Stock and Options Investing Tips

Good day and welcome back, this week I have some excellent information for you in this, the sixth part of how to trade stock options successfully. Now that we have covered some of the more technical aspects of how options work and how to enter and exit the trade I want to start discussing how to put it all together. The first part of which is writing a trading plan.

It is imperative you trade with a plan. No trader has ever successfully prospered without a trading plan or with a plan that they didn’t stick to. A sound trading plan includes, but is not limited to, the following items:

1. Money management rules, i.e. acceptable profits and losses per trade, how much capital you will commit to any one trade and to the market at any one time. It is important you identify what your stop loss margin is (as discussed last week) and even more important you stick to it. Writing this sort of information into your trading plan will help cement it in your mind. We will discuss more on money management in week eight.

2. Stock and option identification rules, i.e. how you will decide which stocks to trade options on and which options you will trade. Decide if you prefer technical or fundamental analysis or a mixture of both. How big will your watch list be? What price range of stocks will you trade? Will you trade in the money options or out of the money options? What Greeks will you consider?

3. Entry and exit rules, i.e. how you will decide to enter and exit a trade, how long you will stay in a trade and how often you will trade. Entry and exit rules will depend largely on technical analysis, write down the patterns and indicators you will look for. Deciding how often to trade will be a big factor in your success. Most people over trade, if you have a fixed profit target then once you have met it you should stop trading. Attempting to go for that little bit extra can lead to a big loss, all the more difficult to take if you had already met your profit target!

4. Your own strategy rules, i.e. which trading strategies you will use primarily and which strategies suit your risk profile. “Know thyself” as the ancient Greek saying goes is critical when formulating a stock options trading plan. You will tend to trade options and you do anything else in life, for example, if you are cautious by nature you will trade cautiously, if you are impatient in everyday life you will trade impatiently. Therefore consider your unique traits and formulate your plan around them.

Once you have practiced trading options you will discover your own style of trading, and from that you will develop a plan that suits you. Once you have your plan, and you know it works, stick to it through thick and thin. That doesn’t mean that a plan can’t be changed but you must ensure that you give your plan a chance to work and that you don’t change it the first time you take a loss.

Once you formulate and implement a good trading plan you will be well on your to trading stock options successfully. Next week we will discuss trading with the overall market and index options.

US Government required disclaimer: Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of the Characteristics and Risks of Standardized Options. Copies of this document may be obtained from your broker, from any exchange on which options are traded or by contacting The Options Clearing Corporation, One North Wacker Dr., Suite 500 Chicago, IL 60606 (1-800-678-4667).

Roger Cox was born in New Zealand and has lived in Los Angeles for seven years. He was President of a freight company at LAX before setting up his own consulting firm. Roger has successfully traded stock options for over 4 years and teaches other people how to successfully trade at http://www.prosperitywithoptions.com

Article Source: articlestreet

Again welcome back to my series on how to trade stock options successfully. Key number seven is always trade with the trend. Let’s discuss what that means.

As my first mentor, Dr. Stephen Cooper, says “The trend is your friend”. Generally speaking, if the market is trending up then trade calls, if it is trending down then trade puts. It really is that simple, why buck the trend?

The general market direction is determined by what the institutional investors are doing. Institutional investors are large corporations such as investment banks, mutual funds and insurance companies. They have billions of dollars to invest and they move the market. Small private investors such as us have very little effect on the direction of the market or a particular stock. If the institutional and professional investors are putting millions into the market and certain stocks, follow them. They may not necessarily know what they are doing but they do make the market so if the Dow Jones Industrial Average is down 200 points as a rule don’t buy calls, conversely if it is up 200 points, again as a rule, don’t buy puts.

Of course these are general rules and there are always exceptions. A particular sector or stock may be performing exceptionally well and just because the overall market is going down you may still have good fundamental and technical reasons to be buying calls in that particular sector or stock. Always double check the news sources I mentioned in Key #2, check the fundamentals explained in Key #3 and check the technical reasons for entering a trade covered in Key #4, if all of these factors combined determine a good trade then by all means take into account the overall direction of the market but do not let it stop you making the trade.

