Which Investment Strategy Is Right For Me?
Posted by Dora T. Thomas | Filed under Finance
Getting started investing in the stock market can be quite daunting. There are so many questions to consider. Which stocks should I buy? Should I buy stocks or bonds, or something else? Which investment strategy is right for me?
Well, those are all good questions, but we are going to focus on the last one for now. There are many investment strategies, and there is some debate over which one is best. What it really comes down to is which investment strategy fits your personality best.
Whenever you make an investment, whether it is in real estate, the stock market or anywhere else, there is a level of risk. There is a very real chance that you could lose all of your money, no matter where you invest it. However, some investments are much less risky than others. For example, bonds are usually considered to be very safe. Unfortunately, the safer investments often don’t provide the type of return most people are looking for.
There are a wide variety of investment opportunities available with different levels of risk, so you need to decide how much risk you are comfortable with. Then you can choose an investment that offers the potential to make the return you desire without being so risky that you are constantly worrying about it. One good way to minimize risk is by purchasing stock in an assortment of companies or buy investing in a mutual fund.
Of course, if the entire stock market drops, your portfolio is going to decrease in value no matter where you invest. In that case, you need to remember to hang in there and not panic because the stock market has never yet failed to recover. If you wait it out, there’s a good chance that when the market recovers you will end up earning a profit on your mutual fund investment.
If you feel you need a safer investment, you can purchase government bonds or a certificate of deposit from your bank. The downside of low-risk investments is that they usually don’t provide a very good return on investment. As a general rule, investments with a greater potential for massive growth also have a greater risk of loss. Only you can decide what level of risk you feel comfortable with.
There are no guarantees in the stock market, but if you do your due diligence and research each investment opportunity carefully before making a decision, you can decrease the risk. Overall, the US stock market has managed to maintain an upward trend over time. Even though there have been crashed and dips in the past, so far the overall value of the market has continued to rise over time. For this reason, the stock market remains a good bet when deciding where to invest your money.
Have you been looking for a good investment strategy that works for you? Before you spend your time looking for a good strategy, look at BeforeYouInvest.com’s beginners guide to investing before you do anything else. BeforeYouInvest.com reviews everything from typical investment strategies to the best online investing tools so take a look.
Tags: bonds, equity, Finance, investing, investing software, investing tools, investment tools, investment training, investments, money, mutual funds, online investing, options, Stock market, stocks
What Are LEAP Options?
Posted by Ahmad Hassam | Filed under Business
British Pound is known to be a stable currency. Great Britain is a strong economy. But, Great Britain was finding it difficult to stay within the tight exchange rate band set by the European Monetary Union (EMU) in the early’90s. One person who made history with options was George Soros who is famously known as the man who broke the Bank of England.
George Soros is a famous name in the world of investing. He had always believed in contrarian investing. Contrarian investing means doing exactly opposite of what the crowd is doing. George Soros had this intuition that the Bank of England would be forced to devalue British Pound. So he bought call options on German Marks and put options on British Pound. He made a bet of $10 Billion by leveraging all the assets in his hedge fund.
Bank of England had made a number of public statements regarding its intention of staying within the EMU. When George Soros made his bet on the intrinsic weakness of British Pound, other currency speculators followed suit and placed their bets too. This build up an immense selling pressure on the British Pound! Bank of England was brought to its knees as it was unable to sustain the immense selling pressure on the British Pound within a few days of the speculative attack on the British Pound. Bank of England was forced to devalue British Pound in a few short days.
In a matter of a few days, George Soros made a cool $1 Billion profit on his bet. Can you make such a bet? Maybe not but this one example show the immense power options have if used correctly. Options are risky; there should be no doubt about it.
Most people who trade options lose money, plain and simple. Options give you the right to buy or sell an underlying security like stocks, futures, commodities or currencies at a price before a certain date. This price is known as the Strike Price. This date is known as the Expiry Date. However, in European Style options you can only buy or sell on the expiry date not before that.
