Trading Options
Posted by author in General on 05 30th, 2010Options 101
What are Stock Options?
First let’s discuss what Stock Options are.
Options are securities that give the owner the abilty to purchase a stock at a particular price up until a particular date.
Stock Options are traded just like stocks. You can purchase options for many fo the stocks that are traded.
Stock Options trading allows the investor to leverage their capital. For example, instead of actually purchasing 1000 shares of a $100 stock, you might be able to buy an option that allows you to buy that same stock for $105 the next few months at maybe only $1 per contract. 1 Option contract entitles the investor of the option to buy 100 shares of the stock. Therefore, in order to purchase 1000 shares of a given stock, you would need to purchase 10 options. In this example, instead of investing $100,000 to purchase the stock directly, you would only have to spend $1,000 to purchase 10 options (10 options x $1 per option x 100 shares per option = $1000).
If the stock goes up in that time period, you would make approximately $1,000 for each $1 point move above $105. Conversely, if the stock never gets to the $105 per share or goes down below $100, you would loose some or all of the $1,000 you paid for the options, since they would expire worthless.
Option Trading can be very risky, but it can also be used to hedge risk. Let’s say you have a portfolio of stocks, and you feel like there is a lot of risk that the market will go down, but you do not wish to sell your stocks just yet. You can buy an option called a “Put” on the S&P 500 Index,. which will go up if the stock market goes down. So in this case, Option Trading is a form of portfolio insurance. So when the market is down trending, the S&P should also goes down, generating profits on your S&P 500 Puts that offset losses in your portfolio.
For the best information available on options, go to www.CBOE.com. That is the site of the Chicago Board of Option Exchange in Chicago. They are the home of most of the options trading in the U.S. and an authority of this subject.
For information on a variety of Investment topcis, go to www.investorsmarts.com
read comments (0)Real Estate Investment Trust
Posted by author in General on 05 30th, 2010REIT Information
A REIT, or Real Estate Investment Trust is a liquid, dividend paying means of participating in the real estate market without actually purchasing Real property. Investors can invest in commercial properties, mortgages, or a combination of both. Generally they invest in shopping malls, office complexes, apartments, warehouses, hotels, or even golf courses. Some The Real Estate Investment Trust even specialize in specific types of properties, or geographical locations.
REIT securities pay dividends and offer the possibility of price appreciation experienced by the real estate owners. You can buy a Real Estate Investment Trust just like you buy a stock, or mutual fund.
Most of the major mutual fund families offer these funds to their shareholders. Because these mutual funds allow shareholders to reinvest dividends in additional fund shares, Real Estate Investment Trusts are a good vehicle for investors looking for stable growth. Since REIT are dividend paying securities, the yield will rise as the share price declines just like a Corporate Bond.
So if interest rates continue to rise, they will produce a higher and higher income for investors who need income as the share prices fall. Additionally this form of investment offers instant liquidity unlike a direct investment in Real Estate properties, you will receive a check within days of the sale.
So if you are nervous about the high prices in the real estate market, and potential negative effects of rising interest rates, but still want to invest, you can at least be assured of a quick exit if prices begin to decline in the real estate market.
If you’d like to increase your investing knowledge, feel free to visit investorsmarts.com for a list of investment topics.
The IMF’s Transfer of Wealth
Posted by author in General on 05 30th, 2010May 11, 2010 — G. William
Hey!I’m just sayin’! I COULD be wrong!
In an article earlier this year by Michael Kitchen at MarketWatch, we are treated to the spectacle of the US being held hostage by outside influences. The International Monetary Fund, which we help fund, is once again throwing currencies to the mat by selling billions of dollars in gold on the open market. The buyers? You be the judge. Here is the article in full. (Okay! I couldn’t hold my tongue so you’ll find a few comments of mine in CAPITALS).
