Advanced Option Strategies » Finance

An Overview on Ulip, Its Benefits and Selecting the Right Ulip Plan

admin — Mon, 25 Jan 2010 07:26:04 +0000

About ULIP

This article is an initiative from Bajaj Allianz to create better understanding of ULIPs and its benefits so that investors can avail maximum returns from their investments.

ULIP stands for Unit Linked Insurance Policy (ULIP). Unit Linked Fund is a collection of the premiums paid by the policy holders which is invested in a portfolio of assets to achieve the fund(s) objective. The price of each unit in a fund depends on how the investments in the fund would perform. The fund is managed by the insurance companies (Bajaj Allianz provides the Wheel Of Life Portfolio Strategy for those who find investing and insuring as Greek and Latin. Our investment officers will select and invest in the appropriate funds to balance and safeguard your investment.

ULIPs are a category of goal-based financial solutions that combine the safety of insurance protection with wealth creation opportunities. In ULIPs, a part of the investment goes towards providing your life cover. The residual portion is invested in a fund which in turn invests in stocks or bonds. The value of investments alters with the performance of the underlying fund opted by you. (

Simply put, ULIPs are structured such that the protection element and the savings element can be distinguished and hence managed according to your specific needs, offering unprecedented flexibility and transparency.

ULIP provides multiple benefits to the customers. They include:

· Life Protection

· Investment and Savings

· Flexibility

· Adjustable Life Cover

· Investment Options

· Transparency

· Options to take additional cover against

· Death due to accident

· Disability

· Critical Illness

· Surgeries

· Liquidity

· Tax Planning

5 reasons why ULIP works best for people aged 25-40 years

Important things to remember before investing in a ULIP

1. Develop a clear understanding of the concept of ULIPs

Studying the concept of ULIP thoroughly before investing is very essential. This will help you make informed critical decisions. The information on ULIPs is easily available on Financial Websites, Newspapers and sales literature circulated by insurance companies.

2. How much risk are you willing to take?

Choose the plan that is best suited for you in terms of allocation of money between equity and debt instruments. Your risk appetite is the deciding factor in your choice of the plan.

Therefore, for someone with a high risk appetite, a dynamic investment option with higher allocation to equity component can work. But be extremely careful with your plan. Choosing a plan with greater allocation to Equity with the objective of bigger returns can work against you.

3. Make a detailed study of the different ULIP products being offered

Compare various Insurance products on parameters like expenses and premium payments. For example, a knowhow on premium payments will give an understanding of the minimum outlay as ULIPs function on premium payments as compared to the sum assured in conventional insurance products.

Also it is advisable to find out about options to increase the premium amounts and free switches (i.e. change of asset allocation of your ULIP account from one investment plan to another)

4. Is your ULIP plan offering a minimum guarantee?

Protecting the investment’s downside can be a huge advantage in a market-linked product. Find out if your ULIP plan offers a minimum guarantee and what is the costing involved for the facility.

For information on Bajaj Allianz’s insurance products, https://buyigain.com

Bonds, Stocks, and Gold

admin — Mon, 25 Jan 2010 07:26:03 +0000

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

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

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

Theme: Investment Bonds vs. High Yield Bonds

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

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

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

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

Theme: Growth Stocks vs. Value Stocks

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

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

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

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

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

Theme: Gold and Economy

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

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

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

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

Hedge: Alerts, Exit Stops, or Options

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

Additional considerations:

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

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

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

Effective Investment Strategies

admin — Tue, 19 Jan 2010 07:23:20 +0000

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

Stock Trading System – 4 Important Features Of Stock Trading System!

