mathematical process where interest on your money in turn earns interest and is added to your principal.

2. Dividends

Holding a stock to take advantage of payouts from dividends is another way to increase the value of an investment. Some companies offer the ability to reinvest dividends with additional share purchases thereby increasing the overall value of your investment. Additionally, dividends are more a reflection of a company’s overall business strategy and success than volatile price fluctuations based on market emotions.

3. Reduction Of The Impact Of Price Fluctuations


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Saturday, December 12, 2009

Day Trading Your Way To Success

If you are interested in day trading you first need to know what it is all about and to understand the basics of day trading. For starters, a day trader is a person who is very active in the stock market and makes several trades a day in an attempt to make quick gains by buying and selling stocks in a short time span.

As the market is never the same day to day, no one particular day trading strategy will work each time. To be successful, you first need to understand how the market works and get a feel for the market.

This includes recognizing the stocks' basic trend, the long and short setups, when to enter a trade, and where to place stops. Another very important basic is how to protect your profits and minimize losses.

Once you have learned the basics and are ready to try your first day trade, here are some tips and guidelines you should keep in mind that is essential to your success as a day trader.

Being a day trader requires a lot of time and practice before you get used to the everyday volatility in the market. Do not expect to become an expert day trader overnight. No matter how many books you have read or day traders you have watched, that will not make you an immediate expert.

There are day trading websites that simulate trading. Practice with their trading platform first before trying out the real thing. It could save you a lot of money and you will learn the ropes faster this way.

If you are ready for real live trading, do not be scared by the thought of losing money. There are ways to minimize your loss such as with stop orders.

If you lose money, do not worry, as some loss is to be expected. Just remember, with increased experience and sensitivity to the market, you will start turning a profit soon.

If you profit large sums of money, stop trading. Do not gamble it away by trying to gain even larger profits. You can always trade another day.

Sometimes the market will not perform as you expected. When you encounter this situation, it is best that you do not trade at all.

Once you gain more experience in day trading, you may be able to predict the direction of a stock price. However, try not to pick top stocks or bottom stocks. This is one of the most common mistakes of a beginner.

If you cannot predict where the market is heading, it is best if you stand aside and wait, or you can always go home and trade again another day.

It is a good idea to record all of your day trading results. This way you can learn what works and what does not, and be more effective in trading.

Observe good traders. Look at how and when they sell or buy. Generally, good day traders often buy on bad news and sell on good news.

Beginners often get emotional in their trades. Avoid this at all cost, stay emotionally detached and professional.

Learn to trust your instincts. Relying too much on analysis may mean letting a few good trades slip away from you.

As you gain experience, you will see that different day trading strategies are required on different days and required on different stocks. Be flexible.

Bad day traders often focus on too many stocks that are not manageable and often lose track on where each stock is heading. It is wise to limit your stocks in manageable numbers.

With patience and practice, you can be successful in day trading, and as your experience grows so do your profits. Everyday you can learn new day trading strategies in the market, which you can use to your advantage.

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Tuesday, November 24, 2009

A Stockbrokers Advice

It can be a good idea to use a stockbroker for an active management of your stocks or mutual fund portfolio. It can be vital if you want a steady growth. It may also be unnecessary as a passive management alternative often is available for long term investing.

However, many prefer to use and pay for the services of a broker because they feel more comfortable making decisions about their finances with the interactive guidance of a licensed advisor.

Using a stockbroker for financial guidance one must be aware of the fact that they do get paid on a commission. This can be a reason for them to trade more often as more trades make them more commission. The stockbroker is also paid on the result they can achieve.

Furthermore a conflict of interest arises when a stockbroker offers his/her services as a financial planner, because their revenue is generated as a direct result of your investment in the stock or mutual fund that they broker to you.

Your return on investment may not be as great, and the advice they give you might not be in your best interest. However, some mutual funds and stocks can only be purchased through a broker. In such cases their services are required to purchase the financial instrument in question.

If you use the services of your bank there are some facts to consider. When you talk about the options you have to invest your money, they will certainly recommend the funds they control themselves.

In some countries you can for example invest in a portfolio with shares and have a guarantee to at least get your initial investment back in 2, 3 or 4 years. Sounds great to many and when they say yes to invest, the bank charge 110%. In that way the bank make a profit and secure the costs from start. Do the bank take a risk? No, they cover themselves with other types of investments that function as an insurance.

So now your portfolio starts off with a backlog of minus 10%. Often the investment will recover and take back most of the initial loss and the guarantee makes many invest as they feel comfortable and secure when they invest in this way.

Back to the question about what kind of investments the bank recommend. Do they recommend other banks portfolios? I don´t think so. If you go to a car dealer that sell Ford, do they recommend you to buy a Lexus? Certainly not. A stockbroker working in a bank is not neutral, their job is to make you invest in the shares they make the biggest profit for them. If you make a profit too, that is fine but not their prime priority.

There are the authorities though to help the customer out. And there are rules and regulations about the way stockbrokers can and shall work. Depending on in which country you are investing the rules can vary. In some countries stockbrokers can have his own portfolio and the company where he works can also have an portfolio of shares.

This makes an eventual conflict arise whenever something special happens. There are numerous customers that suspect that they have been recommended shares in companies that will face problems and where the stockbroker wants to sell his own shares before the market drops. To prove these cases are almost impossible and to win them very rare. The number of transactions are also so big that it is almost impossible to trace and see a pattern. There might be just a few that went the wrong way.

Stockbrokers in general are behaving in a professional way and realise that their business will benefit most if the outcome for their customers are great. As a customer you are advised to check the results that a stockbroker have produced, trace their records. Do not look at the advertisements, the truth about the results are not there.

On the internet you can now use the statistics by independent companies that range stockbrokers, funds, shares etc. Here you can find facts – vital facts for the outcome of your future incomes from investing.

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3 Steps To Profitable Stock Picking

Stock picking is a very complicated process and investors have different approaches. However, it is wise to follow general steps to minimize the risk of the investments. This article will outline these basic steps for picking high performance stocks.

Step 1. Decide on the time frame and the general strategy of the investment. This step is very important because it will dictate the type of stocks you buy.

Suppose you decide to be a long term investor, you would want to find stocks that have sustainable competitive advantages along with stable growth. The key for finding these stocks is by looking at the historical performance of each stock over the past decades and do a simple business S.W.O.T. (Strength-weakness-opportunity-threat) analysis on the company.

