Option Strangle Magic » Investment

Bonds, Stocks, and Gold

admin — Mon, 25 Jan 2010 09:11:44 +0000

SCR’s Finance Research & Forecast for April 28, 2009

From our global research division and the subsequent strategy analysts, the following financial excerpts (including forecasts) are from report revisions recently completed:

Research Observation (from report No. D3: Optimal Finance Research™ (USA) Aggressive Investing):

Theme: Investment Bonds vs. High Yield Bonds

(1) Observation of the Relative Strength: Results in the relative strength analysis of G. Sachs Invest Top Corporate Bond (LQD) versus High Yield Corporate Bond (HYG) indicate that LQD is underperforming HYG on a relative basis. Since the relative strength ratio measures the strength of the numerator versus the denominator, it has predictive potential. In this observation, the price path of the numerator G. Sachs Invest Top Corporate Bond (LQD) is decreasing relative to the denominator High Yield Corporate Bond (HYG). Therefore, at least in the near term, the implication is that HYG has the potential of outperforming LQD. Caution: LQD price path is currently neutral with a fairly horizontal direction.

(2) Observation of the Price Performance: G. Sachs Invest Top Corporate Bond (LQD) shows a shift from an upward price direction to a flat path.

(3) Observation of Market Type: Security demand conditions (measured by money flows) indicate potential continuation of the current market direction because the change in money flow is weak. This is relative to strong money flows going into equities. However, this status is dependent on the outcome of upcoming economic statistics.

(4) Possible Implication: The overall implication of the stated observations for LQD is Neutral, and has near term Neutral implications; therefore, LQD has neutral trend potential for at least the short-term. The analysis of LQD relative to HYG is useful as a sentiment indicator. When G. Sachs Invest Top Corporate Bond (LQD) is underperforming High Yield Corporate Bond (HYG) on a relative bases, it indicates that bond investors are bullish on the economy as a whole and on small business growth in particular.

Theme: Growth Stocks vs. Value Stocks

(1) Observation of the Relative Strength: Results in the relative strength analysis of DJ Wilshire Large Cap Growth (ELG) versus DJ Wilshire Large Cap Value (ELV) indicate that ELG is outperforming ELV on a relative basis. Since the relative strength ratio measures the strength of the numerator versus the denominator, it has predictive potential. In this observation, the price path of the numerator DJ Wilshire Large Cap Growth (ELG) is increasing relative to the denominator DJ Wilshire Large Cap Value (ELV). Therefore, at least in the near term, the implication is that ELG has the potential of outperforming ELV.

(2) Observation of the Price Performance: DJ Wilshire Large Cap Growth (ELG) shows a continuation of an upward price direction.

(3) Observation of Market Type: Security demand conditions (measured by money flows) indicate potential continuation of the current market direction because the change in money flow is quite strong for most of the growth based ETFs. This is relative to weaker money flows going into value based ETFs.

(4) Possible Implication: The overall implication of the stated observations for ELG is Bullish, and has near term Bullish implications; therefore, ELG has bullish trend potential for at least the short-term. The analysis of ELG relative to ELV is useful as a sentiment indicator. When DJ Wilshire Large Cap Growth (ELG) is outperforming DJ Wilshire Large Cap Value (ELV) on a relative bases, it indicates that investors are bullish on the economy as a whole and on small business growth in particular. Whether this observation holds will be determined by the economic indicators going forward. Currently, growth stocks outperforming value stocks indicate the bets are predicting a bottom near-term to the U.S. economic recession. We’ll see.

Research Observation (from report No. RT-USA: Finance Trading – Strategically Ranked USA Securities):

Theme: Gold and Economy

(1) Observation of the Relative Price Performance: Market Vectors Gold Miners ETF (GDX), a top price performer, currently has a 3 month versus 6 month relative return in which the 3 month is dramatically less than the 6 month return. This indicates the rate of change in the 3 month return relative to the 6 month return is decreasing. Since the relative price performance measures the strength of money flows to a security, it has predictive potential. Thus, the implication indicates that GDX is strongly underperforming relative to 6 month historical performance. Therefore, at least in the near term, the implication is that GDX has the potential of continuing underperformance. The price performance of gold, and its derivatives, will depend on future economic developments.