When trading it is imperative that you don’t just take any one factor into account when deciding to place a trade, always ensure there are at least two good reasons for entering the trade and make sure there are no reasons not to trade. Remember overtrading is a common mistake if there is not a good reason to trade then just wait until another day, the market is constantly providing good opportunities to make money, have patience and wait for the right one. And remember, the trend is your friend!

Until next week, happy trading.

US Government required disclaimer: Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of the Characteristics and Risks of Standardized Options. Copies of this document may be obtained from your broker, from any exchange on which options are traded or by contacting The Options Clearing Corporation, One North Wacker Dr., Suite 500 Chicago, IL 60606 (1-800-678-4667).

Roger Cox was born in New Zealand and has lived in Los Angeles for seven years. He was President of a freight company at LAX before setting up his own consulting firm. Roger has successfully traded stock options for over 4 years and teaches other people how to successfully trade at http://www.prosperitywithoptions.com

Article Source: articlestreet

Hello, this is week eight in my ten week series on how to trade options successfully. This week we are going to discuss saving.

Saving is a very important part of any successful financial strategy; if you spend your gains as soon as you have them you will never reach true wealth. It is only by the miracle of compound interest that your gains will truly turn into a fortune.

Compound interest is the process whereby annual returns are added to the original investment and reinvested, rather than being spent or taken out, thereby creating a larger amount to invest again, as this process is repeated the compounding exponentially increases the returns over the lifetime of the investment. For example if you invest $10,000 a 20% return increases your portfolio to $12,000. A 20% return on that increases your portfolio to $14,400, 20% on that is $17,280, 20% on that is $20,736 and 20% on that is $24,883 which is a total return of $14,883.

Now assume as soon as you made the original 20% return you took it out and spent it, your next 20% return would only be the same $2000 on your $10,000 investment. If you kept doing this 5 times your total return would only be $10,000, $4,883 or almost 50% LESS than if you left your money in your account. The longer you leave your money in your account the more pronounced your returns will be and the greater the effects of compounding will be.

Einstein once said "Compound interest is the 8th wonder of the world". When applied to options trading we can replace the word "interest" with "return on investment". That means if you are winning and have a good return on your investment don’t take out the profits in your account to spend on a new boat, car or house. Re-invest your profits and if you are doing everything correctly the miracle of compounding returns will exponentially increase the size of your portfolio.

That’s it, a short article this week. Next week we have a lot to discuss when we talk about money management.

US Government required disclaimer: Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of the Characteristics and Risks of Standardized Options. Copies of this document may be obtained from your broker, from any exchange on which options are traded or by contacting The Options Clearing Corporation, One North Wacker Dr., Suite 500 Chicago, IL 60606 (1-800-678-4667).

Roger Cox was born in New Zealand and has lived in Los Angeles for seven years. He was President of a freight company at LAX before setting up his own consulting firm. Roger has successfully traded stock options for over 4 years and teaches other people how to successfully trade at http://www.prosperitywithoptions.com

Article Source: articlestreet

Are you interested in option stock trading? Then you must be interested in option stock trading strategies. To understand stock options better lets see a simple dictionary definition.

Strategy can be defined as a skill in managing or planning, especially by using stratagems. The words managing or planning using stratagems to achieve a particular end or objective is quite useful in our desire to apply this definition to the investment market.

The ability to pick the right stock or group of stocks is vital. Equally vital is the art of making the most possible return on the chosen investment possibility. This is where you need your strategy or game plan. So with the right opportunity but wrong strategy can still lead to risky investment, loss of profits an capital. These underlies the fact the proper knowledge of option stock trading strategies are important.

The desire of the stock investor, his style and depth of research and the personal preference of the stock broker would all contribute to the final selection of stock options would prefer and consider necessary. The process of selection involves the data that are available and preferred by an investor in options stock trading. The sources of data are wide and usually consists of charts, indicators, news, reviews, tips and oscillators.

Each investor in option stocks trading has his own preferred stock choosing process. Each would determine how he undergoes the selection process. Once the selection has been made viable option stock trading strategies would have to be considered and a strategy selected.