If you decide to be a short term investor, you would like to adhere to one of the following strategies:

a. Momentum Trading. This strategy is to look for stocks that increase in both price and volume over the recent past. Most technical analyses support this trading strategy. My advice on this strategy is to look for stocks that have demonstrated stable and smooth rises in their prices. The idea is that when the stocks are not volatile, you can simply ride the up-trend until the trend breaks.

b. Contrarian Strategy. This strategy is to look for over-reactions in the stock market. Researches show that stock market is not always efficient, which means prices do not always accurately represent the values of the stocks. When a company announces a bad news, people panic and price often drops below the stock's fair value. To decide whether a stock over-reacted to a news, you should look at the possibility of recovery from the impact of the bad news. For example, if the stock drops 20% after the company loses a legal case that has no permanent damage to the business's brand and product, you can be confident that the market over-reacted. My advice on this strategy is to find a list of stocks that have recent drops in prices, analyze the potential for a reversal (through candlestick analysis). If the stocks demonstrate candlestick reversal patterns, I will go through the recent news to analyze the causes of the recent price drops to determine the existence of over-sold opportunities.

Step 2. Conduct researches that give you a selection of stocks that is consistent to your investment time frame and strategy. There are numerous stock screeners on the web that can help you find stocks according to your needs.

Step 3. Once you have a list of stocks to buy, you would need to diversify them in a way that gives the greatest reward/risk ratio. One way to do this is conduct a Markowitz analysis for your portfolio. The analysis will give you the proportions of money you should allocate to each stock. This step is crucial because diversification is one of the free-lunches in the investment world.

These three steps should get you started in your quest to consistently make money in the stock market. They will deepen your knowledge about the financial markets, and would provide a sense of confidence that helps you to make better trading decisions.

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Monday, November 16, 2009

A Review Of The Stock Market Crash Of 1929

The great Wall Street Crash just previous to the Great Depression of the 1930s has become a part of North American legend. People speak of the crash, its causes and its consequences, with great authority, although few people actually understand the fundamentals that led to the crash, and fewer still the intricacies involved in it. This article will detail a short review of the crash, analyze some of the myths evolving out of this period in American history, and also answer some questions such as why the crash happened, and if something like it could happen again.

The crash began on October 24, 1929 and the slide continued for three business days, ending on October 29 1929 (as we can see, the crash did not occur in the ‘30s, as many people believe). The first day of the crash is known as Black Thursday, and the last day is called Black Tuesday. The crash began when a rush of nervous spenders panicked and rushed to sell their shares- over 13 million stocks were sold on that first Thursday. In an attempt to halt the slide, several bankers and businessmen gathered and tried to rally the numbers by buying up blue-chip stocks, a tactic that had worked in 1909. This was to prove only a temporary fix, however. Over the weekend, while the stock markets were closed, the media added to the fear of investors as the published the wrap ups to the week. By Monday, a fearful populace, nerves on edge due to the reports, were waiting to liquidate. Again, industrial giants and other businesses tried to halt the panic by demonstrating their faith in the system by buying more stock, but the slide would not stop. The market did not recover its value until almost a quarter of a decade later.

As with any legend, the Wall Street Crash of 1929 carries with it several mythical misconceptions. To start with, the Crash did not lead to the Great Depression. In fact, many financial analysts and historians are still not sure to what degree the Crash even contributed. The economic forecasts were poor before Wall Street fell, and it was poor people who could not even afford to think about stocks that were the most affected by the Depression. For these people, poverty was mostly caused by very poor farming conditions. There was also not the onslaught of suicides that is commonly referred to- a few investors did succumb to depression, but their numbers are generally agreed to have been very small indeed- enough to count on one hand.

What was it that caused this Crash? Because the market had been doing so well, many Americans were investing- many more, in fact, than could afford it. These people were investing on speculation. This means that they were buying stocks with an eye to selling them in the future for a higher profit, and to achieve the capital to invest they borrowed from banks. When prices began to drop, people realized they would not be able to pay their debt, let alone make any money,. They rushed to get out as soon as possible. To prevent panics such as this in the future, buying on speculation is now illegal.

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Monday, November 9, 2009

Understanding Option Trading, Simply

Option trading is one method of trading that you can partake in. But, in order to take advantage of it, you need to find out just what it is and how it works. This will help you to make decisions that will affect you throughout your trading experience. Here is some basic information about option trading to help you.

What Is An Option?

Your basic question of what an option is can be answered like this. It is a contract that allows two parties to come to an agreement that the buyer will have the right to buy or sell a parcel of the shares. It is set at a predetermined price and at a predetermined date. The buyer does not have to take the option though. He has the right but not the obligation to do so. To get this right, the buyer will provide a premium to the seller.

Call Options

There are two types of option trading that you need to know about. In a call option, the buyer has the right to buy underlying shares of a stock. It is set at a predetermined price and also a predetermined date. Again, the buyer has the right but not the obligation to do this.

Put Option

The second type of option is the put option in option trading. In this type of option, the taker has the same fundamentals but is selling underlying shares. He has the same set up of having the right to do so but not the obligation to do it. Also, the same standards of the predetermined price and date also apply. The buyer of a put option is required to deliver the underlying shares only if they exercise the option.

If you would like to learn more about option trading, you simply need to contact your financial advisor and find out how it can serve your needs.


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Sunday, November 8, 2009

Stock Option Trading Millionaire Principles

INTRODUCTION

Having been trading stocks and options in the capital markets professionally over the years, I have seen many ups and downs.

I have seen paupers become millionaires overnight…

And

I have seen millionaires become paupers overnight…

One story told to me by my mentor is still etched in my mind:

“Once, there were two Wall Street stock market multi-millionaires. Both were extremely successful and decided to share their insights with others by selling their stock market forecasts in newsletters. Each charged US$10,000 for their opinions. One trader was so curious to know their views that he spent all of his $20,000 savings to buy both their opinions. His friends were naturally excited about what the two masters had to say about the stock market’s direction. When they asked their friend, he was fuming mad. Confused, they asked their friend about his anger. He said, ‘One said BULLISH and the other said BEARISH!’”

The point of this illustration is that it was the trader who was wrong. In today’s stock and option market, people can have different opinions of future market direction and still profit. The differences lay in the stock picking or options strategy and in the mental attitude and discipline one uses in implementing that strategy.

I share here the basic stock and option trading principles I follow. By holding these principles firmly in your mind, they will guide you consistently to profitability. These principles will help you decrease your risk and allow you to assess both what you are doing right and what you may be doing wrong.

You may have read ideas similar to these before. I and others use them because they work. And if you memorize and reflect on these principles, your mind can use them to guide you in your stock and options trading.

PRINCIPLE 1

SIMPLICITY IS MASTERY

When you feel that the stock and options trading method that you are following is too complex even for simple understanding, it is probably not the best.

