Archive for the ‘Options’ Category
Single Stock VIXs?
Friday, January 7th, 2011
Bill Luby from the Vix And More blog stumbled across what I think can be very useful if it catches on. The Chicago Board Option Exchange will start calculating a VIX like index for five
Why Should You Invest to Secure Your Financial Future
Tuesday, February 16th, 2010In these testing economic times, a lot of people want insure their futures since they realize that if they are depending on Social Security Benefits and in a lot of cases retirement plans, they might be in for a surprise. It will be quite impracticable nowadays for individuals to rely on salary for their entire lives hence, having an investment in stocks or mutual funds will help to weather future financial troubles.
For sometime you might have been putting money in a low interest savings bank account however at this time you desire to see that money multiply at a a lot faster pace so, investing is the answer. This is the how we plan for the shorter term to obtain things that require planning for in the immediate to near future and this shapes where the funds will be invested for the best financial return.
It is as well inherent once money is needed immediately to invest it in areas that are considered higher risk, but large sums could be accumulated in a short amount of time this way. This is not the type of investment area that you would want to gamble your retirement on though so a safer, longer term approach is needed.
To generate wealth and security are the overall reason for investing, over a period of time in addition it is also important to take into account that you will not always be in a position to earn an salary and will in the end want to stop working. You as well would not rely on the Social Security system to do what you be expecting it to do and because we have seen with Enron, you cannot necessarily rely on your company’s retirement benefit also so investing is the solution to guarantee your own financial future, but you have to make smart investments!
That is not to declare that investment is without danger either and is considered to be a game by man, one you will not know whether you have won or not until the very end. Similar to any game, it is the way you compete that will make the difference between winning and losing and investment needs a game plan. If you could tell just how much funds you will require once you stop working, it is simply a matter of planning where to invest to meet that need.
Anyone looking to do this, can be guaranteed that flexibility is the keynote of long term financial speculation with each fund set up to meet the desires of the person. The most well-known of these areas is the stock market with factually hundreds of thousands of companies on hand to speculate savings in. This is not an area that should be rushed just similar to a game there are regulations and if you do not understand them you will not play credibly and the prospects of success reduced, consequently study what you could before involving in it. The financial methods you apply might suggest that your future will be guarantee but ensure that your immediate financial requirements are healthy prior to you begin.
To learn more about investing opportunities, head to my blog to learn more about investing in mutual funds, what is mutual funds, and why mutual funds investing is a great option to consider
Stocks or Etfs
Tuesday, February 16th, 2010All traders, when they first come to the market are facing a simple question what to trade and what trading vehicle to choose for investments. While there could be different ambitions and some investors are coming to the market for gambling with a purpose of becoming rich in short period of time I would like to focus on simple investors who have came to the market with confusion and would prefer some not extremely big but stable increase in investments.
Majority of people are coming to the stock market without knowing anything how the market works. All they usually know is that you may invest into stock. They start to look for good stocks and very soon they become frustrated – they start to understand that in order to select a few good stocks they are required to go through hundred of stocks, compare their performance, their reports, study fundamentals, etc.
When I ask some of my friends-traders about ETFs (Exchange Traded Funds) I hear the standard answer that they became familiar with stocks and they prefer to trade stocks. My second question usually is about how he/she does analysis to see what to trade and where to trade (long or short). Now comes interesting part. I would spread their stock analysis in several steps.
Step 1: Spend 1-2 month going through hundreds of stocks from different industries. As a rule, this stage of analysis includes going through earnings and other reports, comparing stock’s performance, analyzing the market sector the stocks belongs to, etc. All this ends with selection of 2-10 stocks that a trader became familiar with and considers that they are good for investments.
Step2: Subscribe to the reports, charts, quotes that cover selected stocks and could be used for further analysis on regular basis.
Step 3: Start to trade by analyzing the selected stocks on the regular basis (doing fundamental and technical analysis). In addition a stock trader continues to analyze selected industry and the whole market – you need to know where the industry and market are going do not to lose the stocks.