admin — Mon, 28 Dec 2009 19:55:38 +0000

Investors as well as traders, are greatly interested in the stock market. It has revealed itself as the best platform to help one’s capital grow, provided the person is in tune with current market trends and knows where to put his/her money. The popularity of this method has prompted people from the trading community to go in for an efficient stock trading system.
Another reason for the demand to have a good stock trading system in place is the rise in global stock markets. As a matter of fact, traders/brokers as well as investors/shareholders are finding that the task of trading in equities or shares or stocks is proving to be extremely complicated, considering that newer companies and institutions are being launched all the time. And the Internet has not helped by bringing the world closer to home!
What are the features of a stock trading system?
(1) What is meant by a stock trading system? It is a tool to enhance the success of investments, especially if it works effectively and efficiently. It includes strategies related to investments, market guides and trading schemes.
There are experienced analysts and professionals to guide the trader or investor as needed. This is achieved by providing a constant flow of information and analysis regarding market trends and movements in the stock market arena. Without this in place, it would be difficult for smooth functioning of the stock market.
Lastly, there is a timing system included in the package. Thus, every investor is aware of the time limits for investing in a particular stock.
(2) A stock trading system is not something that can be just bought at any marketplace! There are special individual distributors or operators available–they can be found locally too. These dealers offer a customer much more than just a system. They are truly worth it because they can lessen your headaches! All the more better to go to them if you have linked up with other business partners.
(3) Another option is to check out those special companies offering to sell systems that are dependable and have already been well promoted.
(4) Traditional or conventional methods of transactions are giving way to more modern methods. So there is the automatic/electronic stock trading system which is faster and more interactive in nature.
Since trading in stocks has become a global activity, it is difficult for investors to be present physically at all locations. He/she need not attend auction venues or trading places for the express purpose of buying or selling shares or trading stocks. Hence, the launch of electronic transactions.
This sort of a stock trading system is quick and convenient since it is supported by wireless Internet and wireless telephone. More advanced technology is sure to evolve in future.