In all aspects of successful stock and options trading, the simplest approaches often emerge victorious. In the heat of a trade, it is easy for our brains to become emotionally overloaded. If we have a complex strategy, we cannot keep up with the action. Simpler is better.

PRINCIPLE 2

NOBODY IS OBJECTIVE ENOUGH

If you feel that you have absolute control over your emotions and can be objective in the heat of a stock or options trade, you are either a dangerous species or you are an inexperienced trader.

No trader can be absolutely objective, especially when market action is unusual or wildly erratic. Just like the perfect storm can still shake the nerves of the most seasoned sailors, the perfect stock market storm can still unnerve and sink a trader very quickly. Therefore, one must endeavor to automate as many critical aspects of your strategy as possible, especially your profit-taking and stop-loss points.

PRINCIPLE 3

HOLD ON TO YOUR GAINS AND CUT YOUR LOSSES

This is the most important principle.

Most stock and options traders do the opposite…

They hold on to their losses way too long and watch their equity sink and sink and sink, or they get out of their gains too soon only to see the price go up and up and up. Over time, their gains never cover their losses.

This principle takes time to master properly. Reflect upon this principle and review your past stock and options trades. If you have been undisciplined, you will see its truth.

PRINCIPLE 4

BE AFRAID TO LOSE MONEY

Are you like most beginners who can’t wait to jump right into the stock and options market with your money hoping to trade as soon as possible?

On this point, I have found that most unprincipled traders are more afraid of missing out on “the next big trade” than they are afraid of losing money! The key here is STICK TO YOUR STRATEGY! Take stock and options trades when your strategy signals to do so and avoid taking trades when the conditions are not met. Exit trades when your strategy says to do so and leave them alone when the exit conditions are not in place.

The point here is to be afraid to throw away your money because you traded needlessly and without following your stock and options strategy.


PRINCIPLE 5

YOUR NEXT TRADE COULD BE A LOSING TRADE

Do you absolutely believe that your next stock or options trade is going to be such a big winner that you break your own money management rules and put in everything you have? Do you remember what usually happens after that? It isn’t pretty, is it?

No matter how confident you may be when entering a trade, the stock and options market has a way of doing the unexpected. Therefore, always stick to your portfolio management system. Do not compound your anticipated wins because you may end up compounding your very real losses.

PRINCIPLE 6

GAUGE YOUR EMOTIONAL CAPACITY BEFORE INCREASING CAPITAL OUTLAY

You know by now how different paper trading and real stock and options trading is, don’t you?

In the very same way, after you get used to trading real money consistently, you find it extremely different when you increase your capital by ten fold, don’t you?

What, then, is the difference? The difference is in the emotional burden that comes with the possibility of losing more and more real money. This happens when you cross from paper trading to real trading and also when you increase your capital after some successes.

After a while, most traders realize their maximum capacity in both dollars and emotion. Are you comfortable trading up to a few thousand or tens of thousands or hundreds of thousands? Know your capacity before committing the funds.

PRINCIPLE 7

YOU ARE A NOVICE AT EVERY TRADE

Ever felt like an expert after a few wins and then lose a lot on the next stock or options trade?

Overconfidence and the false sense of invincibility based on past wins is a recipe for disaster. All professionals respect their next trade and go through all the proper steps of their stock or options strategy before entry. Treat every trade as the first trade you have ever made in your life. Never deviate from your stock or options strategy. Never.

PRINCIPLE 8

YOU ARE YOUR FORMULA TO SUCCESS OR FAILURE

Ever followed a successful stock or options strategy only to fail badly?

You are the one who determines whether a strategy succeeds or fails. Your personality and your discipline make or break the strategy that you use not vice versa. Like Robert Kiyosaki says, “The investor is the asset or the liability, not the investment.”

Understanding yourself first will lead to eventual success.

PRINCIPLE 9

CONSISTENCY

Have you ever changed your mind about how to implement a strategy? When you make changes day after day, you end up catching nothing but the wind.

Stock market fluctuations have more variables than can be mathematically formulated. By following a proven strategy, we are assured that someone successful has stacked the odds in our favour. When you review both winning and losing trades, determine whether the entry, management, and exit met every criteria in the strategy and whether you have followed it precisely before changing anything.

In conclusion…

I hope these simple guidelines that have led my ship out of the harshest of seas and into the best harvests of my life will guide you too. Good Luck.

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Saturday, November 7, 2009

Systems On Stock Option Trading Explained

Stock option trading has always given the traders additional work of not just predicting correctly the security’s price. They also must choose the best option for trading strategies. But most stock traders incorrectly figure they can easily make the change from stocks to options.

In order to make systems on option trading an on-going basis, the trader needs to fully understand the major differences between the stock and the option trading.

With the options buying, time is the enemy. If each day passes without enormous changes, the value of the premium time will decline. In order to solve it, the value of the time premium should be declining more rapidly as the option reaches its expiration. The significant factor that option traders need to evaluate is the amount of time that is probable for a move in the stock to take place. Buying close to a stock's low may be supportive as a strategy, but if the trader is obliged to wait too long in an options position, the loss of time could more than devastate a reasonable gain in the original stock.

Most of the options analysts will inform traders to focus on the volatility assumption within the different options pricing model, for the reason that is the only aspect the standard options model assumes to be indefinite. The reason behind this is the Efficient Market Theory notion that stock prices cannot be predicted in the future. There are a lot of times traders that are way too positive in the scenarios they input, and a way to restrain this is by applying one of the following two tactics: The traders who want to make use of more conservative tactics can either choose to buy one strike further in-the-money or they can buy the next expiration month further out than they think they will be needing.

Understanding all the commodity features and other option contracts is very important before investing into those kinds of contracts. You ought to know in advance the rules so that you can guesstimate whether you are competent of handling your obligations.

The option trading systems and the futures which have been explained are inherently risky and very intricate. The investors need to recognize that this alternative does not pertain to all of them. In the case of investing, you need to know from the start how much you can lose and earnestly evaluate if you can afford to lose it in the analysis of your financial resources and the investment goals. You need to share your different conclusions with a broker in order to discuss if your decisions are sound and wise. If you think that you are most capable, willing, qualified and you have all the reasons to invest in the option trading and the futures, you also need to settle on the extent to which you wish to proceed, trusting your own intuition after consulting with a broker.



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Friday, November 6, 2009

Stock Option Trading To Increase Returns

There has been a steady rise in the use of stock options by investors to maximize their leverage and returns over the past twelve months. Chicago Board Options Exchange confirms this observation when they recently reported that the month of March was their busiest on record with volume up 55% over the same month last year. In fact all previous stock option trading records were broken when over 5.6 million stock option contracts were traded in a single day.