Trading options without training is risky. You need to learn the Options Greeks. One of the important things that you need to learn while trading options is the importance of time factor. Time factor is very important when valuing an option. Further out the options contract is from expiration, you will have to pay a higher premium. As the options contract approaches the expiration date and if it is out of money, it loses its value very fast.
LEAP stands for long term equity anticipation. Have your heard about the LEAP options? So what are LEAP options? It basically means that the option is much like the regular option except that the timeframe to expire is greater than 1 year. LEAP options are basically long term options. Leap options can help you profit over the long haul. You can use LEAP options in options strategies like the covered calls, straddles, spreads and so on.
LEAP options are risky because the option writer usually demands a hefty premium for taking on the long term risk. However, LEAP options can be incredibly profitable if used correctly. The buyer of the LEAP options has the right to exercise the option prior to expiration should the price of the underlying stock move in the money.
LEAP options can be a great trading vehicle for swing traders as they mitigate some of the time decay that is inherent in short term options. See, closer the out of money option is to expiration, faster its value drops. What this means is that the buyer of the options loses the premium that was paid for getting the right to buy or sell the underlying security.
Mr. Ahmad Hassam is a Harvard University Graduate. Learn Candlestick Charting! Know Fibonacci Retracement! You are welcome to reprint this article - but get your own unique content version here.
Tags: Business, commodities, day trading, Finance, forex, futures, investing, market news, mutual funds, options, Real Estate, stocks, trading, wealth building
Options Trading Expiration Date Selection
Posted by Maclin Vestor | Filed under Business
There are strategies on whether to buy or sell in the money, at the money or out of the money options. There are questions of whether to be a buyer or seller, and to get puts or calls, and to be hedged or un-hedged. In addition, there’s also the question of WHEN to select the option. Do you select short term, or long term?
There are two views
One point of view is that you believe what Warren Buffet believes, and that’s that the pricing model is based too much on recent volatility, and that if you sell an option as far out in the future as possible when the volatility of the market/individual stock is at it’s peak, that with all things being equal, you will probably find that the volatility won’t return, and thus the buyer of the option is paying Too much. In addition, if you are Warren Buffet, you can depreciate your losses on paper, and use the sale of your options as capital to invest. If you are Warren Buffet, there’s a lot more value in having cash as you can achieve greater gains with that cash.
The other view is that long term options may cost more for volatility, but paying for 1 10 month option is cheaper then 10 1 month options at the same strike price. As a result, you should own long term options, and sell short term options, perhaps even with the same stock. If you buy a long term option, and sell short term, if at any given time, the price shoots up (and you sold short term calls), you can sell your long term option to pay for your short term option, then if you wish, repurchase the long term option and continue to write short term calls. You will continue to collect the theta.
I believe what Buffet believes to a certain extent. I believe that you should be a little concerned about the implied volatility and historical volatility. If a stock has had a lot of recent volatility, you should eventually expect that volatility to decline. If that does in fact happen, it may be more difficult to sell the value in calls to get your money back, but you still should. If you do not have the ability to borrow funds at the fed funds rate, or raise capital and so on, you will be better suited buying LEAPS and selling short term. That doesn’t necessarily mean both views can’t be correct. You could sell puts in times of high volatility in the S&P with European style options (must be held until expiration), and make money, or you could buy leap calls in that same period of time and make money. It’s even possible that you could also buy a put with the same expiration year (non European), and still sell enough short term puts to pay for it by then. I believe that buying short term options is the riskiest.
Well what if someone owns a stock and they write covered calls and the buyer actually does win. He will win more than he loses, the owner of the stock will forfeit his stock and lose a small amount, but where the heck does the money come from? The option buyer pays essentially a fee for the option, the option seller receives that fee, the option calls in the shares, and the share price is sold to someone who either paid too much for it, or someone who will eventually sell it to someone who paid too much for it. Someone will lose. However, it is possible for the option owners and option sellers to all win.
