Options as a Strategic Investment » Stock Trading http://optionsasastrategicinvestment.net Option Trading as your main investment strategy Sat, 31 Jul 2010 21:50:46 +0000 http://wordpress.org/?v=2.8.4 en hourly 1 Options Trading 101 http://optionsasastrategicinvestment.net/options-trading-101 http://optionsasastrategicinvestment.net/options-trading-101#comments Wed, 06 Jan 2010 23:38:32 +0000 admin http://optionsasastrategicinvestment.net/options-trading-101 The individual investor will typically include some stocks in their investment portfolio. And whether they are a long term trader or in it for much quicker returns, many investors understand and feel somewhat comfortable with the concepts and techniques of trading stocks.
Options tend to be much less understood – and therefore avoided. But Options can form an extremely valuable part of your trading strategy as they can provide tremendous returns!
So here I will try and give you some of the fundamental concepts behind trading options.
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). Options officially expire on the Saturday after the third Friday of the contract’s expiration month but because the markets are typically closed on Saturdays, the Friday is commonly used as the expiration date.
A key concept to grasp is that, when you buy an option, you don’t actually own the underlying security. You simply own the right to buy (or sell) at a specific point in time. But, of course, the price of the underlying instrument and the time remaing before expiration both affect the value of the option itself.
So in trading options you have two main ways to make money on them:
- You can hold to maturity and then exercise the option (with the expectation that the underlying instrument is then worth more than what you are entitled to buy it at – your “strike price”)
- You can sell the option itself prior to expiration (in the expectation that the value of the option itself has risen above what you paid for it)
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 $3 on a stock with a strike price of $30. (Typically, options contracts are on 100 share lots.) To purchase the stock the total investment is:
($3 + $30) x 100 = $3300 (Ignoring commissions.)
So if, at expiration, the stock is worth more than $33 you’ve made a profit (You can sell your 100 shares for more than $3300 right away).
Speculating on the actual value of the option itself is the second alternative.
Let’s use the same example above.
You bought your options for $3 with a strike price of $30.
If the price of the underlying stock goes above $33 at any time prior to expiration, then naturally more people will want to try and get a hold of that option you own, because they see a high likelihood of making a profit off the underlying security. With the increased demand for that option, the value of the option itself will likely go up. So you can sell the option to that higher bidder for a profit.
For example, if the price of the underlying stock rose to, say $35 then the option itself may become worth, say $4 on the open market. So you sell your options for $4 and make a nice 33% return. Without ever having owned the underlying stock itself.
Those are the kinds of returns that make options so attractive.
Many brokers offer trading accounts to individual investors that allow options trading and frequently at very competitive commision rates.
It really isn’t very difficult to get started.
Options trading is risky, so manage your risk and your assets wisely and only use a small percentage of your overall portfolio for trading options. But do consider them as an additional component of your investment strategy, as they can yield tremendous returns when traded correctly.

]]> http://optionsasastrategicinvestment.net/options-trading-101/feed 0 The Art of Hedging in Options Trading http://optionsasastrategicinvestment.net/the-art-of-hedging-in-options-trading http://optionsasastrategicinvestment.net/the-art-of-hedging-in-options-trading#comments Sun, 03 Jan 2010 11:22:38 +0000 admin http://optionsasastrategicinvestment.net/the-art-of-hedging-in-options-trading A hedge is an investment made to offset the risk incurred by entering another investment. Essentially you are setting up a bet on both sides so that one offsets the other and you can end up winning either way.
Think of it as a form of insurance.
Options are frequently used in hedging.
For example, you can speculate that the market price will rise in the future and buy a call today. But, because the market is uncertain and you’re not certain it will rise, you simultaneously buy a put option.
By carefully selecting the appropriate combinations of strike price, expiration date and type of option an investor can minimize risk and maximize the probability of making a profit.
So how does it all work?
Well let’s take a look at a common hedging strategy: the Strangle.
In this strategy, an investor holds both call and put options with the same maturity, but with different strike prices.
The contracts are purchased ‘out of the money’ and are therefore cheaper. ‘Out of the money’ means the strike price of the underlying asset is higher (for a call) or lower (for a put) than the current market price.
For example let’s say Intel (INTC) is currently trading at $40 per share. You could buy one call at $3 and one put at $2 with the call having a strike price of $45, the put $35. Your total investment would be ($3 x 100) + ($2 x 100) = $500.
If the price over the length of the contracts stays between $35 and $45 the total possible loss = $500, the cost of the options. So your risk in this kind of hedge is limited to $500.
Suppose the price drops near expiration to $25. The call would expire worthless, but the put is worth ($35-$25) x 100 = $1000 – ($2 x 100) = $800. Subtract the cost of the call, $800 – $300 = $500. So that’s your net profit (ignoring commissions and taxes).
The difference between the exposure and the potential profit represents a kind of hedge. Though you are essentially ‘betting’ that the price could go either way, your downside is limited to the combined cost of the put and the call.
There are, not surprisingly, nearly as many hedging strategies as there are investors. A couple of common types are:
The collar: Hold the underlying asset and simultaneously both buy a put and sell a call of the same asset. The short call limits gains, but the long put hedges against any losses from the underlying asset.
The protective put: Buy the asset and also buy a put option on the same asset. At expiration, the asset may have gained (eliminating the value of the put option), but the rise in the asset offsets the loss.
And there are a whole host of other variations. Most do involve speculating on the price direction of the underlying asset, while taking advantage of the leverage, cost and timing characteristics of options. As with any investment strategy, make sure you understand the pros and cons before laying down your bet.