Doesn’t it look complicated? Especially when it comes to the fundamental analysis of all the reports… People are learning in the universities how to correctly analyze and evaluate a public company. Do you think an “average Joe” has time and is able to learn all the aspects of the fundamentals and apply it on practice? I am sorry for being sarcastic, yet, I am a little bit skeptical about retail traders (including me) and their abilities to perform liable fundamental analysis of stock. Maybe you can skip fundamentals if you are day trader and trade stocks in short-term, however if you are investing your pension for longer-term you have to do fundamentals – otherwise it is not an investment but a gambling.
So, what is the solution? For me, I trade Exchange Traded Funds. There are plenty of very active ETFs: QQQQ, SPY, DIA, XLF, IWM, etc. The biggest advantage of ETF is that I do not have to do fundamental analysis – no complicated and time consuming job – all fundamentals are done by professionals who manage indexes that are tracked by ETFs. All I do is the technical analysis of indexes I trade. Index analysis is a stock, industry and market analysis at the same time. For instance when I analyze S&P 500 index, the result of the analysis could be applied to trade SPY stock (S&P 500 index tracking stock). At the same time S&P 500 is considered as a barometer of the US stock market and S&P 500 index analysis reflects sentiment on US stock market. So, tell my why should I not to trade SPY, QQQQ and other ETFs and why should I go into complicated stock analysis.
Charts, quotes, technical analysis, signals for indexes and exchanges (S&P 500, Nasdaq 100, DJI, etc) are essential in trading index derivatives (QQQQ, SPY, DIA, etc), index emini futures and index tracking funds.
The Anatomy of the Medium Term Note (MTN) Market
Tuesday, February 16th, 2010Over a decade ago as well as a strong current presence, medium-term notes (MTNs) have emerged as a major source of funding for U.S. and foreign corporations, federal agencies, supranational institutions, and sovereign countries.
MTN’s have been around since the early 1970’s. At that time, the market was established as an alternative to short-term financing in the commercial paper market and long-term borrowing in the bond market; thus the name “medium term.” Through the 1970s, however, only a few corporations issued MTNs, and by 1981, outstandings amounted to only about $800 million. In the 1980s, the U.S. MTN market evolved from a relatively obscure niche market dominated by the auto finance companies into a major source of debt financing for several hundred large corporations. In the 1990s, the U.S. market continued to attract a diversity of new borrowers. Outside the United States, the EuroMTN market has grown at a phenomenal rate. Currently, outstanding MTNs in domestic and international markets stand over $1 trillion dollars (Sources. Merrill Lynch & Co., Websters Communications International, Federal Reserve Board).
Most MTNs are noncallable, unsecured, senior debt securities with fixed coupon rates and investment-grade credit ratings. In these features, MTNs are similar to investment-grade corporate bonds. However, they generally differ from bonds in their primary distribution process. MTNs have traditionally been sold on a best-efforts basis by investment banks and other broker-dealers acting as agents. In contrast to an underwriter in the conventional bond market, an agent in the MTN market has no obligation to underwrite MTNs for the issuer, and the issuer is not guaranteed funds. Also, unlike corporate bonds, which are typically sold in large, discrete offerings, MTNs are usually sold in relatively small amounts either on a continuous or on an intermittent basis.
Borrowers with MTN programs have great flexibility in the types of securities they may issue. As the market for MTNs has evolved, issuers have taken advantage of this flexibility by issuing MTNs with less conventional features. Many MTNs are now issued with floating interest rates or with rates that are computed according to unusual formulas tied to equity or commodity prices. Also, many include calls, puts, and other options. Furthermore, maturities are not necessarily “medium term” – they have ranged from nine months to thirty years and longer. Moreover, like corporate bonds, MTNs are now often sold on an underwritten basis, and offering amounts are occasionally as large as those of bonds. Indeed, rather than denoting a narrow security with an intermediate maturity, an MTN is more accurately defined as a highly flexible debt instrument that can easily be designed to respond to market opportunities and
investor preferences.
The emergence of the MTN market has transformed the way that corporations raise capital and in which institutions invest. In recent years, this transformation has accelerated because of the development of derivatives markets, such as swaps, options, and futures, that allow investors and borrowers to transfer risk to others in the financial system who have different risk preferences. A growing number of transactions in the MTN market now involve simultaneous transactions in a derivatives market.