Stock option trading enables investors to increase their leverage and thus their rate of return over simple stock trading. If an investor has a solid approach to picking stocks that go up in the short term, the returns can be increased by 10 to 15 times using stock options. The trade off for this increased return is that the investor has to also judge the time period over which the increase will occur.

Being able to pick the stock, direction, and time period are all critical for successful stock option trading. A recent statistical analysis of over 30 years of stock data has revealed certain reoccurring patterns that can yield high returns in stock option trading. The analysis was done with custom developed software and then the strategy was applied to all stocks for the last five years. Stock trading resulted in an average return per trade of 3.2%, but with stock option trading the average return per trade was over 55% for 2005.

Investors have already begun to exploit the patterns found in this research and are reporting highly profitable trades. Whenever investors find inefficiencies in the market, there is a rush to take advantage of those inefficiencies.

Although stock options are not available on all stocks, about half of the stocks found in the analysis did have tradable options. If the trend of increasing use of stock options by investors continues, we should see even more stocks add options for investors. It is easy to see that 60 to 70 percent of actively traded stocks will have option contracts available in the coming year if this trend continues.

Investors are advised to look carefully at the open interest and volume when considering which option contract to buy. A low volume/open interest will generally result in large spreads between the bid/ask prices and thus reduce profits, plus it may make it difficult to sell the option contract.

Another consideration in selecting the option contract is volatility. Stocks with high swings in prices will translate to more expensive options since the options will have a greater likelihood of being in the money. If you have a reliable method of forecasting stock movement, this higher price may not be a consideration.

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Thursday, November 5, 2009

Retirees investing way out of their depth

It started conservatively but turned into a disaster, writes Cosima Marriner.

The stockbroker Ord Minnett had a well rehearsed sales patter for prospective clients who visited its office behind the Gold Coast racetrack.

''Just 9 per cent of brokers in Australia are licensed to trade options," the prospective clients were told, "and most of that 9 per cent work here at Ord Minnett. We're the experts."

Retirees in their 60s wanting to earn an income from their life savings say they were promised returns of 20 to 25 per cent on every $100,000 they invested with the firm for conservative options trading.

And so people like Mike Rowston, Ann Tyson, John and Yvonne Schweicker, and Ken and Noelene Winton opened accounts.

The relationship started well, they say. The broker traded options on a few blue-chip stocks conservatively, made some good money for them and everyone was happy. ''The market was going well,'' John Schweicker recalls. ''If you wanted to keep your profits small and conservative, it was working.''

But in the winter of 2004 it all turned sour. Within a year many Ord Minett clients had lost all their money - millions of dollars wiped out in increasingly risky options trading. They now say that some of these trades were unauthorised.

Ten former clients have banded together to sue the firm for $2.3 million in compensation. In individual claims lodged with the Queensland Supreme Court, they allege the broker was negligent and breached its duty of care to them. They say they were not properly informed of the risks associated with the options trading, and allege the broker did not tailor its investment strategies to their individual needs.

The case comes as the Australian Securities and Investments Commission considers banning certain financial products as ''too risky'' for retail investors. It is a tacit acknowledgement that the regulator's current reliance on education and disclosure to protect investors may be insufficient.

The ASIC chairman, Tony D'Aloisio, said last month: ''At a retail level we again saw that disclosure didn't necessarily mean investors understand the risks, notwithstanding they had long PDSs [product disclosure statements], long prospectuses, documents.''

The regulator is now examining ''complex'' financial products sold to retail investors.

Ord Minnett declined to be interviewed by BusinessDay. In a statement the firm said it "is of the view that it has no liability in respect of these claims and will be responding accordingly".

It is the second court action Ord Minnett is facing relating to options trading by one of its advisers. Fifteen former clients of a Canberra adviser, Eric Hawley, are suing it for compensation for losses on trading conducted by Hawley. Ord Minnett has already reached settlements with many of Hawley's former clients.

Both cases concern brokers' legal obligations to know their clients. The Queensland claims name an Ord Minnett employee, Ben Leeden, as the private client adviser in charge of the accounts. Leeden could not be contacted by BusinessDay. It is alleged Ord Minnett did not properly supervise his trading.

"Know your client rules are an ongoing, non-negotiable responsibility of a broker with every trade," says Bernie Knapp, the Brisbane solicitor representing the disaffected clients. "They have to get informed consent from you and your trade has to be in accordance with the risk management factors that the broker is by law required to [identify] when you become a client. They are forbidden by law to invest your money outside those bounds."

Mike Rowston first heard about Leeden in 2002 from a mate at Southport Golf Club. Told this guy was making ''a fortune'' out of options trading, Rowston opened two accounts with him.

And Rowston's friend Ken Winton, a builder from Nambucca Heads in NSW, was fed up with his broker, so Rowston introduced him to Leeden.

Winton would later tell his friends Yvonne and John Schweicker, who owned the newsagency in Nambucca Heads, how well he was doing. So when the Schweickers retired to the Gold Coast they opened their own account with Ord Minnett.

Ann Tyson signed with Leeden of her own accord. Newly divorced, with no income and a home as her only asset, Tyson was looking for ways to make money. Suffering multiple sclerosis, her work opportunities were limited, and the disability pension was not enough to live on. So Tyson started researching the sharemarket, and attended an options trading course. Learning that Ord Minnett was a specialist in options, she signed with the firm.

And for a while the broker kept its clients pretty happy. But then the stakes started rising.

According to the Supreme Court claims, instead of trading five contracts at a time, Leeden suggested to clients they trade 10. And instead of sticking to safe stocks like those of the big banks, he started taking out contracts on more volatile shares.

The clients say they did not understand the implications of the more aggressive strategy. Ord Minnett denies these allegations. It says it has yet to receive "a full and proper account of the particulars of the breaches that have been alleged".

"We have undertaken a comprehensive review of the trading undertaken by the plaintiffs and we have confirmed that they at all times personally directed the trading and appeared to be fully cognisant of the implications of the trading strategy they employed," it says.

But Ann Tyson says: ''I had something like 15 or 16 positions opened at a time, and that was nuts. It was nuts because there's no way you could keep track of the ramifications of the liability that was on us.''

Mike Rowston agrees. "It started getting way, way out of hand and we didn't realise it. He was going way beyond our ability to satisfy [our liabilities] - way, way beyond."

Rowston alleges in Supreme Court filings that he was unaware of the liabilities attached to his portfolio at the time because Leeden would only represent the positive position of his trades.

The plaintiffs commissioned a forensic audit of the options trading of their accounts. It found that on a number of occasions Ord Minnett opened trades on the same stocks on the same day for superannuation funds, companies and individuals.

''This list of investors clearly has diverse risk profiles and very different expectations from their investments,'' a chartered accountant, UHY Haines Norton, reported.