]]> http://optionsasastrategicinvestment.net/the-art-of-hedging-in-options-trading/feed 0 How To Select An Investment Strategy http://optionsasastrategicinvestment.net/how-to-select-an-investment-strategy http://optionsasastrategicinvestment.net/how-to-select-an-investment-strategy#comments Wed, 16 Dec 2009 11:31:54 +0000 admin http://optionsasastrategicinvestment.net/how-to-select-an-investment-strategy There are several critical factors that need to be considered in selecting the right trading system for you. Investors are always looking for a trading edge to exploit. Finding such an edge is akin to the quest for the Holy Grail and many would be traders spend their time bouncing from one system to another, constantly looking for the perfect system. If this sounds like you, let me suggest that you change your ways, quit searching, and start making money.
First, realize that every system will have loosing trades and there will be a series of such trades. The draw down is always a challenging time. You have to be prepared mentally and financially to ride out the draw downs. The way to prepare is to check the historical performance. The historical performance period should be appropriate for the number of trades and the rules in the system. What this means is that a system with many rules will need more trades to prove its validity. I like at least 50 trades per rule and be very conservative on the number of rules. For example, if the system is:
“Go long when the current price is greater than the 20 period moving average. Close when the price drops below the 20 period average.”
There are two rules in the above. One for the entry and one for the exit, which means I’d want to see a historical performance of at least 100 trades.
Another consideration is the average holding period and frequency for trading. Both these need to match your preferences or you will be soon looking for some other trading system. Some investors want a “set and forget” type of trading plan where they enter their trades and just make updates on a weekly, monthly or annual basis. For others this approach would be far too boring.
The major consideration is return on investment. There is no one answer as to what a reasonable number might be. It depends on several factors. First is the leverage used in the investment vehicle. For example, the least use of leverage would be to pay cash for shares of stock and own them outright. More leverage would be to purchase the stocks on margin or buy options on the stocks.
Even greater leverage would be commodities or currency trading. As the leverage goes up, returns should be greater to offset the increased risk.
Another consideration for acceptable returns is the frequency of trading. One would expect day trading to produce higher returns than a long term buy and hold approach, for example.
Let’s say that you’ve found the right combination of risk and reward. A strategy with trading frequency that suits your personality. What next? Paper trade! Always start by paper trading the strategy. The length of time to paper trade isn’t as important as the number of trades. Refer back to the previous section on number of trades to validate. The more the better, but at some point you just need to leap in. Ideally I’d like to see 25% or more of the total trades as calculated above.

]]> http://optionsasastrategicinvestment.net/how-to-select-an-investment-strategy/feed 0 6 Great Method for Learning about the Online Stock http://optionsasastrategicinvestment.net/6-great-method-for-learning-about-the-online-stock http://optionsasastrategicinvestment.net/6-great-method-for-learning-about-the-online-stock#comments Wed, 09 Dec 2009 23:41:27 +0000 admin http://optionsasastrategicinvestment.net/6-great-method-for-learning-about-the-online-stock  

Stockholder who invest in at some point in the first of the superficial produce take a turn for the better are at present make afraid or criticize themselves. Not at all movement beneficial an shareholder or seller estimate direct. Lower are short information in buy and sell with the present advertise reduction of business activity.