LOS ANGELES (MarketWatch) — The International Monetary Fund said … that it plans to sell 191.3 tons of gold, likely on the open market, pushing spot prices and gold-miner shares lower. (LIKELY ON THE OPEN MARKET? YOU MEAN THERE IS THE POSSIBILITY THEY MAY DO SOMETHING BEHIND OUR BACK? SAY IT ISN’T SO!)
The value of the planned sales would be worth about $6.19 billion at current prices, according to CNBC. (THE LAST TIME THE IMF DID ANYTHING REMOTELY WISE AND apropos I THINK HOOVER WAS IN OFFICE!)
The sales would represent the unloading of 212 tons of IMF gold to central banks, part of a gold-sale plan approved by the IMF’s executive board in September of last year. (QUESTION: WHO’S GOLD IS THIS ANYWAY?)
The latest planned sales would complete the IMF’s program to trim its holdings of the precious metal by about one-eighth. (THAT’S JUST 12% IN CASE YOU’RE WONDERING.)
The world lender said it would stagger the sales in order not to bear upon the markets too much. (HOW THOUGHTFUL OF THEM)
“The top priority in conducting the gold sales is to ward off disruption to the gold market,” IMF Finance Department Director Andrew Tweedie was quoted as saying in a statement. (LET ME ASK THE OBVIOUS QUESTION: WHY SELL ANY AT ALL?)
“Prior to any sales on the gold market, sales were first made exclusively to interested central banks, thus shifting gold inside the official sector. Now the IMF will begin sales of the remaining gold on the market. This will be done in a phased way,” Tweedie said. (SO, DOES THIS mean THAT CENTRAL BANKS WERE BUYERS? DOES THIS MEAN THEY AREN’T AS WILLING TO PEG THEIR SOVEREIGN FORTUNES TO THE POWER OF THE US DOLLAR? AND JUST WHAT DOES THAT IMPLY?)
The announcement, though anticipated, sent the spot price down 0.5% to $1,101 a troy ounce (THIS OCCURRED IN FEBRUARY) , though gold futures had finished New York trade slightly higher on news that billionaire investor George Soros was raising his fund’s investment in shares of SPDR Gold Trust exchange-traded funds. (SO, THE IMF WAS UNABLE TO PUSH GOLD UNDER $1,000 AN OUNCE AND WHILE THEY SELL, THAT PINNACLE OF CORPORATE GREED – <JUST ASK THE ASIAN NATIONS> – GEORGE SOROS, IS BUYING. HMMM!)
Transactions under the previous tranche of the IMF gold-sale program consisted of a 200-ton sale to the Reserve Bank of India in October, followed by November sales of two tons to the Bank of Mauritius and 10 tons to the Central Bank of Sri Lanka. (SO THE SLUM DOG NATION HAS PURCHASED 9% MORE THAN THE ENTIRE CURRENT SALE projected BY THE IMF. AND A GEM OF AN ISLAND IN THE INDIAN OCEAN HAS MORE COMMON good sense THAN ALL THE MEMBERS OF THE IMF. GO FIGURE!).
HEY, I’M JUST SAYIN’!
Learn to Day Trade in the Scalping Style
Posted by author in General on 05 30th, 2010An average day trade doesn’t last more than 10 minutes , and by then I have normally exited , hopefully with a profit. My style of day trading is a form of scalp trading . It is not the the traditional method of trading, but is one of the most profitable . Why? I don’t hold any trades overnight, and when I go to sleep all my money is in cash. I sleep pretty well.
Market forecasting is a dicey business , at best . You need only look at the record of economists, mutual fund managers, and hedge fund managers to come to the conclusion that long-termmarket forecating of the market is not particularly on the mark . There are many arguments for this, the most prominent being the variety of factors discounted into a stock or index price. Of course, some explanations can be accounted for ; like economic trends, cyclical developments, but there is a large number of non-controllable variables that go into asset pricing. Uncontrollable variables like natural disasters , wars, and a host of elusive economic occurrences . The point I am making is a elementary one; market gurus have a horrific track record when it comes to intermediate and long-range market prediction.