BACKGROUND OF THE MTN MARKET
General Motors Acceptance Corporation (GMAC) created the MTN market in the early 1970s as an extension of the commercial paper market. To improve their asset-liability management, GMAC and the other auto finance companies needed to issue debt with a maturity that matched that of their auto loans to dealers and consumers. However, underwriting costs made bond offerings with short maturities impractical, and maturities on commercial paper cannot exceed 270 days. The auto finance companies therefore began to sell MTNs directly to investors. In the 1970s, the growth of the market was hindered by illiquidity in the secondary market and by securities regulations requiring approval by the Securities and Exchange Commission (SEC) of any amendment to a registered public offering. The latter, in particular, increased the costs of issuance significantly because borrowers had to obtain the approval of the SEC each time they changed the posted coupon rates on their MTN offering schedule. To avoid this regulatory hurdle, some corporations sold MTNs in the private placement market.
In the early 1980s, two institutional changes set the stage for rapid growth of the MTN market. First, in 1981 major investment banks, acting as agents, committed resources to assist in primary issuance and to provide secondary market liquidity. By 1984, the captive finance companies of the three large automakers had at least two agents for their MTN programs. The ongoing financing requirements of these companies and the competition among agents established a basis for the market to develop. Because investment banks stood ready to buy back MTNs in the secondary market, investors became more receptive to adding MTNs to their portfolio holdings. In turn, the improved liquidity and consequent reduction in the cost of issuance attracted new borrowers to the market.
For the complete article that is over eighteen pages of content rich information that is far too large for this article content page, visit us at Investorearth.com where you’ll find several investor reports for a globally declining market.
InvestorEarth.com is an educational site dedicated to providing investors proven, high yield investments in a global recession market. For the complete 18 page article, go to www.investorearth.com.
The emotional and psychological side of Trading Trades
Tuesday, February 16th, 2010We promised that we would elaborate on what we meant by the emotional and psychological aspects of trading stocks and other instruments. So, here we are. We think that if you laughed or scoffed at that statement earlier, you will change your mind after reading this note.
Let us begin with the fundamental basis of a trade. What is really happening in a trade? Typically one trader is buying something what another trader is selling. You will say, well that is obvious. Yes, we agree it is obvious. But do we really understand what is going on when the trade happens? What is really happening is this: For the same stock (also true for any instrument, but we will just keep it simple and use a stock instrument as an example), at the same price, at the same time, one trader thinks the stock price will go up and so this trader is buying the stock and the other trader thinks the stock price will go down and so this other trader is selling the stock.
Hope we have not confused you. But what we are trying to say here is that one trader’s instinct, or whatever this trader is using to make a judgment, is telling him or her to buy and another trader’s instinct is telling him or her to sell. Remember that one thing that every book or expert in the world will tell you and probably the first thing that a trader understands is that you make money by buying low and selling high. And if you end up buying high and selling low, you end up loosing money. (We are talking of simple trades here and disregarding the fact that when you buy put options contracts, you make money when the stock price actually goes down. We will discuss more on that in another article).
So, one trader’s best judgment is telling him or her to buy and the other trader’s best judgment is telling him or her to sell. The reason why this is happening is because of the difference in temperament, psychology and emotions of the two traders. We do not realize, but unconsciously the trading decisions that we make are very much based on how we are feeling at the time. It is based on what we are thinking. Do we think that our future is bright and secure? Do we think that the economy and market around us is good or bad? Are we positive about the future or are we thinking that things are getting worse? Are we happy at work? Do we have a good work-life balance? Are we earning enough money or do we think we are not getting what we deserve?
It is our overall outlook at that point in time that unconsciously plays a part in our trades. This is why we have a trade in the first place. As the saying goes, one man’s food is another man’s poison. If we are nervous for some reason, then we think that things are going to go bad and end up selling. If we are feeling positive and confident, we think that things are going to get better and end up buying. Books and education and software can teach us all about trading and how to trade. But how we actually end up trading is very much based on our emotional and psychological state of mind.
For more on this topic, please go to Trading Trades. Our editors provide insights, best practices, tools, trade information on Stocks, Options and FOREX trading regularly at TalkFN.com. Please visit http://www.talkfn.com to read these articles, comment on them and participate in the exchange of information and knowledge.
Isn’t Options Trading Dangerous?