 

 

 

 

 

 

6. Previously gathering the trade activate, ask manually: Do I absolutely like to give up these shares to a agreement bottom huntsman, who will present a carnage on my misfortune?

 

 

A)        How a lot of currency does the enterprise have in the bank? During shakeouts, cash is sovereign. Perceptive association, which accomplished their loan during the fresh and robust assembly, is sitting cheerful. They can atmospheric conditions the temporary strong weather and are well-oiled to progress forwards when the present repair base and reverses. Those association are the healthy ones to test prohibited when the present adjustment visual examination dark.

 

B)        Has the control stay the similar? Except the first pecuniary and/or mechanical citizens flow out the gate, in fresh weeks, the story as likely as not hasn’t misused great. Corporation which built a bright mechanical company are tough and capable. They will progress forwards.

 

C)        Have the real estate occurs up dry? Single of the mental analysis you spent in a uranium association was as it declare arrival it had pounds in the ground’s certain corporation have extra than others. Various went to the cost and difficulty of carry out action a National Instrument 43-101, which severally fixed the figure and element of the uranium package. If that tainted ? and the enterprise predict, sorry, nothing there like all or declare arrival, they, we were joking that’s single matter. If you haven’t see that, or view a news relief announcing that, then the uranium didn’t go away or progress onto a competitor’s land. Its still near.

 

After that period, when the markets are speed in competition upper, and you believe according to you won the lottery, allow for this fragment of biblical recommendation. The old joke goes, when Noah made his ark the reply of lessons is: Previously it began to drizzle.

 

]]> http://optionsasastrategicinvestment.net/6-great-method-for-learning-about-the-online-stock/feed 0 Successful Stocks Investment Strategy http://optionsasastrategicinvestment.net/successful-stocks-investment-strategy http://optionsasastrategicinvestment.net/successful-stocks-investment-strategy#comments Mon, 07 Dec 2009 12:47:09 +0000 admin http://optionsasastrategicinvestment.net/successful-stocks-investment-strategy Investing in stocks is not like playing a game of blind man’s buff; neither is it a matter of trial and error. If you leave your earnings to chance or luck, you are more likely to lose than gain.

If you want to make money from stocks, you must draw a carefully considered plan. You have to create a stable, long-time, profitable investment strategy. Your broker may have provided you with certain investment tools and facilities, which may include low commissions, automatic investment plans, low cost real time trades, various research tools and easy account management. You can make use of these tools and plans to devise your strategy.

You have to develop your strategy on the basis of your objectives. First of all, you should decide your objectives for investing in stocks. Do you want to invest in stocks to create an additional source of income? Do you want to make it a full-fledged source of income? How much do you want to earn per month? Are you a long term or a short-term investor? Above all, what is your budget and how often can you comfortably invest? If you were a salaried person earning, say, $3, 000 per month, it would not be a good idea to invest $ 500 per week. Just decide upon an amount that you can afford easily without having to stretch your resources too far.

Diversify your stock investment

‘Never put your eggs in one basket’ is a time-tested adage. Stock market offers numerous options. Therefore you should follow the concept of diversification in stock market also. Diversification in this context means spending your investment across different sectors and funds. If one sector shows poor performance, your entire investment will not be affected adversely. The risk exposure to a particular investment would be reduced and over all risk to your portfolio will be considerably minimized. To explain it, let us say you have invested $1,000 in one stock and the prices of your stock fall, you will be losing a substantial part of your investment. If, however, your investment is distributed over a number of stocks, you may gain in some other stocks. Thus your losses will be neutralized to some extent.

Invest in ETFs

The best and the most popular options are the low-cost index tracking exchange-traded funds-ETFs. The ETFs are, in fact, securities that track an index or follow the performance of a group of stocks. They trade like regular stocks. The only and the important difference is that you have to pay minimal expenses for trading. It is, therefore, convenient and cheap to buy and sell the ETFs. Since they follow indexes like the NASDAQ 100 or the Standard and Poor 500 to track a bunch of different stocks, they are automatically diversified. The great benefit of buying ETFs is that you can actually buy hundreds of different stocks with every dollar you invest. You have to pay your broker only a low cost investment plan fee that ranges from $1 a trade to $3 a trade.