Trading the Infamous Iron Condor

admin — Tue, 08 Dec 2009 09:06:07 +0000

Placing iron condor spreads on the broad market indexes is a relatively conservative, non-directional trading strategy that may be used for consistent income generation. This strategy profits as long as the index trades within the channel formed by the two spread positions. It is best used during sideways or slowly trending markets.Condor SpreadsA condor spread is a debit spread, established by placing a bear call spread at or above resistance and placing a bull call spread at or below support. The condor may also be established using puts with a bear put spread above and a bull put spread below. The iron condor is a variation on this trade by using a bear call spread above and a bull put spread below the price of the underlying stock or index. The iron condor is a credit spread and achieves maximum profitability if the price of the underlying closes between the short options (the strike prices we sold) of the two spreads at expiration. In that case, all options expire worthless and you achieve the maximum profit, i.e., the credits originally collected. The profitability of the iron condor is assisted by the fact that the broker only requires margin for one of the credit spreads, effectively doubling the return on investment.Condor spreads are effective when the underlying is expected to trade within the channel defined by the spreads during the life of the options. The closer one places the spreads to the current price of the underlying, the higher the returns; however, this comes with a higher risk of the price of the underlying stock or index entering one of the spreads and causing a loss on that spread.Trading the stock indexes with condors is effective for several reasons: 1) the indexes generally move slower than most individual stocks, 2) the indexes are less affected by an individual stock’s bad news, 3) the premiums of the index options are generally much higher than individual stock options, 4) index options trade in high volume because large institutional investors use these options to hedge their portfolios; this results in high liquidity, and 5) 60% of the gains with broad index options are taxed at long term capital gains rates, regardless of the length of time in the trade. Money ManagementMoney management refers to the rules used for determining the amount of capital devoted to a trade and spreading risk among strike prices and time. Determine the total dollar value you wish to devote to this strategy. For this example, we will assume we have a $100,000 account we will exclusively trade using the iron condor strategy. Take 40% of the total portfolio ($40,000) and divide by $1000 to get 40. This is the total number of contracts you will trade in this strategy each month (40 contracts total in the bear call spreads and 40 contracts total in the bull put spreads). This approach lessens your exposure during any particular month and leaves you room in the account to put on next month’s positions before last month’s positions have expired. This also reserves an additional 20% of capital as a safety margin and for possible use in trade adjustments. IMPORTANT: when learning this or any options trading strategy, start very small with one or two contracts and gradually increase your size as your experience and confidence grow.Money management also includes the concept of limiting your losses. Playing iron condors on the indexes as outlined in this paper are conservative, high probability trades. However, the potential loss is quite large, even though the loss has a low probability of occurrence. Therefore, one loss may wipe out several months of profits. Stop loss and adjustment rules and the discipline to strictly follow them are critical to the success of trading iron condors. Those stop loss and adjustment systems are taught in detail in the Advanced Options Trading Strategies course offered by Parkwood Capital, LLC.Timing (Days to Expiration)You can establish your condor position sometime in the range of 40 to 50 days until expiration. The precise time is not critical. The trade-offs are as follows: the earlier I put on my spread positions, the more time premium is present in the options and therefore I can receive the minimum credit I am willing to accept farther out from the current levels of the index; therefore, more safety margin is achieved. However, the more time I use in the spread, the more time that exists for the market to move against me; thus, I am incurring more risk. As time decay reduces the option premiums, I must move my spreads in closer to achieve a reasonable credit, reducing my safety margin and increasing my risk. It is also possible to trade the iron condor starting at about 30 days to expiration, but the system rules and adjustments must be adjusted accordingly.Determining Optimal Entry PointsSome traders place the call spreads when the index is hitting resistance and appears to be turning down, and place the put spreads when the index is hitting support and appears