(2) Observation of the Price Performance: Market Vectors Gold Miners ETF (GDX) shows a shift from outperformance during the last quarter of 2008 to a more neutral path during the first quarter of 2009. While having a more neutral price path, GDX still has shown dramatic volatility that can be seen in the year high of $51 with a year low of $15.

(3) Observation of Market Type: Security demand conditions (measured by money flows) indicate potential continuation of the current horizontal market because flows are quite weak. This will dramatically change, however, if the economy shows any further weakness.

(4) Possible Implication: The overall implication of the stated observations for Market Vectors Gold Miners ETF (GDX) is Neutral. While dramatically outperforming other asset classes over the last 6 months, its current performance indicates that most market participants are betting on the current U.S. economic contraction bottoming.

Hedge: Alerts, Exit Stops, or Options

In any strategy, possibly hedge your risk on positions taken by using alerts, exit strategies that contain protective stops, or options. Additionally, you might consider protecting your capital by possibly placing a small starter position (say 25% of the desired allocation) at first. If you choose to use actual exit stops, just realize that tighter stops will mean possibly getting “stopped out” frequently during volatile market swings.

Additional considerations:

First, for most investors, a diversified investment portfolio approach combining stocks, bonds, money market securities, etc., is optimal. While financial diversification cannot protect against a loss from a declining market, it can reduce the volatility of the overall portfolio.

Second, with the globalization of information technologies, college education becomes a prerequisite to most careers. Thus, a goal of successful investing in a variety of assets becomes crucial in providing the upper level education necessary for the future of your children. In consideration of that goal, studying the information available on this site, which has been kind enough to host our research in this article, will help. At www.StrategicCapitalResearch.com, we provide additional finance educational materials to what you find here in both investment books and videos. Between the two sites, you should be able to find enough information to get started toward achieving your education investment goals.

Third, to the above analysis excerpt, the usual disclaimers apply: (1) Company policy prohibits employee purchase of research securities until after an email has been sent to our revision notification subscribers; by the time this article is published, however, some SCR employees may own shares of the reported securities, and (2) Since all Strategic Capital Research publications provide research that is conducted using historical data, a reminder needs to be made that the analysis of past market reactions cannot predict future market actions. In particular, no amount of historical data can predict the sudden changes that occasionally occur in financial markets. In both types of risk scenarios, initial capital loss, and profit loss, we prefer prevention techniques that include exit strategies with stops that adjust for a security’s volatility. An “Ultimate Collection” that include these more advanced exit techniques is can be found on the “Strategies: By Type” page in the “SCR: Strategies” section of the SCR site. We recommend that you study and use the more advanced techniques.