That being said, I trade only in ultra-short time periods.
Short-term market prediction is a bit easier , especially when using some specialized oscillators, moving averages, and price action, and rate of change indicators. It is far simpler forecast five minutes than it is five months. I also guess that there is a level of randomness in the market which makes long-term prediction even more vesing . The market is a erratic creature .
That’s why I am a scalper.
My objective is to take out small gains in short-term trends and exit with a profit. Normally , I do not attempt to day trade opposite the trend, nor do I try to predict market highs or bottoms . Further, I position my indicators to ascertain when the market is engaged in normal backing and filling operations, usually referred to as market noise. Some individuals day trade market noise successfully , I don’t. I am chiefly interested in market breakouts in breakdowns.
I seek to lessen risk.
By opting to day trade only in singular short-term trends, and containing my losing trades through well considered tight stop loss measures I am able to minimize drawdowns and any account busting trades. I am not against to letting a trade run on the profit side , but will not resort to push my stop loss lower for any reason . I never add contracts to a losing trade either. Once I’m in a winningday trade and up two points (assuming I am trading the ES contract), I will adjust my stop loss up to a two tick gain and allow the day trade to run. I will not let a profitable trade become a losing trade.
Another nice benefit of scalping is lack of psychological l involvement in my trading. I never try to predict what the market is going to do, I simply react to it is doing. So I am not in the game of predicting market moves, I simply want to take what the market offers.
You’ve have probably noted that risk management is a goal of mine. I use prudent money management techniques and then never risk more than 5-7% of my futures account balance on a single day trade. I am into trading for the long run, which is nearly 25 years now,
Technology’s Race to Zero
Posted by author in General on 05 30th, 2010I’ve been actively trading the stock indices – S&P 500, Nasdaq, Russell 2000 and Dow futures for 20 years and I’ve never seen a day like today. In reality, this was a “Perfect Storm.” In the future, I believe this will happen over and over as the three main causes for May 6th volatility are gaining momentum all the time .
First, public complacency hasn’t been this high since the summer of 2007. Every new government program and bailout reinforces the warm and fuzzy investor psyche that permits us to conclude everything will work out. The Volatility index measures the price paid of protecting your stock portfolio through the purchase of put options. Put options are like buying portfolio insurance. If you hedged your $300,000 stock portfolio it would have cost you approximately $8,500 in put premium to protect the full amount of that portfolio through June, from any downside vulnerability . That same insurance policy in the afternoon would have been worth $23,625. Considering the value of your portfolio equaled the decline of the stock market, you would’ve lost 3.25% on your $300,000 or, $9,750. The difference between the $8,500 paid up front versus the current portfolio’s value of $290,250 plus the current value of the insurance policy $23,625 means that your net worth on the stock market’s biggestpoint loss day in history would have actually INCREASED by $5,375. The increase in the VIX is the reason for the inflated option premium and the significance of the rally of the VIX bears evidence to the market’s general complacency.
Secondly, all of the markets are tied to each other. That’s why we are Commodity AND Derivative Advisors. In the age of electronic trading, one issue always affects another one and that one in turn, affects another on and so on. Every single trade in an outright market like the S&P 500, Euro Currency or, Japanese Yen will have an effect on any market it is realated to. This has, in effect, developed one giant butterfly effect. In the age of algorithmic trading, where the minutest of market inefficiencies are exploited by aggressive capital placement, abnormal market moves will become self fueling. Many of these models use markers based on the model’s expectation of, “normal,” relationships to its data points. When things get pushed beyond the model’s, “normal,” expectations you have a case of, “If you liked stock ABC at $12 a share, you’re going to love it at $4 a share.” There were at least two stocks in the S&P 500 that traded to 0, today. This means they were broke, bankrupt, didn’t exist. Two Fortune 500 companies disappeared on someone’s lunch break and by the time the employee got home from work, no one knew the difference. Twenty minutes of electronic market butterfly effect.