to be turning back upward. This will maximize the size of your credits. However, if the index continues to move in that direction, your position could be in trouble quickly and you will not have the compensating spread position helping to hedge your position. For this reason, I generally establish both the call spreads and put spreads on the same day.Choosing the StrikesWe can apply basic statistics to our deciding which strike prices are “far enough” out to be safe. The classic “bell shaped curve” we have seen in various contexts is the mathematical function known as a normal or Gaussian distribution. If we assume that future moves of the index price will be random and similar in frequency and absolute size to previous fluctuations up and down, then we can calculate the probability of the index price being at a particular price on a particular date in the future. I calculate the standard deviation for the index, based upon its level of implied volatility and the time left to expiration. The call spreads are placed just outside one standard deviation above the index price and the put spreads are placed just below one standard deviation below the index price. This results in an iron condor position with a probability of success of approximately 80-85%. The details of this methodology are taught in the Equity and Index Options course offered by Parkwood Capital, LLC.Entering the Order and Getting FilledNow that we have determined the strike prices for our spread, we need to calculate the credit we are going to ask for in our order. Compute the natural price for the credit spread, the natural debit spread price, and the midpoint of the spread (most online brokers calculate this for you).Enter your order at a credit limit at the midpoint and wait to see if the order is filled. After a few minutes, adjust the credit downward by $0.05. Repeat until both spread orders are filled. But do not drop below the lower quartile of the bid/ask spread.Never place an order for less than $0.60 to $0.70 in credit; trading commissions become too large a factor for smaller credits. My spread credits normally range from $0.60 to $1.05 per spread or about $1.20 to $2.10 per iron condor.Stop Losses and AdjustmentsThe topics of setting stop losses and the variety of adjustment methodologies available are beyond the scope of this paper. An effective, but simple, risk management technique is to monitor the debit spread necessary to close your condor spreads, and when that debit is double the original credit received for that spread, close that side of the condor. This technique will close out positions more frequently, but it will result in very small losses or near breakeven results in the “bad” months when the index moves against you.Index Option SettlementIndex options are cash settled options; there is no underlying instrument like stock shares to be called away or put to you. You simply lose or gain the dollar value at expiration, e.g., you hold 10 contracts of the $1400 call and the SPX settlement price is $1405; your account will be credited with $5,000 ((1405 – 1400) x 100 x 10). If you were short the $1400 calls, your account would be debited $5,000.Most index options are somewhat unusual in that they cease trading for the month at market close (4:15 pm ET) on the Thursday before expiration, but the settlement price is not that closing price on Thursday or the opening price Friday morning. Therefore, all final adjustments to positions must be done on Thursday before the close. On Friday morning, the settlement price will be computed based upon the opening prices of each of the stocks that make up that index. Since each stock may not trade immediately at the open, the settlement value may not be available until later that Friday morning. Since the settlement price may vary several dollars up or down from Thursday’s close, one must be cautious about going into settlement with any spread positions remaining open.Expected ReturnsIf you are placing your spreads for credits of $0.70 or more, then the returns for that iron condor will be about 15% for the month (remember that margin is only charged for one half of the iron condor). If we are using roughly half of our capital for an iron condor each month, then you can expect to average returns of about 6% to 8% per month. Of course, you may have to defensively close one of the spreads a few times per year and that will reduce the annualized return of this strategy. SummaryThe iron condor trading strategy is a relatively conservative, non-directional options strategy that may be used for consistent income. However, this strategy is typical of low return strategies with high probabilities of success. The probability of a loss is small, but one large loss will wipe out several months of profits. Thus, the key to success for trading iron condors is solid risk management rules for entry and exit, stop losses, and adjustments. When deployed conservatively as outlined herein, this strategy should reasonably be expected to return 5% or more per month.