A stock option investor has some desired expectation for any opportunity chosen and implemented. A trading strategy that maximally suits the desired expectation should be selected.

Obviously the best strategy would be one that achieves the desired level of returns while still offering the least amount of risk and best protection on investment possible. Every option stock trading opportunity is unique with different variables attached to it and thus would require that each opportunity should have a different strategy that best suits the particular strategy. An obvious popular option stock trading strategy is the selection of stock that is believed to be on the rise, or that is expected to increase in price.

This directional play allows investors to profit as the face value of the stock or portfolio goes up. Each investor should take time to select his stock or trading opportunity and the best available strategy to execute it.

Find out more about online stock options trading strategies at http://www.optionsuniversityblog.com

Article Source: articlestreet

Do you want to invest on something you just don’t know what? Are you looking for something other than stocks from companies? Or maybe you just struck out on the stock market? Then maybe one of these can help you decide on investing your hard earned money someplace other than the usual stock market. There are a number of things you can invest on and usually the bigger the risk, the bigger the return. The return may not come immediately but the wait would be worth it.

One option is property investment or real estate investing. This involves purchasing a property and managing it then renting it to earn profit. There are a number of opportunities in real estate investing, but the first crucial step is to know what you want to manage and rent. The next step is then to find a property you want to purchase. Once due diligence, or examining the property is done (usually accompanied by an expert in examining), the complex process of purchasing the land or property starts (this is usually accompanied by a real estate agent or lawyer this time).

Real estate property are typically more expensive than other investment tools like stocks, but as stated earlier, higher risk comes with higher rewards. Another way to invest, if real estate is too risky for you, is thru consumer products.

Consumer products are an investment for people with enough willpower to take it on. This is because product investment tends to have a long period of poor performance followed by a long period of excellent performance. This could have resulted from the ever changing demand of consumers; of what is fad and what is considered as so yesterday. With that, the best product to invest on is usually what’s hot; this would give you fast return on investment. However, it will not guarantee that the fast return will continue for a long period of time. If you’re creative and lucky enough, you could start something new.

Invest on something different that you think could be the next big thing, and then start out small. When the consumers bite on it, expand little by little until you get great recognition. When that happens, competitors will start to challenge your position for market leader, the next step then would be to sell through franchising, and here is where you can make the big bucks.

If the product you started is hot enough, people would be lining up for a slice of your cake. After squeezing what you can out of the franchise, let it go completely. You can make a lot of money with that without having to face the problems of having too much competitors and other business related headaches.

Another option you can invest on is commodities. Agricultural and mining products can become great investments. The problem however would be the fact that just like consumer products, commodities would have very long periods of poor performance followed by long periods of good performance. An example of this would be oil.

Investing is a gamble everywhere you look at it. It would depend upon your financial goals and willpower whether to take on high risk investments like real estate investing, or stick with a low risk investment.

Justin DeMerchant is the founder of ameritrade, stock market, and market man where information on stocks and investing can be found.

Article Source: articlestreet

Finding a broker that you can rely on and feel comfortable with is one of the basics of trading stocks. Sometimes you may need more that the bare minimums available at many online stock brokers.

All the work involved, the phone calls, the research, the money. It might just be easier to have an online stock broker. Someone you can e-mail or call when you need to do or need to know something. Someone that takes care of the headaches for you. Well now you can. With the growth of the web several companies have turned to the Internet to make a business as online stock brokers.

As a stock trader yourself you have several options available. Off hand there are at least 5 companies that are competing for your business right now, and all you have to do is choose one to make all the hassles of stock trading disappear. To make this decision easier, here’s a breakdown of the what you need to look for in your online stock broker.

How much do they charge? This is your hard earned money, right? So, you need to make sure it is spent accordingly. You need to check with each of your prospective online stock brokers and see how much they charge per trade. Take TD Ameritrade for example, as of April 2008 they are charging $9.99 a trade with no additional fees. On the other hand ScotTrade is only charging $7, and at both of these companies you can actually pay less if you are an elite member of their trading site.

In addition you want to check their terms of services and other pricing costs, such as how much it costs to have an inactive account, how much they charge to actually speak to a broker and get their opinions on your trades, etc. Each company will also have a different minimum account balance to start an account. ScotTrade’s is only $500 to get started with, while others might be 2-4 times more than that depending on the account you open.