''If the investment strategies of each of these diverse investors happened to align to direct Ord Minnett to make the same investment in the same option trade on the same day, then that coincidence would be extraordinarily remarkable.''

Meanwhile, the market was moving against the Ord Minnett clients. This was calamitous because they were trading what are known as naked options: the high-risk practice of selling options contracts without owning the underlying share as protection from an adverse price movement. In theory some naked options positions can lead to unlimited loss.

Whereas other brokers like Commsec require clients to have 150 per cent security (i.e. $150,000 in their account for every $100,000 they trade), the Ord Minnett clients say such limits did not exist for them. Instead, they would receive urgent requests for extra money to cover their looming liabilities.

"You could trade with no security, and when it went bad they wanted the money there and then," Schweicker says. "You put it in, they lost it and then they asked you for more."

The clients say they grew increasingly uneasy about the trading, only to be assured that they would be able to recover their losses if they stayed active in the market, increasing their exposure.

Schweicker says he had to sell his wife's 100,000 AMP shares to cover losses, Rowston contributed another $40,000 in cash, and Tyson says she was convinced to tip in $30,000 worth of Telstra shares she owned.

Tyson says she had already lost her $80,000 super nest egg and was now trading with a $300,000 loan taken out against her house, so she started asking to get out.

It all came to a head in late 2005. The new boss of the Gold Coast office, Murray Britton, informed both Mike Rowston and John Schweicker there was nothing left in their accounts. They say that was the first they knew of the extent of their trading losses.

"He said: 'Your account is no good; you can't trade anymore.'" Schweicker remembers the phone call clearly. "I said: 'I knew it wasn't travelling too well, but I had the opinion if the market stayed steady it would just slowly get out of trouble.' He said: 'Well I'm afraid that's not the case'."

ASIC has investigated the claims against Ord Minnett and said in July last year that it would ''not take any further action … at this time''.

Ben Leeden continues to work as a private client adviser in Ord Minnett's Gold Coast office. His former clients say they are still "very hopeful" of recouping some of their losses from Ord Minnett.

"I visualise it every day," Tyson says. "I do a lot of visualisation."

Source:
          The Sydney Morning Herald

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The Best Way To Beat a Rigged Stock Market

Markets Up, Markets Down: A Wealth of Money-making Opportunities Are on the Table
By Brian Hicks


Dear Wealth Daily Reader,

In the Fall of 2007, my partners and I had a series of tense meetings on the state of the economy. We were convinced that the whole thing was about to come unglued.

In fact, things looked so bad to us that we spent a good deal of time talking, in detail, of what to do in the event of a complete economic and societal breakdown.

Yet in a sense we were also hesitant.

Hesitant because, although our alarms were ringing loud and clear, there was hardly a whiff of concern coming from DC, from the FED, or from the mainstream media. After all, the stock market was sitting near record highs.

In fact, all of these institutions were actively engaged in a chorus of cheerleading on just how healthy the economy was.

Our research led us to the exact opposite conclusion.

Clearly, someone was very wrong.

Fed chairman Ben Bernanke was consistently touting the strength of the economy, and even went so far as to say the housing market was a minor issue, at the very moment the foundation of the housing market was crumbling.

This man either lied outright, or was simply too dim to understand what was happening. I don't have to tell you, neither option is acceptable from a man of his responsibilities.

Worse still, no one I'm aware of in the mainstream media ever questioned any of this. Instead, we were treated to constant party-line, bull market rhetoric. Look, passing on unchecked data and flat-out rumor as fact doesn't count as useful information.

Luckily for our readers, we don't rely on any of these institutions for hard analysis.

Right on cue, our own Ian Cooper went short, calling for the market to drop to 6,500... over two months before it happened.

While most market participants watched in horror, Ian and his Options Trading Pit readers made a killing in only 60 days' time, including one 338% gain, closed in 2 days.

Sadly, the vast, unwashed majority aren't so lucky. They drove into the teeth of the worst recession in 50+ years without even a hint of apprehension. And they'll be paying for it, literally, for quite a while.

"When you see that trading is done, not by consent, but by compulsion — when you see that in order to produce, you need to obtain permission from men who produce nothing - when you see money flowing to those who deal, not in goods, but in favors - when you see that men get richer by graft and pull than by work, and your laws don't protect you against them, but protect them against you - when you see corruption being rewarded and honesty becoming a self-sacrifice - you may know that your society is doomed."
—Ayn Rand, Atlas Shrugged (1957)

In the 16 years I've been in this business, I can't think of a time when there's been more distrust, more graft, and more uncertainty surrounding the world of finance and politics.

I also can't recall a time more perfectly suited for robust investment gains, provided you've got your ears on.

The reality is that those two worlds—finance and politics—have essentially merged. And it's no secret there's a revolving door between DC and New York.

Worse still, the media has been actively collaborating, perpetuating the myth that we can spend our way to prosperity, that if we just buy and hold we'll get wealthy some day, and a thousand other idiotic ideas that now rival the hollowness of the phrase "Change we can believe in."

It's incredible to me how many of these talking heads remained on air, despite the fact that they couldn't have been more consistently wrong if they'd known in advance how things were going to turn out.

No matter which way you look, you get the sense that you're being gamed. And you're right.

The plain fact is, no one in politics, in the media, or in mainstream finance cares about you, aside from your value as a "useful idiot."

Think I'm kidding?

The public's assessment of the accuracy of news stories is now at its lowest level in more than two decades of Pew Research surveys, and Americans' views of media bias and independence now match previous lows.

Just 29% of Americans say that news organizations generally get the facts straight, while 63% say that news stories are often inaccurate. In the initial survey in this series about the news media's performance in 1985, 55% said news stories were accurate while 34% said they were inaccurate. That percentage had fallen sharply by the late 1990s and has remained low over the last decade.


The Socialization Of Risk

Banks: Too-big-to-fail banks take too-big-to-believe risks, receive too-big-to-fathom bailouts, and hand down too-big-to-believe bonuses.

Wall Street: Like banks, Wall Street takes on huge risk, and takes a percentage of the gains on the way up, and the way down. And it gets a bailout. Risk gets socialized, yet profits are privatized.

The Fourth Estate (The Press): On the sidelines, foaming at the mouth, totally unaware.

Brokerage Houses: Their interests aren't aligned with the small investor.

Your 401k: Gone.

529 Plans: The single biggest hoax on college-bound families.

There's a vague sensation taking hold, a feeling that American capitalism is rigged. And as that feeling of angst manifests itself, a wealth of money-making opportunities will be suddenly on the table.

Yet most will be too blind with rage, or simply too slow, to act on them.