Sunday, July 22nd, 2007This definitely is the roomer out there. I look at it this way. Trading of any sort can be dangerous if you don’t know what you’re doing. I recommend that if you’re going to trade options to sink some serious time and study into it before you invest any of your hard earned money. I would say that most successful traders don’t begin to consider themselves profitable until at least a year or two into their education. And these folks didn’t just sign out some books at the library. They likely had a personal coach or mentor or paid for formal education…for example, I recently completed my PhD level of trading through a company called Investools.
Then, a successful trader will study, conduct research on-line reading articles and even blogs like this one. Someone serious about trading is probably always carrying around a good book and the beginner will be trading with a paper trading account. Some brokers have a tool on their web site where you can trade just like it’s real but use fake money so to speak. That would be a paper trading account. For example you can open up a fake $100,000.00 account and trade away. You’ll soon see whether or not your skills will keep you in the green.
I would say that once you begin to make a few profits or even break even over a period of time that it’s ok to throw some real bucks into the hat of a real brokerage account.
Finally, the successful trader will be very disciplined in the area of money management. For example, this $100,000.00 you have, you would never risk more than 5% of your account on any one trade. In fact, I think most traders keep this down to 1-2% risked on any one trade. This keeps you from wiping out your account in a short period of time. If you begin to lose too quickly in your real account you can take a break and go back to the paper account for a while.
If you have any specific questions about the dangers of trading options feel free to send me an email and I’ll do the best I can to get you headed in the right direction.
One final note about the danger. Life is full of people who point out the danger or negative in life. It’s usually the people who go for it that become significant and the others just keep talking about it. So with that said I encourage you to go for it. Just move slow and smart. If you believe in yourself you’ll eventually come out on top. Keep getting your advice from those who believe in you and stay away from the negative finders.
Best wishes.
Rich Strehl is a self made success story who jumped in feet first into stock market education. A year and a half ago he did not even know what the Dow Jones Industrial Average was. Today he trades full time in the market. Strehl claims most of his success comes from a positive attitude, persistence and a solid goals program. A belief in oneself is paramount in succeeding in life. Believe in yourself and you can do anything you can vision… journey without this key ingredient and you simply self yourself short.
Technorati Tags: options trading, online trading, stock options, stock brokers
Online Stock Option Trading
Saturday, July 14th, 2007After getting into the market with stock trading, online traders tend to look for the next challenge. Options are definitely a challenge as much for the amateur investor as the seasoned broker. Since options demand rapid response, online trading access is the way to open this money making opportunity to anyone with the cash and nerve to play.
Options have the reputation for high risk. No question that reputation is earned. The flip side is that hitting an option at the right time yields a fat payday. The lure of big bucks might be appealing to novice investors but it’s a strategy for experienced traders. Even veteran stockbrokers can get caught on the wrong side of a trade and lose millions in minutes with options trading.
Enough gloom, let’s look at the upside of online stock option trading. Traders can limit the financial risk while keeping control over a block of stock. The difference is that options are perishable. Think of stocks as the baked potato and options as the butter melting on the hot potato. The stock will be around a long time but an option has an expiration date. If the option is set to expire on Friday, then the trader must be prepared to deal with that timeline.
Online stock option trading follows the same rules as any options trading. If your option expires “in the money” then you can choose to purchase the stock or redeem the option for a stated value. But if your option ends up “out of the money”, then you lose your investment. It’s an all or nothing play.
The winners in online stock option trading make their money by educated guessing. They prepare for this high stakes contest by learning the fundamentals of puts and calls options. With more experience, online option traders move into more complex strategies using strike prices and straddles. Some traders vary the strategy used while others find their comfort strategy and stay there. While a stock trader is looking for upward or downward movement, the options trader needs to pinpoint the degree of movement. Using the complex strategies does not necessarily result in better gains than with basic puts and calls. Again, online stock option trading is a game of skill and moxie regardless how it’s played.
Online stock option trading can be used to reduce risk and minimize losses. Regardless of whether the stock market is going up or down, stock options can still be winners. Some traders may move between trading stocks to options trading based on what is the best opportunity for the current market condition. Online stock option trading makes it possible to combine the options trade with the stock trade in a strategy that either goes for maximum profits or protection of the stock value.
Online stock traders owe it to themselves to explore the potential for options trading. Using the same research and background information, traders can use online stock option trading to boost profits and add an element of excitement to the process.
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Technorati Tags: online trading, stock options, stock trading, options trading, stock market