Options Trading and Technical Analysis

admin — Sat, 16 Jan 2010 21:19:07 +0000

Recently, almost no options trading seminar is without some mention or introduction to technical analysis. In fact, almost all of the options trading blogs out there in the internet use technical analysis as their main basis of decision making. Why is that so? Why is options trading so closely related to technical analysis now?
In order to understand the important relationship between technical analysis and options trading, we need to first understand what technical analysis does in the first place.
There are two main methods of analysis; Fundamental Analysis and Technical Analysis.
Fundamental analysis is the reading of fundamental data of a company or economy in order to predict and invest in the future performance of the company or market. Such fundamental data includes profit and loss statements, earnings growth and earnings guidance. The problem with fundamental analysis is that great companies do not always make great stocks. Stocks of great companies also experience periods of downturn, often for extended periods of time. As such fundamental analysis helps an investor mostly in deciding what stocks to buy for the long term (5 to 10 years out), if nothing unpredictable happens to the company in the years down the road. In fact, fundamental analysis is a tool favorable by investors who buy stocks for their dividends and dividend growth.
Technical analysis is the studying of market data of a stock. Yes, while Fundamental Analysis is the study of a company, technical analysis studies its stock exclusively. Such market data includes the price across different time periods and volume transacted. From price and volume, options traders see how the price of a stock is doing no matter what the company data is doing. This helps traders and investors avoid those extended periods of downturn even though a company’s fundamental data looks great. Indeed, while fundamental analysis tells an investor which company is doing well, technical analysis tells an investor when it is time to buy or sell its stocks. Indeed, the strength of technical analysis is in its ability to guide the buying and selling decisions of investors across short time periods through price patterns and price trends.
So, why is technical analysis such a favorite in options trading?
Lets recall that fundamental analysis is favorable for long term investing and technical analysis is favorable for use even in short time periods. Stock traders can hold stocks forever but options expire after a fixed time! Yes, options typically last no more than a year and options traders frequently use options trading strategies that require extremely short outlooks in terms of months or weeks. This is exactly why technical analysis is so closely associated with options trading. Options traders simply do not have the luxury to hold a position for years like stock traders do. On top of that, options traders do not receive dividends like stock investors do. The only way to make money in options trading is for the expected outlook to play out within the expiration period of the options. This makes the fundamental strength of the company it is based on relatively unimportant. On top of that, options traders are able to profit when stocks drop as well. This also makes identifying good companies through fundamental analysis relatively unimportant.
Indeed, reading price trends and price patterns that might show the direction a stock is moving the next week or month has more value to options trading than reading a company profit and loss statement that does not tell you where its stock may be going for the short term at all.
I hope my short article explains why technical analysis and options trading are so closely related and that it will help you better understand the big lack of fundamental analysis whenever the subject of options trading is raised.
Visit http://www.optiontradingpedia.com to learn more about options trading for free.

Own Stocks at Zero Cost – Option Trading Secrets Revealed

admin — Mon, 11 Jan 2010 21:45:20 +0000

It’s true – you can own your favorite stocks at no cost or at deepest discounts! Learn the highly guarded, secret Option trading strategies professional investors use to make steady profits, year after year, no matter what the financial markets do. This article will show you the step-by-step process of using Options to get the stock you want at a deep discount, and sometimes at zero cost. Since trades don’t always go the way we planned, so we will also explore the worst case scenario.

Properly executed, these strategies have the advantage of minimal expenses – something everyone can appreciate during these troubled times. The following example will demonstrate how this is done.

Technical Tip: The seller of a Put Option is obligating himself to buy the stock at the striking price. For assuming this obligation, he receives the Put Option premium. For the more technical readers we have provided an in-depth article link at the bottom of this article.

On August 21, 2009, the day your August Put Option expires, two scenarios are possible: Either the stock price is greater than or equal to $50, or it is less than $50. Let’s evaluate both scenarios.

Scenario 1: The stock trades at $50 or above: in this case the Put Option will expire worthless and you get to keep the $400 that you received earlier. You can now repeat the strategy month after month. When carefully executed, you would have earned around $7,200 in 18 months without ever paying a dime and without even owning the stock.

Let’s assume the share price for the stock has gone up 41% to $72 over the course of those 18 months. If you now purchase the 100 shares of XYZ Corp., the cost of ownership to you is ZERO, as you would have offset the $7,200 required for that purchase by your strategy earnings. You are now the proud owner of 100 shares XYZ Corp. at no cost to you.

Scenario 2: The stock trades below $50, say at $48 (a drop of 11% from $54). In this case the August Put Options will be In-The-Money (ITM) and now you need to buy 100 shares of XYZ Corp. at the strike price of $50. But here is the best part: You get to keep the $400 that you earned earlier selling the Put Option. Your effective cost for this trade is $4,600 after adjusting for $400.

Compare this with someone who bought 100 shares at $54. Share traders ended up with a loss of $600 while you had a modest profit of $200 instead. Well not as good as Scenario 1, but not bad either!

The strategy acts like a low-cost replacement for actual stock ownership, BUT you must be prepared to take ownership of the shares under Scenario 2 circumstances. Keep in mind that this is a long-term strategy.