Here at Angel Publishing, we've become known for being years ahead of major trends. And as a result, our readers profit from being in early.

Whether it's the Green Revolution, Peak Oil, precious metals, options... you name it, we cover it. And that means we profit from it. Again and again.

I want you to be there with us.

Think about it... Obama's been president for about 8 months now. Yet today it's even more apparent that powerful lobbyists and the wealthiest few still run America.

Somewhere along the line, the deal was broken. You may feel betrayed. But what you shouldn't feel is helpless.

When I think about the out-of-control $23.7 trillion in new Treasury and Fed debt dumped on the backs of my children and grandchildren, frankly, I get a little pissed off.

But I realize that the best way for me to protect myself, and them, is to become as wealthy as possible.

Consider that our mission statement.

Our business model runs contrary to an independent newsletter industry that's quickly becoming a corporate, revolving-door newsletter selling system.

Our philosophy is... If our readers make money from our research, our business thrives.

Truth is, we've consistently shown the way to profits before, during, and after the economic meltdown. But we're just getting started.

For example, our newest analyst, Christian DeHaemer, just went on record... recommending his readers buy put options on the Russell 2000.

He's up 59% in 2 days.

(Christian brings with him 14 years in the financial publishing industry, along with an incredibly accurate track record. He'll launch his new advisory, Crisis & Opportunity, in January. Stay tuned.)

And there's this, which just came over the newswire: "President Obama Pledges $3.4 billion toward a 'smart' power grid.

Jeff Siegel has been covering the Green Energy sector — and talking about this very development — years before it became as trendy as wearing the "Free Tibet" t-shirt.

And his readers have been crushing it.

He's even got a short list of companies poised to reap these government contracts. Take a look for yourself here.

Members of Nick Hodge's Alternative Energy Speculator have racked up over 45 winning trades in 2009. And they're on course to close another 20 before the year is up.

And it doesn't end there.

Ian Cooper's Pure Asset Trader — one of the best commodities and resources trading services in business today — has its readers enjoying a 94% win rate in 2009. (37 winning trades in 39 tries.)

Precious metals expert Luke Burgess has been right on 95% of the trades in his Hard Money Millionaire advisory.

The $20 Trillion Report has closed 20 winning trades in 22 tries this year, capitalizing on a number of unconventional oil and natural gas plays. And with oil moving north again, the gains in energy are just getting started.

And I haven't even mentioned the gains delivered by the likes of analysts Steve Christ, Sam Hopkins, Greg McCoach and Keith Kohl.

So here's a quick look at Angel Publishing's family of investment advisories, and their latest research.

I hope you'll join us.

To your wealth,

Brian Hicks
Publisher, Angel Publishing Investment Research



Source:
          Wealth Daily
.

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Options 101: The Principles of Put Selling

The Options 101 column introduces readers to the basics of options trading by exploring rudimentary concepts and terminology, and dissecting the risks and rewards of various strategies. Though this series is designed for option rookies, we hope seasoned options speculators can learn something, too.

In this week's edition of Options 101, we're going to analyze the ins, outs, pros and cons of selling puts.

What is a put? A put buyer has the right to sell shares of a stock at a predetermined price (strike) before a certain time (options expiration). Put purchasers are generally bearish on the underlying equity, and expect the price of the stock to fall beneath the put strike by expiration.


However, on the flip side of the aisle, writing a put obligates the seller to purchase shares of the underlying security at a predetermined price if the option is assigned. Put writers typically take a neutral to bullish stance on the stock, and anticipate the share price to remain above the put strike by options expiration.

Who should tune in? There are a couple of possible objectives for writing a put. One common goal for employing this strategy is to scoop up shares of an appealing stock at a discount. If the underlying security pulls back beneath the put strike by expiration, the put seller can then acquire the shares (if assigned) at a lower price relative to when he or she initiated the sale.

Meanwhile, likely the most popular purpose behind selling puts is to pocket the initial net credit received from the sale. If the underlying stock finishes at or above the put strike by options expiration, the put will expire worthless, allowing the option player to keep the money received at initiation.

(According to Options Clearing Corporation, about half of all options are eventually bought or sold to close, while only about 17% are exercised; the other third or so typically expire worthless.)

How does it work? Assuming the trader's objective is to pocket some premium, he or she would first single out a stock with the potential to remain stagnant or move higher. The investor's anticipated trajectory for the stock should correlate with the put strike, as well as the option's expiration. In other words, if Trader Tom expects stock XYZ to remain above the $50 level through December expiration, he might consider selling the XYZ December 50 put.

What's in it for me? The maximum potential reward for selling a put is limited to the initial net credit received. Since this is the case, potential put sellers should try to single out options with elevated implied volatility levels. If an option's implied volatility reading is higher than the underlying stock's historical volatility, the option is usually trading at a relatively pricier premium than usual. In other words, selling an expensive option will generate more money at initiation, raising the put writer's maximum potential profit.

What do I have to lose? The maximum risk for writing a put is quite substantial, should the underlying stock fall beneath the put strike by expiration. In this scenario, the put buyer on the other side of the aisle could put the option to the seller, obligating him or her to purchase 100 shares of the underlying stock at the strike price. However, assuming the underlying equity falls to zero, the maximum potential loss can be calculated by subtracting the initial net credit from the put strike.

In order to avoid a loss on the play, the put seller needs the shares to remain above the breakeven level, which is also tallied by subtracting the initial premium received from the put strike.

To reduce the risk of assignment, put writers should consider selling out-of-the-money options, as these options' premiums deteriorate at a rapid rate as expiration approaches. Plus, the move required by the stock to place the put in the money is much greater with out-of-the-money puts, as opposed to options closer to the money.

(Don't forget to include any brokerage fees, margin requirements or commission costs.)

Source:
          Schaeffers Investment Research

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Option Trading – Thinking “Outside The Box”

Wouldn't it be great if we could buy an option with five months left until expiration and sell an option with 2 months left until expiration for the same price? You couldn't lose. Well we can't. I love options spreads so much I realized something very important.

We can buy a spread that has a lot of time value left at almost the same price as we can sell one with less time value left. The reason really opened my eyes and gave me new insight into options. Here is what I came to realize.

I started comparing how expensive options were in relation to the other strike prices in the same month and to the other months. I wanted to know based on the price per day which options were more expensive.

The first 1 or 2 option months, as everyone knows loses time value quickly. The at the money strike prices are very expensive compared to the out of the money strike prices. Since there is not that much time left, how much can they charge for an out of the money option? Not much.

The next several months, the opposite is true. Compared to each other, the strikes that are closer to the money are cheaper in terms of price per day than the options further out of the money. Let me explain it another way using the S&P market.