I would not want to be the one buying short term options, that requires expert knowledge about what is going to happen short term, or billions of dollars at your disposal to force the price of the stock up, and hope demand follows so you can win and still get out before people figure it out, or you could own a huge hedge fund or mutual fund and use that to try to chase a stock up higher while you sell out of that same stock. These are the kinds of games that can be played, which is why it wouldn’t make sense for someone who is smart enough and can figure stuff out to turn his money over to a mutual fund manager.
So it’s possible to make money as an option buyer and as a seller. The question is, does it fit with what you do, and do you know what you are doing?
Maclin Vestor teaches how to make money with trading system and how to buy stock.
Tags: Business, buy stock, how to buy options, how to buy stock, option trading systems, options, stock, when to buy options, when to buy stock
Money Management in Trading Systems
Posted by Adela Thomas | Filed under Finance
How to manage money when buying stocks, futures, or options — what you must know before you buy.
Many people have a very crucial problem, they take on more risk than they can. It really doesn’t matter if you’re very young, if you take risk to the extreme and continue down that path, you will by mathematical law in all probability lose money.
Lets say you had an almost sure investment that was 85% likely to succeed. When it succeeded you double your money. You put all your money on it. The problem is, when the investment fails, you lose everything. Now it is just a fact that you will eventually lose everything if you continue to invest everything. You only need one trade and you are wiped out completely. Now, even if you invested 90% of your money on an investment that would win 80% of the time, you still are taking on too much risk to win in the long run. If you lose once, you will need a 1000% return just to get back to even. That simply will not happen forever, and even if it did, the large loss would limit your potential for gain so much, that you’d be better off not taking on the maximum risk.
Now, your risk of losing everything can never be completely 100% eliminated, even with conservative strategies. If you flip enough coins, eventually you’ll get a very rare event such as 100 heads in a row. However, you’ll also get 100 tails in a row. The idea is that you have a strategy that yields you more when you win, and/or wins more than it loses. in this case there will be several losses in a row, but there will also be several wins in a row. If you manage your money properly, you will still have enough money if you get several losses in a row, to be able to more than make up for it when you get several wins in a row. If you are forced to limit the amount of capital after so many losses, that you cannot invest with the same amount after the losses, you may be unable to win enough to make up for those losses. The idea is to keep your investments small enough to limit the chances of that happening. Although almost nothing is a sure thing, by using proper money management, you tip the odds in your favor.
Even if you have a profitable method, if you do not manage your risk, your profitable method becomes unprofitable. It’s not usually the investment vehicle, it’s the investor that ultimately determines how quickly you fail, and ultimately whether you are able to succeed. Under the same context, it’s not usually the type of car, but the driver that determines whether you cause an accident. In order to protect yourself, you must keep your positions at a manageable level, and make sure to keep yourself limited by these rules that will limit your risk of ruin and keep the odds in your favor so you can stay in the game.
So how exactly does one manage money in a trading system? You need to determine probability of a move taking place. If you buy OTM option, the stock will have to move larger for success to occur. Of course if it does, the reward will be greater. There are probability curves based on a random walk theory that will assist you in determining the probability of a move taking place, until you know any better, use these. However, you also should use your own records of your system Determine both your risk/reward (your average % win divided by your average percentage losses, and in addition figure out your likelihood of success. When you do this, you can use what’s known as the Kelly Criterion By using the formula as follows Kelly % = W - [(1 - W) / R] Kelly % = The maximum percentage of your capital you should invest per position. W = Winning probability R = Win/loss ratio
A trading system that contains good money management rules will not only outperform one without, but it will also help protect your capital, and keep you in the game.
Maclin Vestor teaches about varioustrading systems and teaches you to find a trading system that works for you.
Tags: Finance, forex, futures, how to buy stock, investment, investments, options, stock, Stock market, stock trading systems, stocks, system, systems, trading, trading strategy