There are many different ways to construct these strategies – conservatively or aggressively. Just like regular investing, different people have different levels of risk tolerance. If you want higher profits, you’ll have to be willing to take higher risks.

At TradeGreeks we avoid high risks that MIGHT hit the big jackpot. Our focus is on conservative strategies with medium to long-term consistent, predictable returns. This will ensure great profits that beat anything else you might try in this market – sometimes well over 100% per annum. What’s even more important: Our strategies ensure peace of mind!

This is an article from the TradeGreeks’ “Tactical Series”

More in-depth explanations of this strategy can be found in our article “Uncovered Put Writing – Insider’s Guide”. We invite you to visit http://www.tradegreeks.com/ and register for free no obligation membership. This will allow you access to the article and many other educational resources regarding trading of Options.

Demystifying Options Trading – Call Options Explained For Everyone

admin — Wed, 06 Jan 2010 09:37:48 +0000

When it comes to options trading, most people have been mystified by what seems like a lot of mumbo jumbo. This article will explain the investment terminology for Call Option in everyday terms that anyone can understand and appreciate.

To illustrate the concepts, let’s go on a shopping trip.

You’ve been thinking about buying a MacBook Air, Apple’s thinnest laptop, for a few days and you’ve done some research to find the best deal. You head for the mall on Saturday and spend most of the day trying to find the lowest price. This turns out to be $1799 for a 2.13 GHz MacBook Air.

Suddenly you realize that you have a dinner guest coming this evening and need to get groceries. Fortunately, the nearest store is right in the mall. Unfortunately, you discover that you forgot to bring your credit card and need to pay cash for the groceries. This leaves you with $150 plus some change.

On the way to your car you discover another electronics store, and to your amazement, the 2.13 GHz MacBook Air is advertised at $1499. Not believing your eyes, you go in and the store manager confirms the price but says that they have only one unit left. How are you going to nail down that price without sufficient cash and without a credit card?

You ask the store manager if he will hold the unit for you in return for $100, and that you will return in two hours to purchase at $1499. If you are not back in two hours, the store manager can sell it to someone else.

You make a written agreement, signed by both parties, that the unit cannot be sold to anyone else for next 2 hours but only to you at $1499 in exchange for $100, and that the $100 is forfeit if you do not return within 2 hours.

You have just engaged in “Options trading” The following options trading terminology should now make a lot more sense to you.

Options Contract – is what the note is called that you and the store manager just signed.

Underlying (underlying stock/share) – is the MacBook Air 2.13 GHz that you have agreed to pay ($1499).

Strike Price – is the agreed upon purchase price (in this example $1499).

Call Option – the type of contract in this example is a “Call Option.” It gives you the RIGHT but not the OBLIGATION to buy the MacBook Air. In order to exercise the “right to buy” you must return within 2 hours, and the store manager must sell it to you at $1499. If you change your mind, you do “not have an obligation” to buy. You simply don’t return and lose your $100 hold money.

Option Expiry – for this example the expiry is 2 hours, meaning that the option contract will cease to exist after 2 hours.

Option Premium – this is the $100 hold money you paid. It’s the cost to enter into this contract. This is not a deposit against the purchase price, but money the store will keep either way for providing you with the convenience. So, your effective purchase price will be $1599, which is still better than the $1799 “best deal” you had identified earlier, and it is the reason you entered into the contract.

Long Call and Short Call – for this example you have the “Long Call” since you are buying the contract for $100, and the store manager has the “Short Call” since he is selling the contract and gets to keep the $100.

Now let’s evaluate the risk exposure for both parties to the contract:

Your risk is limited to the $100 hold money you paid, i.e., a Long Call Option buyer’s risk exposure is limited to the premium paid. If, hypothetically, the price for the MacBook Air tumbles to $1000, then there is no way you would return and purchase it for $1499! If, hypothetically, the price shoots up to $2599 within the 2 hours, then your immediate profit would be $1000.