Another thing you want to be sure of is the tools you have available to you for research, making decisions, accessibility to your money, and how you will receive customer service. Fortunately the top online stock broker companies all have high ranked customer service, so that shouldn’t be difficult at all. All of them also offer a website that shows you all the tools you will have available to make your decisions, as well as any access you will have to brokers. Some of the companies also offer nationwide and even international branches that you can visit if you have issues with your accounts.

As for research you should be able to get great research information from all of the top companies. If you are an elite customer you will have even better research information which will enable you to make better decisions. There are third parties that offer unbiased research and this is available from most online stock brokers.

Although it may seem like there is a lot to think about in choosing your online stock broker, remember that in the end it will be much easier for you, as you will have your money in the hands of experts and you can be as hands on or off as you want.

Find the latest Online Stock Broker info, free tools, and methods at Effective Stock Trading. Learn stock trading with our complimentary stock trading report. Get your free copy here http://www.EffectiveStockTrading.com now.

Article Source: articlestreet

Every investor chooses to increase their stock market returns. This is possible through options. However, it is a difficult thing to achieve and requires research and patience. To increase your returns through options an investor has to predict the direction that the stock will go and the time frame in which this move will happen.

If either is incorrectly predicted, the investor can loose their money. If correctly predicted, then the investor’s returns can double what they would have made with a normal straight investment in the same stock.

Stock options are financial instruments as they give the investor the chance, but not the obligation to purchase a stock. They come in four different choices. Short or long positions on a Call or Put. Long positions on a Call or a Put means the investor can purchase a Call or a Put. On the other hand, Short positions give the investor the opportunity to sell a Call or a Put.

A Put and a Call are different then the short or long positions. When a stock goes down, the value of a Put goes up. Thus a Put is what profits when the stock declines in price. A Call is the opposite of a Put. When a stock increases in price, the value of a Call increases. Using this information, if the stock price were to go up, the investor should buy a call. However, if the stock price were to go down, the investor should buy a put.

Other than the short or long positions on a Call or Put, there are other parts of an option that are important. The right for the investor to purchase something has a time limit. There is the expiration date. Each option has a date in which it will expire and will be of no use to the investor anymore. Each option is different. Some options are available for a few consecutive months starting immediately, whereas others may be a couple of months starting from a particular date. The expiration date of each option is always on the third Friday of each month. However, if it is a holiday, it will be on the Thursday.

Other than the expiration date, there is another important part to an option. Each option also has a strike price. A strike price is the price that the option will be exercised at. The price at which something is bought is referred to as the strike or exercised price. Each option’s strike price is different. This means that there are quite a few choices when wanting to buy an option. From calls or puts to multiple strike prices, the decision to buy an option is difficult.

If an investor can foresee changes in stock prices within a certain time span, it is advised that they use stock options. It can increase their returns which would otherwise be lesser if they were to invest in the same stock without options. A way of predicting changes in stock prices is the use of technical analysis. It allows investors to find patterns in stock prices and by using this they can increase their returns through options.

I have a degree in Computer Systems Engineering. I’ve been working in the world of forex trading and stock market investing. I also have been building a variety of websites for the last 3 years. Arkaitz Arteaga – MarketStock.net For more information about Stock Market visit Stock Market – MarketStock.net

Article Source: articlestreet

Who decided that options are too risky for the everyday investor? More importantly can somebody please explain why options are too risky? After years of research I have finally come to understand that there are 3 types of people that can be held responsible for the Myth that options are too risky. Who?

1. Financial Planners

2. Stock Brokers

3. Taxi Drivers

Is it possible for the uneducated investor to lose lots of money if they trade options? Yes of course they can, first of all the uneducated investor can lose tons of money using any trading instrument and secondly options are highly leveraged so if used incorrectly then they will increase your losses. So if this is the case then why an I saying that trading stock options isn’t risky?

The first thing that you must realize about stock options is that they were actually invested to reduce or manage risk. The whole idea of buying a put option to hedge you stocks is basically another form of insurance. When looking at your portfolio risk management options buying puts to ‘insure’ your stocks is one of the most conservative investment strategies that you can implement.