Finally, as the market began to fall, the media was showing the Greek police force in full riot gear after passing their severe austerity vote in an attempt to procure financing from the European Union. Furthermore, the context of the day’s discussion among the talking head TV pundits was the doom and gloom surrounding the demise of the European Union, civil protest and bankruptcy in Greece with the specter of Spain’s impending default as a backdrop. Doom and Gloom sells. Traders, both institutional and retail are listening to the end of the world as we know it while watching the stock market meltdown and trading programs are ticking off one sell order after another in an attempt to be the first ones to market with their orders. The pursuit of greater bandwidth on their data feeds, faster processors in their computers and deeper levels of quantifiable algorithms put them in the lead in the race to the bottom and right back up. Welcome to the new age of 24 hour doom and gloom media coverage, total connectivity and computer programs replacing common sense trading. We specialize in common sense trading.
This methodology is published by Andy Waldock. Andy Waldock is a trader, analyst, broker and asset manager. For that reason Andy Waldock may have positions for himself, his family, or, his clients in any market discussed. This method is meant for educational purposes and to explain the correlation between the commercial’s trading and its effect on creating turning points within the commodity markets. The commodity markets employ a high degree of leverage and may not be advisable for all investors. There is consideral risk in investing in futures. The information contained herein comes from sources believed to be reliable , but are not guaranteed as to accuracy or, completeness.
What Should You Know About Forex Investing
Posted by author in General on 05 30th, 2010Forex investing has several differences from the more common Stock market. The Stock market is based on the selling of stocks in companies, where as the Forex market is based on the pairings of foreign currencies. The Stock market often requires a long-term investment in a stock, waiting for changes in a positive fashion for your portfolio. Forex trading investing affords you the luxury of being involved a very short term, fluid market. A market that’s open twenty-four hours a day, 5 days per week, worldwide.
While most who are investing in the stock market need a broker, Forex investing is mostly done on the internet with no broker being involved with you. This means you do not have to pay commissions on your trades like you may have to do in the Stock market. Investing in forex market can be done in several ways. If you are a novice trader and do not feel knowledgeable or perhaps you do not have the time to devote to the forex market, then you can obtain a Forex Managed Account and try Managed Forex Investing. Many people who wish to diversify their portfolio tend to use this option. This account is handled by a broker or firm with limited input from you. You have to sign a limited power of attorney to handle trades but the trader cannot withdraw or deposit funds into your account. There are fees involved in investing to a Managed Forex account. If you’re not comfortable using Forex managed accounts investing systems, start out simple by joining a Forex Investing Club. Check on-line for existing groups or perhaps one in your area, which you can meet similar persons interested in forex investments.
The other method of Forex trading is a solo effort. You are in control of the trading and have the time and knowledge to become successful. The important area of forex investing is to become as informed and educated as you can. Investment in Forex trading is swift. Some trades occur within minutes and most trading is done within a twenty-four-hour period. This is definitely an extreme difference from the traditional stock market. There are many tools on the internet that can provide tremendous amounts of information and tools for successful Forex investing and trading. Take some time to explore these areas.
Because forex trading occurs from your computer, a lot of times from your home, you need to determine if you will be using a manual or automated trading system. A manual trading system sends signals to your computer based on predefined strategies that either tell you to buy or sell. Once you have received the signal, you manually enter your trade. Automated trading systems automatically conduct trades for you based on rules of strategy. You need to choose the method best for you. Through evaluation of programs and systems, pick the one that most fits your needs.
Whether you are a seasoned investor with experience in the forex market, the beginner who wishes to diversify your portfolio, or the risk-taker who is ready to generate profit, match your experiences and needs to the products, signals and systems available. Remember, whatever method you choose, Forex investing is cutting edge, exciting and profitable as long as you make the right choices.