The store manager, on the other hand, has unlimited risk and limited profit potential. A Short Call Option seller’s risk exposure is unlimited while the profit potential is limited to the premium received. Yes, he gets to keep the $100 in case of a price drop where the buyer is not returning to purchase, but if the price for the MacBook Air shoots up to $2599 within the 2 hours, he stands to lose a lot of money because he cannot sell it to someone else for the revised price.

Hopefully, this will have taken some of the mystery out of options trading and its lingo. As illustrated by our example, we are engaged in these types of transactions in some form or other in our daily lives. We’re just not aware of it. As you gain knowledge and practice, it will come to you quite naturally.

At TradeGreeks we focus on educating investors in the world of options, where profit potential is unlimited and is not restricted to a bull market. We have created options trading strategies that are so strong and so predictable, that we can solidly stand behind an unprecedented guarantee: You will get the return we promise, or your money is refunded with no questions asked.

Visit us at http://www.tradegreeks.com for more options trading articles and register for a free membership.

This was an article from our series ‘Covert Life of Investment’.

How to Make Money with Future Options Trading

admin — Thu, 31 Dec 2009 10:04:01 +0000

The future option trading has set a new trend that is drawing more and more investors to the stock market. The stock promoters and other parties involved play an efficient supportive role to the traders who are active participants in the stock market. It also allows you to trade in a number of items like cotton, gold, bond to name a few. Stock indexing is another concept that is gaining popularity and is today a much sought after practice.
With future option trading brokers can connect better with the realistic situations. Getting quotes is made easier. It provides the traders and the brokers access to a lot of information. The studies and predictions are based on several models and practices. They try to interpret with the help of models like “Black-Scholes” and also involve various calculations like gamma, delta, theta and vega. The traders before entering into future option trading should however have a thorough knowledge of how the market functions and a good idea of the related technical terms, the studies involved for making various decisions.
Stockholders and even the future option trading brokers would be aware of new and better schemes like Brokerage services that cater to all the requirements, charts that would be helpful, regular quotes and the like. With time the tools and methods used for analysis have undergone a major improvement. Brokers and even investors in the stock market and option trading have better tools of analysis as compared to what was available a few years back.
This seems to be just the right time to make an entry into the future option trading so that you could actually make use of your acquired knowledge. Take advantage of the market movements and work out your investment strategy in a such a way that you make a profit. There are several tools available for study and you could try understanding the various tools and how they can be used to make the most of the prevalent market conditions.
The strategies that are used today is also a highly developed version of what was being used a few years back. Equip yourself with knowledge and make an entry to put your theoretical knowledge into practice. Read up all the available material to improve your knowledge base. Any sort of market news or information would also make a difference to your investment strategy and how the market would react. It would be best to be updated about the latest happenings and make the most of the available opportunity and enter the world of future option trading.

Forex Trading Versus Stock Trading

admin — Thu, 24 Dec 2009 22:02:09 +0000

The forex (foreign currency exchange) market is the largest and most liquid financial market in the world. The forex market unlike stock markets is an over-the-counter market with no central exchange and clearing house where orders are matched.

Traditionally forex trading has not been popular with retail traders/investors (traders takes shorter term positions than investors) because forex market was only opened to Hedge Funds and was not accessible to retail traders like us. Only in recent years that forex trading is opened to retail traders. Comparatively stock trading has been around for much longer for retail investors. Recent advancement in computer and trading technologies has enabled low commission and easy access to retail traders to trade stock or foreign currency exchange from almost anywhere in the world with internet access. Easy access and low commission has tremendously increased the odds of winning for retail traders, both in stocks and forex. Which of the two is a better option for a trader? The comparisons of retail stock trading and retail forex trading are as follows;

Based on the above few points, forex trading seems to be a better trading option than stock trading, especially during these uncertainties in the global economy. During bull market condition, stock trading could be a viable alternative. A stock trader should definitely seriously consider supplementing their trading with forex trading. Forex trading enables a stock trader to exploit any opportunity arises during non stock trading hours, by trading in forex trading. Forex trading would also enable the stock traders to understand a more complete big picture of world economies operations and further enhance their stock trading skills.