6 days left at the money option cost 12 points
6 days left out of the money option cost 2 points

70 days left at the money option cost 43 points
70 days left out of the money option cost 29 points

There is more than 10X the time left but the 70 day at the money option (43 points) is only less than 4X the price than the 6 day at the money option (12 points).

The 70 day out of the money option (29 points) is almost 15X the cost of the 6 day out of the money option (2 points) but only has 10X the time value. We will buy the cheaper per day options and sell the more expensive per day ones.

Sell 6 day at the money and sell 70 day out of the money. Buy 6 day out of the money and buy 70 day at the money. This will be done for a 4 point debit. We are now buying a spread that has 10X more time value than the one we are selling and are only paying 4 points for it.

When the 6 day options expire we can sell the next month to take in more premium, still keeping the 70 day option spread.

What goes up, must come down! We have all heard this before in reference to the laws of Gravity. We have laws in the commodity markets as well. What comes down, must go up! The greatest traders of our time like Warren Buffet know this. He is perhaps the greatest Stock trader ever. He had never traded commodities until a few years ago. He bought silver in the futures market. When the market went even lower he bought more.

The “smart money”, commercials will not be scared into selling when a market they have purchased drops even further. They know better than anyone that a commodity has real value and will always be worth something.

There is a famous book, “You Can't Lose Trading Commodities”. The author buys commodities and then just waits for the market to go higher. He would purchase more as the market fell.

You need a big bankroll for this. Personally I know corn won't go to $1.00 but what if it did? I want to minimize the risk in case I want to end the trade.

I started trading the Soy Complex this way several years ago. Not with options. Strictly futures. I bought what was similar to a crush spread. I increased the contracts as the market went against me until the spread rebounded a little. Since I increased the contracts I didn't need the market to come back to where I started. It only had to rebound to the next level.

Black Jack players did this until Casinos caught on and put limits on bets. It is a known fact that futures traders make good gamblers and professional gamblers make good futures traders. I am against gambling but even gambling done with a system is not really gambling.

These card players would bet something like this: $5 lose, $10 lose, $20 lose, $40 lose, $80 win. The losses add up to $75. They would win $80, so the profit is $5. Not a lot, but they would do this all day. Black Jack is just under 50% probability for the player.

The problem is there is a slight chance that you could lose 40 times in a row. Now with Commodities we have a 50% probability and we won't lose 50 times in a row because the market can't go below zero.

Now before I go any further, I need to tell you that I am not recommending you double down on your trades. What you can find are markets that are near their lows where you can do a small scale trade. Spreads offer even better opportunities. They have a closer range (high to low).

By now you can see we only use this to go long a market since we can never be sure how much a market can go higher. First we need to find a market that is low already so we won't have to wait that long and also so there will be less capital needed.

I prefer to trade this using options. There are many ways to do this. You could buy an option in a market like soybeans and choose how many cents the market will drop before you buy more. The problem is, an option is a wasting asset. The Theta (time decay) would cause you to lose money.

I use spreads so I am not paying for time decay. I will probably sell more Theta than I buy, so if the market does nothing I will make money just on time decay.



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Wednesday, November 4, 2009

Online Stock Options Trading Basics

New to Options? Want to trade option? This is the first step for you.

You may know many wealthy individuals make lots of money using options and you can try too.

Stock and Bond trading strategies run the gamut from the simple 'buy and hold forever' to the most advanced use of technical analysis. Options trading has a similar spectrum.

Options are a contract conferring the right to buy (a call option) or sell (a put option) some underlying instrument, such as a stock or bond, at a predetermined price (the strike price) on or before a preset date (the expiration date).

So-called 'American' options can be exercised anytime before expiration, 'European' options are exercised on the expiration date. Though the history of the terms may lie in geography, the association has been lost over time. American-style options are written for stocks and bonds. The European are often written on indexes.

Options officially expire on the Saturday after the third Friday of the contract's expiration month. Few brokers are available to the average investor on Saturday and the US exchanges are closed, making the effective expiration day the prior Friday.

With some basic terminology and mechanics out of the way, on to some basic strategies.

There are one of two choices made when selling any option. Since all have a set expiration date, the holder can keep the option until maturity or sell before then. (We'll consider American-style only, and for simplicity focus on stocks.)

A great many investors do in fact hold until maturity and then exercise the option to trade the underlying asset. Assume the buyer purchased a call option at $2 on a stock with a strike price of $25. (Typically, options contracts are on 100 share lots.) To purchase the stock the total investment is:

($2 + $25) x 100 = $2700 (Ignoring commissions.)

This strategy makes sense provided the market price is anything above $27.

But suppose the investor speculates that the price has peaked prior to the end of the life of the option. If the price has risen above $27 but looks to be on the way down without recovering, selling now is preferred.

Now suppose the market price is below the strike price, but the option is soon to expire or the price is likely to continue downward. Under these circumstances, it may be wise to sell before the price goes even lower in order to curtail further loss. The investor can, at least, minimize the loss by using it to offset capital gains taxes.

The final basic alternative is to simply let the contract expire. Unlike futures, there's no obligation to buy or sell the asset - only the right to do so. Depending on the premium, strike price and current market price it may represent a smaller loss to just 'eat the premium'.

Observe that options carry the usual uncertainties associated with stocks: prices can rise or fall by unknown amounts over unpredictable time frames. But, added to that is the fact that options have - like bonds - an expiration date.

One consequence of that fact is: as time passes, the price of the option itself can change (the contracts are traded just like stocks or bonds). How much they change is influenced by both the price of the underlying stock and the amount of time left on the option.

Selling the option, not the underlying asset, is one way to offset that premium loss or even profit.

To Read More...




Tuesday, November 3, 2009

Futures Option Spreads – Delta Neutral Trading

There are a lot of means to trade futures option spreads. One way is to trade spreads that can profit from time decay. You can sell options which you believe will lose more time value than the options you buy. Another way is to buy and sell options based on their deltas. Some of these trades are called delta neutral trades. Option Trades in which the total delta of all the options is Zero is called Delta neutral trades. Options that have a delta of 50 are referred as "At the money options".

Buying at the money call will have a delta of +50 You will have a delta of -50 if you are selling at the money call.

Buying at the money put will have a delta of -50. And you will have a delta of +50 if you are selling at the money put.

Basically, by determining where you want the market to go will also determine the deltas. Think of it this way: If you sold at the money call option, where would you want the market to move to? You would like it to go lower. So, you would have a delta of -50.

If you look at most at the money options, you will find that they are usually not at 50. That is because they are not exactly at the money. We still refer to these as the at the money options because they are the ones that are the closest to being there. It might have a delta of 47 or 53.