Fractional Shares

If you think you cannot buy high priced stocks because you are intimidated by their high prices, you may consult your broker. You may be offered a plan in which you can buy fractional shares. In fractional share investing, you need not buy 100 shares or even one share. You can buy just a fraction of a share. Therefore you can invest absolutely any dollar amount with no minimums and buy any quantity of a stock or ETF. You can buy a thousand shares or one-tenth of a share through automatic investment plans.

You can buy expensive stocks with small investments. Let us suppose, a stock is trading at $200 and you can afford to invest only $50 per week. If you use the automatic investment plan offered by your broker, you can buy any fraction of a share at a cost as low as $1 per trade. In this way you can invest in stocks of over 500 companies with only a few dollars by buying fractional shares of an ETF or any stock for that matter. This is really a revolutionary concept in stock trading.

 

 

]]> http://optionsasastrategicinvestment.net/successful-stocks-investment-strategy/feed 0 Stock Option Investing – Stock Option Trading http://optionsasastrategicinvestment.net/stock-option-investing-stock-option-trading http://optionsasastrategicinvestment.net/stock-option-investing-stock-option-trading#comments Sat, 05 Dec 2009 23:43:27 +0000 admin http://optionsasastrategicinvestment.net/stock-option-investing-stock-option-trading An option can be simply defined as a contract between a seller and the buyer that allows the right to purchase or sell shares of stock with a specified timeframe. A solid education of the stock market is crucial for success in the options trading arena. After that, the main focus of your options trading education should be learning as much as possible about the main building blocks of options trading – puts and calls. Also, if you are considering stock option trading, then you must be certain that you implement the most effective strategies.

You might begin by subscribing to a good stock option newsletter that includes the latest tips and strategies for investors who engage in options trading. Such a newsletter will be vital for an investor when deciding the fate of his or her options.

You will find that many brokerage firms offer helpful publications and tips by email to help novice option traders sound advice and strategies. After all, brokerage firms profit when you are successful. There is also a wealth of information regarding options trading readily available in books at your public library and local bookstore. The most successful investors spend endless hours soaking up knowledge on topics regarding stocks and option trading.

In addition to the numerous books available at your local library and bookstore, many websites offer ebooks, newsletters, and publications dedicated to the subject of options trading – the Chicago Board of Options Exchange (www.cboe.com) is a great resource. You may also consider joining an investment club for even more guidance and help. These clubs typically provide members with stock option trading newsletters as well as options trading tips. You may also want to consider networking by joining an affiliation. It is important to arm yourself with as much information as possible if you are considering options trading as an investment strategy.

Options trading should never be viewed as a get rich quick scheme. As with anything else, it requires experience and knowledge to be successful. Therefore, it is advisable to gain as much knowledge as possible before even considering this avenue. Take advantage of electronic updates and newsletters for research and choosing the best options. However, you should keep a balanced perspective when utilizing this advice. Keeping all of these things in mind will definitely increase your chance at profitability with options trading.

Also, it is advisable to keep in mind that you should only invest your expendable finances since there are always risks associated with investing of any kind. You would not want to risk your retirement fund for investing. Be knowledgeable and sensible about your options trading strategies and you will increase your potential profits.

 

 

]]> http://optionsasastrategicinvestment.net/stock-option-investing-stock-option-trading/feed 0 Course on Forex Trading http://optionsasastrategicinvestment.net/course-on-forex-trading http://optionsasastrategicinvestment.net/course-on-forex-trading#comments Wed, 02 Dec 2009 00:04:19 +0000 admin http://optionsasastrategicinvestment.net/course-on-forex-trading Course on Forex Trading

The term used to describe the trading of the currencies of the various countries of the world is called foreign exchange, forex or just FX. More than 1.5 trillion USD worth trade activities are conducted in the worlds largest forex market. The forex trade is not conducted by a central exchange unlike stock trading. Telephone or electronic networks are used to connect the two counterparts all over the world to make a trade. Moreover the forex market offers several advantages over equities trading.

Moneymaking or wealth creation is the main goal behind any trade. The opportunities in FX are boundless and it far exceeds the slim margins and picks of other markets like equity or share trading. Moreover the risk involved is also much less and to top it all forex trading can be conducted 24 hours a day. There are always buyers and sellers available, who make this trade more liquid and stable among all others. The banks too provide liquidity to investors, companies and institutions.

Just like any other financial instrument forex trading also involves a deep analysis about the fundamental and technical truths associated with the trade. Keeping in mind the general interest of traders looking forward to invest in forex, many forex trading courses are available. The main aim of this Forex Trading Course is to impart the necessary knowledge about the fundamental procedures and tips on better and professional trading policies.