Is Stock Option Trading A Profitable Investment Option?

admin — Wed, 16 Dec 2009 12:23:34 +0000

A lot of traders now favor option stock trading because of its many advantages. For one it can be highly profitable if used rightly, it offers the investor more flexibility and a larger option to diversify. This trading system offers more protection to the portfolio gives more control to the investor and offers a higher possibility to generate more returns on investment. They can be used under any market condition. They offer the investor the advantage of making returns on a change in stock price without actually owning the stock. Options stock trading can be used in combination with other option contracts and/or other financial tools to maximize returns.
Furthermore, a lot of trading is done on the floor of the stock exchange; one of such is referred to as stock option trade. Sometimes the trading could just be more of speculative activity. Speculative activity trading is done on stock exchanges through stock options trading. The term option in stock parlance means “a right”. There exists the right to sell as well as the right to buy. In a deal involving an option, the right to buy or sell a certain amount of securities, within a particular period at a given price can be bought off a dealer. If the purchased right was an option to buy securities it would be called a “call option”. If the right was the option to sell, it is called a “put option”. Instances where the two possible options are combined, to buy or sell a certain quantity of securities at a particular price up to a given future date, it is then referred to as “a double option”, or “a put and call option”
Speculative activity or stock option trade is carried out for anticipated profit. Here is how it works. If a speculator expects the price to go up, he buys a call option. This allows him in future when the price has arisen to buy at the old lesser price and sell at the higher prevailing price. When the reverse happens and a drop in price is anticipated he buys the put option.
When a speculator notices that his predicted or expected rise or fall in price did not occur he can chose not to exercise his right or stock trade option that he had purchased. The party that grants or sells the stock option trade to the speculator is paid a premium for granting it.
This premium is also called the option money. This is the fee that is earned by the trader who grants the speculator the stock option trade. When the speculator desires not to exercise his option he loses the option money or premium. But his loss is restricted to the option money alone. Stock option trade is useful for speculators who want to protect their capital and yet seize advantage of fluctuations in prices. He has the choice to decide whether to exercise his option or not.

Stock Option Trading Millionaire Principles

admin — Sun, 13 Dec 2009 23:21:39 +0000

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.