On the other hand selling call options on stocks that you already own (covered calls) is another incredibly conservative stock market strategy. This strategy actually increases your downside protection, so when used correctly the myth that options are too risky is simply not true. Of course if you start writing naked calls or naked puts then your risk levels are going to seriously increase but when used correctly options are an amazing risk reduction tool.

Let’s have a look at why financial planners, Stock Brokers, and Taxi drivers are giving Options such a bad name.

Financial Planners: If you go to your financial planner and say that you would like to include options in your trading strategies then they will almost definitely tell you that it is a very bad and risky idea. Why? Simply because 99% of financial planners wouldn’t have a clue how to use them. I recently spoke to a financial advisor who admitted that her entire financial planning degree only had one chapter on options and it was completely theoretical information. In their entire course there was not one bit of practical information about how to use options. So considering that most financial planners don’t actually know what stock options are let alone how to use them is it any wonder that their typical response is negative. Remember human’s beings fear change and looking stupid.

Stock Brokers: Surely Stock brokers don’t think that options are too risky? Aren’t they meant to be professional stock market investors? Unfortunately most stock brokers are exactly that ‘STOCK’ brokers not ‘OPTION’ brokers. To become a legal options broker there are additional courses that you need to complete so most stock brokers aren’t actually allowed to give you ‘option’ advice. Put yourself in their shoes for a minute – if a client came to you and said “What do you think of buying Options” then you are faced with two choices
1.Tell them that is a great idea but unfortunately you will need to take all of your money out of our accounts and go to another broker who is legally allowed to trade options, Good Luck with your investing.
2.Or you could tell them that options are too risky and you really should just stick to managed funds and stocks.

So what answer would you choose?

Taxi Drivers: Obviously this is a little bit of a joke but the point I am trying to make is that everybody seems to think that trading stock options is too risky. It is extremely important to remember to make up your own mind about investment strategies, whatever you do don’t take advice from a taxi driver about wealth creation.

“the most expensive advice you will ever get is free from poor people” Kurek Ashley

So are Options too risky? If used incorrectly yes but perhaps the question you should ask yourself first is ‘what are stock options’? Before you dismiss something as being too risky or scary make sure you try to understand what it actually is and how it works. There are plenty of free resources on the internet so do some research and make up your own mind about stock options. The last thing you want to do is ignore something just because that is what everybody else thinks. After all are these people achieving the results you are after or are they still driving taxis?

If you want to be rich then the easiest way to achieve this goal is to become an investor. SharesPropertyMoney.com is giving away a Free Investment DVD to the first 1000 visitors. CLICK HERE for your copy Learn an amazing Stock Market Investment Strategy that everyday people are using earn $5,000 tax free per month.

Article Source: articlestreet

Stock options are important investments to consider when you are building wealth in the stock market. The most basic definition for a stock option is a contract that allows an investor to purchase or sell a specified stock at a specified price, within a specified amount of time. Employers commonly give stock options as asset based compensation, and investors buy and sell options on the stock market to gain capital. Every stock option is characterized by the name of the stock, the strike price, the option contract expiration date and the price that was paid for the contract.

Basic Terms:

Call Options- these give the owner the right to buy a stock at a specified price, within a specified amount of time. Investors who buy call options are hoping that the stock value increases before the option expiration date.

Put Options- these give the owner the right to sell a stock at a specified price, within a specified amount of time. Investors who buy put options are hoping that the stock value decreases before the option expiration date.

Strike Price- the price that the option can be bought or sold at.

Options Investor Types: Buyers of Call Options, Sellers of Call Options, Buyers of Put Options, Sellers of Put Options

There is an important difference between the investors who buy and investors who sell options. Investors who buy puts and calls have the choice to exercise their option contracts. Investors who sell puts or calls have the obligation to exercise their options contracts.

The price of a stock option must go above the strike price for investors to exercise and make a profit on call options and the price must go below the strike price for investors to make a profit on put options. When options fall into these ranges, they are called "in the money".