If you purchased one at the money call and one at the money put, you would be delta neutral. The call will have +50 deltas and the put will have -50 deltas. The total is zero. This is a very simple delta neutral trade.

Another delta neutral trade is a ratio back spread. An example of this trade would be to sell an option that is at the money and buy a greater number of out of the money options. You might sell one call option at the money (delta -50) and buy 2 call options out of the money (delta +25 each). You would be delta neutral. You would want to put this on for a credit or at even. You can also put it on for a debit but then you would care a little about market direction.

If you put it on for a credit or even money and the market was lower at expiration of the options, you would break even or earn a small credit. If you put it on for a debit, you would lose the debit amount if the market was lower at expiration of the options. In either case, if the market went sharply higher, you have a chance for unlimited profit, because you have purchased more options than you sold.

Most traders teach that ratio back spreads should be done in the far months only. This is because you have more time to be correct with a big move. The problem that I have found is that you are giving up too much for the time advantage. The options are priced advantageously if you buy it at the money than the one that is out of the money. By looking at the theta you can see huch each option will lose per day or per week.

You can also see that in order to have a lot of time left in the trade, the difference in strike prices between the option you sell and the options you buy are too much. It will take a bigger move before you have unlimited profit potential.

If you are expecting a big move, think differently than the norm and start to look at options that have 20 -40 days left. The options you buy compared to the options you sell, should be priced better. Everything is in relation to something else.

So the next time you hear someone recommending the same old ratio back spreads, take a look at the difference months to see where the real advantage is.

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Monday, November 2, 2009

Maximize Your Options Gains with These Six Trading Secrets

At first glance, it may seem like speculating with options is a risky business. After all, price swings of 30% in an hour are far from comfortable for most investors. But with risk comes reward — and when you can manage that risk successfully, the rewards far outweigh the risks over time. That’s where these six trading secrets come in…

They’re the tools I’ve turned to for decades to maximize my gains as an options investor while keeping my risks tolerable. My Options Hotline readers have used these rules to maximize their options gains over the years too, and now,
I’m passing them on to you…

Speculators get a bad rap. The very word conjures up pictures of some carefree playboy throwing money into any crazy investment — not really caring if they win or lose.

It’s not a flattering picture. And that’s why conservative investors shy away from anything “speculative” — lest they be called speculators, too.

Well, I’m here to tell you “speculating” isn’t a dirty word. You can be a conservative investor and still enjoy that chance at phenomenal profits that speculating can bring.

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Let Me Show You the Easy Road to 234% Gains

You could harness three market-moving forces to generate 234% gains in just months. But November 1 could be the last window of opportunity for this life-changing opportunity.

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I learned that lesson from my father, Paul Sarnoff. He was one of the first people to offer an options course — introducing novice investors to the concept of Superleverage (more on that on Friday). But he also had a strong conservative streak. In fact, he was an avid fan of precious metals, advocating that they should be at the core of every solid investment portfolio. He even wrote books on gold and
silver investing.

My father proved that even cautious investors can benefit from speculating. But as he always stressed — and as I still stress today — the key to being successful was to have a complete plan of action. You never, ever throw your money around casually…even if it is money you can afford to lose. And you must take steps to make sure you never get in over your head.

Of course, that’s easier said than done. That’s why my father developed six simple strategies for keeping a level head when speculating. They may sound common sense, but I’ve spent enough time in the markets to know that common sense isn’t that common when money is involved.

So, if you’re thinking of dipping your toe into the speculative markets, here are a few proven ideas to keep in mind:


1.  Create a sound money-management strategy.

This one flies in the face of the conventional image of a speculator. But believe me, all consistently successful speculators start with a plan. It doesn’t have to be anything too involved — just make sure you’re clear on your objectives, and set some guidelines for yourself. Figure out your entry and exit strategy for each play, starting with how much to invest, how many open positions you plan to have, how you will monitor positions, what kind of stop-losses you will use to preserve capital, etc.

A sound money management strategy is the most important factor in successful speculation and it allows you to stay in the game. 


2.  Know your broker and monitor your investment.

When choosing a broker make sure to ask as many questions as necessary and that you get the appropriate answers before simply giving over your money. If you are a beginner, find out about the broker’s history and references, and speak to them frequently to establish a relationship. Make sure that either you or your broker will be constantly monitoring your investment — today’s markets are very volatile and with options the price can shoot up 30% or more in just a few hours…so it is necessary that your broker is able to see the option is performing and be able to execute an order in a timely manner, to ensure that your capital is protected.

With so many discount Internet brokers out there, it seems like more and more people aren’t doing their homework before opening an account. It’s OK to try and go it alone…unless you don’t know what you’re doing. In that case, it’s well worth the time and money to explore more experienced flesh-and-blood brokers.


3. Stick with your exit strategy if a trade goes against you.

With a good money-management plan, there should never be any surprises. No matter what price your trade is at, the action you need to take should be clear.

That doesn’t mean you have to be inflexible, however. Just because an option has met your profit target, you don’t have to automatically sell. But there has to be a compelling reason to stick with the trade — something more than a feeling that the trade will continue climbing above your target price. (After all, you selected that target price for a reason.) And always use a stop-loss or a trailing stop order to make sure you’re ready for any reversal that might pop up.

For a losing trade, however, you need to be a little more harsh. Options are wasting instruments, and their value dies a little each day. Sometimes it’s better to stick to your strategy and settle for a loss than it is to wait it out and hope for a miracle. That’s money you could be plugging into another play.

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4.  Always, always, always, ask questions.

The Internet age is creating a generation of independent investors. But some are still too proud to admit that there are things they don’t know. In the speculation game, what you don’t know can hurt you.

If you’ve taken my advice about finding a good broker, you’ve already got a ready source of info to turn to. Dozens of Web sites also offer complete details on options trading. So there’s just no excuse for ignorance any more…and losing money because of ignorance makes even less sense.


5.  Learn from your mistakes.

Find out what works for you. There will be losers along the way — but just make sure you know what you did wrong in previous trades (e.g. you set a stop loss of 15% and were stopped out too early and the option rebounded to 56% profits). Take every trade as a lesson and use it to improve as you continue trading.


6.  Remember that knowledge is power.

You can never know too much…strive to learn as much as you can about options and their inner workings, strategies, fundamentals, everything…so that you will be better equipped to profit with options trading.

As I’ve said in the past, options trading is more accessible than ever before. And the profit potential hasn’t diminished a single cent. Going out of your way to learn the myriad of ways they can boost your bottom line is the easiest way todiscover what works for you.

These are the six strategies that drove my father to success…and they’ve led to fantastic wins for myOptions Hotline readers over the years. Now, hopefully they’ll help spur your success, too.

Source:
          the sfdf

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