Effective Investment Strategies

admin — Sun, 06 Dec 2009 09:36:58 +0000

Building your own retirement portfolio can be quite a daunting task. There are many different strategies you can adopt to help your investment dollars grow. The difficulty lies in choosing the strategies that will suit you the most.Many people believe in investing heavily in property. While residential property investments have been very popular for decades, many investors have not enjoyed strong gains simply due to poor decisions when they bought the properties. Buying property in slow growth areas, gearing too high and poor property management can leave many investors with a very sour experience, notto mention the opportunity loss.Over the past decade, share trading and investing have become far more popular. Many of the hassles of property investing do not exist with share investments. However, it still comes back to making the right decisions when purchasing, and then managing the investment well. The beauty of shares is that you can quickly, inexpensively and easily exit the investment if it is not performing. Conversely, you can quickly enter an investment if you feel it has strong potential.As more and more investors become interested in the stock market, many are discovering that there is far more to share investing than just buying shares and leaving them in the bottom drawer. Investors are discovering strategies such as “Writing Covered Calls” and “Spreads, Straddles and Strangles”. In fact, there are many different strategies which allow share and options traders to reduce their risk and/or increase their reward.One of the most exciting strategies is Writing Covered Calls. To many, these words have little meaning, but to those who know, these words mean everything. Writing covered calls has been hailed as one of the most powerful, yet simplest, forms of wealth creation.If you already own shares and would be prepared to sell them at a higher price then they are today, then writing covered calls may be for you. In return for the obligation to sell them at a higher price, you will be paid between 2%-6% of the value of the shares.Now, there are some restrictions and limitations. Not all shares have Exchange Traded Options (ETO) available, and hence, not all shares will allow you to write covered calls. In fact, only 64 company shares have ETO’s. The Australian market can be fairly illiquid for all but the largest companies, but once you understand the strategy, you can use it on the American markets, as that market offers the same opportunities. The only difference is that there are thousands of ETO’s available.Platinum Pursuits hosts investment seminars most weeks, as well as 3 day training workshops, where a variety of investment strategies are taught. Various Australian experts are invited to teach topics such as Option trading, writing Covered Calls, Self-Managed Super, Tax planning and effective international share investment. Be sure to secure your place at one of our upcoming seminars!© Platinum Pursuits 2006. All rights reserved. DisclaimerThe decision to invest or trade and the method selected is a personal decisions and involves an inherent level of risk, and you must undertake your own investigations and obtain your own advice regarding the suitability of our services for your circumstances. Platinum Pursuits Pty Ltd is an Authorised Representative (Rep. No. 286343) of Option Partners Pty Ltd, AFSL 298347.Information contained in all Platinum Pursuits products and websites is intended to be general advice only and should not be relied upon as financial product advice. You are warned that:1. The advice has been prepared without taking into account your objectives, financial situation or particular needs; and2. Because of that, you should, before acting on the advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs; and3. If the advice relates to the acquisition, or possible acquisition, of a particular financial product – you should obtain a Product Disclosure Statement relating to the product and consider the Statement before making any decision about whether to acquire the product.Equities and derivatives trading involves risk, Investors need a broker to trade equities and derivatives, and must meet suitability requirements. Past results are not necessarily indicative of future performance. Investors are required and advised to request for and read the product disclaimer statements as provided by the particular profile they trade with.None of the information and data contained in this presentation or the Platinum Pursuits websites (www.platinumpursuits.com or www.ppmember.com) nor any opinion expressed constitutes a recommendation to purchase or sell a security, or to provide investment or financial product advice.The information contained on all Platinum Pursuits products is provided for general informational purposes, as a convenience to the customers of Platinum Pursuits Pty Ltd. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. Platinum Pursuits Pty Ltd is not engaged in rendering any legal or professional services by presenting this general information or by placing these or any general informational materials on their websites.Platinum Pursuits Pty Ltd and its associates do not receive any remuneration (including commission) or other benefit from third parties by virtue of the advice provided.Platinum Pursuits Pty Ltd is an Authorised Representative (286343) of The International Securities and Derivatives Group Pty Ltd ABN 22 103 552 683, AFSL 227544.

1930s Volatility is Here

admin — Sat, 05 Dec 2009 21:28:32 +0000

If you are a long premium options trader, volatility is a necessary element to be successful. If volatility is lacking, time decay (Theta) will make this financial instrument a challenging (or even more challenging) one. These days, volatility is not lacking. In fact, volatility is thriving. For a long premium options trader, there is nothing like having market tailwinds to benefit your options strategy.With a market that has gained 20% since March 9th bottoms and is down over 3% intra-day today (as of time of publish), 2009 has obviously been an extremely volatile year thus far. This year seems to be even more volatile than 2008, which by our calculations, was the highest level of consistent daily volatility in decades. In 2009, there have been a multitude of sessions that have seen stocks rally or fall by a significant percentage. It seems almost commonplace that the Dow Jones Industrial Average is up or down at least one percent.

Volatility can be defined in many ways (i.e. implied volatility, statistical volatility, etc.) – in this analysis we look at volatility by the number of occurrences the Dow Jones Industrial Average rallied or declined by one percent or more on a closing basis in a trading day. More specifically, we looked at the absolute return for the Dow Jones Industrial Average for each day going back to 1928. We then calculated the number of occurrences (and the percentage) that the Dow Jones Industrial Average finished up or down more than one percent in a given year.

Below is a graph of the percentage of days out of each year that saw a market move of one percent or more. Two items that stand out are (1) the increase in volatility has soared since 2006 (from 10% to 64%) and (2) the current level of volatility only rivals the early 1930’s when volatility peaked at 74%.