Options can be used for a wide range of trading scenarios, such as:

-Reducing your risk from stock ownership

-Generating an income from stock you already hold

-Speculative trading in an up or down market

-Multi leg option strategies to take advantage of specific market action

-Volatility based strategies to take advantage of market volatility even if you do not know which way the market will go.

While is it true that options take some time to understand and to master, most people agree that once they have spent the time to properly educate themselves about options, that they are much better off for doing so.

Many stock traders I know, once learning about options have never traded a single stock again. They can make more money, and take less risk by using a properly structured option strategy.

So if anyone is still on the fence, it’s definitely worth taking the time to learn about options.

To learn more about how you can harness the power of options, download our free ebook and online video at http://www.optiontradersjournal.com

Article Source: articlestreet

We live in interesting times…

You cannot switch on the TV or read a newspaper without hearing of doom and gloom. If it’s not property and stock market falls it’s oil prices going through the $100 level, and the situation in Iraq seems to be deteriorating.

Well, we will stay clear of most of that, except the issue of markets across the world going down. At this point we feel like saying please take a deep breath everybody.

It’s certainly true that the ’sub prime’ crisis has badly affected the confidence in the markets. Just as has the Northern Rock fiasco in the UK and the Bear Stearns collapse in the US. Are there any more ‘nasties’ around the corner people will rightly ask?

The answer is yes there could be, and things may take several more months for any residual problems to make an unwelcome appearance.

So what has happened?

Well, in a nutshell, it’s partly down to greed.

In the last few years many banks have devised complex products to sell on at a profit, with the full ramifications of what they were selling not known at the time.

They packaged various types of debt together – good, average and poor quality – and sold it on. The banks priced these packages with a formulae devised by themselves.

With the benefit of hindsight, it could be argued that they got it wrong in spectacular style.

Roughly speaking, the high risk debt became worthless, the medium grade debt halved in value, and even the high quality reduced in value by circa 30%. This was made worse of course because in forced sales you tend to get less.

There is also the issue of how banks lend to each other, called the Interbank rate, so that they have the money to lend to people like us.

Gone are the days (but coming back?) when the bank used purely savers’ money to then lend. So when confidence is hit, and banks are reluctant to lend to each other, and any lending they do do they charge a lot more for.

What we need of course is a period of stability, with bad debt being written off, and Interbank rates settling down. Working capital needs to be found, with wealthy companies called Sovereign funds helping – at a price.

As a background to all this, it must be said that the last 15 years have been quite amazing with low interest rates and high growth. This ‘Goldilocks’ period is ending, with growth down and inflation up. This brings to mind the dreaded word stagflation, and this is perhaps worse than recession.

Another point is that compared to other periods of stock market volatility the fall in the markets has not looked huge. Compared to the end of 2007 the FTSE is down around 14% and of course may fall further or recover. But in 1974 the market fell 51%, before bouncing back in 1975!

So what should investors do?

Well, if you don’t need your invested capital now (or within 1-3 years) our advice is to hang on. Don’t turn paper losses into real losses by selling low. We have seen new clients tell us that they have sold when the markets went down, and bought again when they went up.

Why?

Well, they simply felt that this was the ’sensible’ thing to do.

This is the classic way for investors to lose money, time after time. For example, if you had missed the best 25 days out of the 7,300 days between 1986 and 2006, your compound annual returns would be 6.72% instead of the 11.74% the market returned.

Here is a recent article that discusses these issues:

http://tinyurl.com/3cucrb

Key Considerations:

The old adage of buy and hold is very true. If you do not need the money our advice is to hang on.

ACTION POINT

Perhaps inaction is a better way of putting it – ride out the storm.

If the volatility has really upset you, then revaluate if you should be reducing your risk here, or should you be in the stock market at all?

Ray Prince is an Independent Financial Planner with Rutherford Wilkinson plc, and helps UK Resident Doctors and Dentists get the best deals on mortgages, protection and investments, as well as helping them achieve their financial objectives. Just visit http://www.medicaldentalfs.com to get your free retirement planning guide. Rutherford Wilkinson plc is authorised and regulated by the Financial Services Authority.

Article Source: articlestreet