Forex trading courses offer valuable information related to the impacts on global currencies, market risks, market trends etc. it not only benefits the new trader who wants to set foot on alien grounds, but also the existing investors who wish to brush up their tricks of the trade. All the aspects of the forex trading, using the latest software’s and tools are what the Forex Trading course material is comprised of. Step by step guidance on trade environments, technical analysis, risk management, trading rules, global markets, economic and market indication etc are provided along with the hands on practical guidance from the experienced tutors from all around the globe.

Many factors are to be considered before you make a decision to do Forex trading course. ‘Knowledge is power’ for all our daily diplomatic living. Knowledge on what we do and how we do, especially trading will not only enhance our business dealings but will also allow us to differentiate and track down market conditions. Managing our finance wisely will save us the fear and anxiety about our unpredictable and meek future. Forex trading courses often outline these basic business strategies in their course material.

Forex trading courses are available as online courses and also through printed books. Free tutorials and financial guidance is also provided by many web sites. Choosing a professional Forex Trading Course will provide you with details on

• The best time to trade specific currencies like Euro

• How to anticipate movements and trends in the global market

• Which pairs of currency to trade

• Best time to enter the forex market

• Market conditions and tips about efficient trading from experts

• Technical indicators

Overall a forex trading course should be a complete currency trading solution for all the queries regarding forex and its effective trading options.

]]> http://optionsasastrategicinvestment.net/course-on-forex-trading/feed 0 Things You Need to Know About Penny Stocks and Stock Trading http://optionsasastrategicinvestment.net/things-you-need-to-know-about-penny-stocks-and-stock-trading http://optionsasastrategicinvestment.net/things-you-need-to-know-about-penny-stocks-and-stock-trading#comments Sat, 28 Nov 2009 02:15:24 +0000 admin http://optionsasastrategicinvestment.net/things-you-need-to-know-about-penny-stocks-and-stock-trading Whether you choose to invest your money in foreign exchange trading or in penny stock trading, you do need to keep a clear head and a neutral attitude. Penny stock trading refers to stocks that are under $5 and very often are at the lowest end of that spectrum.
While many new traders do get involved with penny stocks and make a reasonable profit, most experts suggest that it may not be the kind of stocks that a beginner should be dealing with.
One of the things you need to be able to do to be successful in any kind of stock trading is to follow the instructions and rules carefully. Being able to follow the rules is a key factor in successful stock trading. If your aim is to be successful in stocks, options, forex or any other kind of market trading then you need to be familiar with the rules of that trade as well as willing and able to follow them.
Successful trading really does depend on having sound strategies and a disciplined attitude. Some traders might go so far as to say that being disciplined is actually more important than having the right strategies or procedures to follow.
No matter how quick you are at learning stock trading strategies, you will not be very successful without discipline and commitment to the rules. There are some rules that only apply in one particular market, for example, penny stocks or foreign exchange trading according to market analysts.
A more objective approach looks at every market showing that there are numerous opportunities during the course of a week for day trading and swing trading. It’s possible to take on day trading and/or swing trading in any market providing you have learned to manage the risks effectively.
You can engage in day trading or in swing trading in any market, including forex and penny stocks. Rules are usually the same in each time frame, e.g. day or week whether it’s forex trading, stocks trading or futures trading. Trading on the stock exchange presents the trader with a wealth of opportunities simply because there are so many different kinds of stocks in the market.
In recent years currency has become a very big and lucrative trading market because forex, (foreign exchange rates) are changing all the time. Forex trading offers traders the chance of a potentially significant income for traders who know how to limit their risk.
An increasing number of respectable brokers now offer forex trading, how well you do, and how you limit your risk depends largely on your ability to discipline yourself and follow the rules – which is not always as simple as people seem to think. Most of us are far more headstrong than we should be and this limits our ability to manage risk.
Many new traders, whether they are dealing with penny stocks or forex go for live trading too soon after they have learned to trade. Disciplined paper trading can increase a trader’s confidence and ability to manage risk over time and turn them into a successful trader.
When you start trading live too soon, you’ve not had the time to develop self-discipline and effectively apply winning strategies to your trading. Whether you choose to deal in commodities, forex or even penny stocks, taking the time to make following the rules second nature, is a much better strategy than trading live before you have developed sufficient discipline to become a successful trader.

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