Stock Option Trading Millionaire Principles

admin — Sun, 29 Nov 2009 19:18:20 +0000

INTRODUCTION
Having been trading stocks and options in the capital markets professionally over the years, I have seen many ups and downs.
I have seen paupers become millionaires overnight…
And
I have seen millionaires become paupers overnight…
One story told to me by my mentor is still etched in my mind:
“Once, there were two Wall Street stock market multi-millionaires. Both were extremely successful and decided to share their insights with others by selling their stock market forecasts in newsletters. Each charged US$10,000 for their opinions. One trader was so curious to know their views that he spent all of his $20,000 savings to buy both their opinions. His friends were naturally excited about what the two masters had to say about the stock market’s direction. When they asked their friend, he was fuming mad. Confused, they asked their friend about his anger. He said, ‘One said BULLISH and the other said BEARISH!’”
The point of this illustration is that it was the trader who was wrong. In today’s stock and option market, people can have different opinions of future market direction and still profit. The differences lay in the stock picking or options strategy and in the mental attitude and discipline one uses in implementing that strategy.
I share here the basic stock and option trading principles I follow. By holding these principles firmly in your mind, they will guide you consistently to profitability. These principles will help you decrease your risk and allow you to assess both what you are doing right and what you may be doing wrong.
You may have read ideas similar to these before. I and others use them because they work. And if you memorize and reflect on these principles, your mind can use them to guide you in your stock and options trading.
PRINCIPLE 1
SIMPLICITY IS MASTERY
When you feel that the stock and options trading method that you are following is too complex even for simple understanding, it is probably not the best.
In all aspects of successful stock and options trading, the simplest approaches often emerge victorious. In the heat of a trade, it is easy for our brains to become emotionally overloaded. If we have a complex strategy, we cannot keep up with the action. Simpler is better.
PRINCIPLE 2
NOBODY IS OBJECTIVE ENOUGH
If you feel that you have absolute control over your emotions and can be objective in the heat of a stock or options trade, you are either a dangerous species or you are an inexperienced trader.
No trader can be absolutely objective, especially when market action is unusual or wildly erratic. Just like the perfect storm can still shake the nerves of the most seasoned sailors, the perfect stock market storm can still unnerve and sink a trader very quickly. Therefore, one must endeavor to automate as many critical aspects of your strategy as possible, especially your profit-taking and stop-loss points.
PRINCIPLE 3
HOLD ON TO YOUR GAINS AND CUT YOUR LOSSES
This is the most important principle.
Most stock and options traders do the opposite…
They hold on to their losses way too long and watch their equity sink and sink and sink, or they get out of their gains too soon only to see the price go up and up and up. Over time, their gains never cover their losses.
This principle takes time to master properly. Reflect upon this principle and review your past stock and options trades. If you have been undisciplined, you will see its truth.
PRINCIPLE 4
BE AFRAID TO LOSE MONEY
Are you like most beginners who can’t wait to jump right into the stock and options market with your money hoping to trade as soon as possible?
On this point, I have found that most unprincipled traders are more afraid of missing out on “the next big trade” than they are afraid of losing money! The key here is STICK TO YOUR STRATEGY! Take stock and options trades when your strategy signals to do so and avoid taking trades when the conditions are not met. Exit trades when your strategy says to do so and leave them alone when the exit conditions are not in place.
The point here is to be afraid to throw away your money because you traded needlessly and without following your stock and options strategy.
PRINCIPLE 5
YOUR NEXT TRADE COULD BE A LOSING TRADE
Do you absolutely believe that your next stock or options trade is going to be such a big winner that you break your own money management rules and put in everything you have? Do you remember what usually happens after that? It isn’t pretty, is it?
No matter how confident you may be when entering a trade, the stock and options market has a way of doing the unexpected. Therefore, always stick to your portfolio management system. Do not compound your anticipated wins because you may end up compounding your very real losses.
PRINCIPLE 6
GAUGE YOUR EMOTIONAL CAPACITY BEFORE INCREASING CAPITAL OUTLAY
You know by now how different paper trading and real stock and options trading is, don’t you?
In the very same way, after you get used to trading real money consistently, you find it extremely different when you increase your capital by ten fold, don’t you?
What, then, is the difference? The difference is in the emotional burden that comes with the possibility of losing more and more real money. This happens when you cross from paper trading to real trading and also when you increase your capital after some successes.
After a while, most traders realize their maximum capacity in both dollars and emotion. Are you comfortable trading up to a few thousand or tens of thousands or hundreds of thousands? Know your capacity before committing the funds.
PRINCIPLE 7
YOU ARE A NOVICE AT EVERY TRADE
Ever felt like an expert after a few wins and then lose a lot on the next stock or options trade?
Overconfidence and the false sense of invincibility based on past wins is a recipe for disaster. All professionals respect their next trade and go through all the proper steps of their stock or options strategy before entry. Treat every trade as the first trade you have ever made in your life. Never deviate from your stock or options strategy. Never.
PRINCIPLE 8
YOU ARE YOUR FORMULA TO SUCCESS OR FAILURE
Ever followed a successful stock or options strategy only to fail badly?
You are the one who determines whether a strategy succeeds or fails. Your personality and your discipline make or break the strategy that you use not vice versa. Like Robert Kiyosaki says, “The investor is the asset or the liability, not the investment.”
Understanding yourself first will lead to eventual success.
PRINCIPLE 9
CONSISTENCY
Have you ever changed your mind about how to implement a strategy? When you make changes day after day, you end up catching nothing but the wind.
Stock market fluctuations have more variables than can be mathematically formulated. By following a proven strategy, we are assured that someone successful has stacked the odds in our favour. When you review both winning and losing trades, determine whether the entry, management, and exit met every criteria in the strategy and whether you have followed it precisely before changing anything.
In conclusion…
I hope these simple guidelines that have led my ship out of the harshest of seas and into the best harvests of my life will guide you too. Good Luck.

Understanding Stock Option Trading

admin — Sat, 28 Nov 2009 07:30:46 +0000

Stock option trading has always given the traders additional work of not just predicting correctly the security’s price. They also must choose the best option for trading strategies. But most stock traders incorrectly figure they can easily make the change from stocks to options.In order to make systems on option trading an on-going basis, the trader needs to fully understand the major differences between the stock and the option trading.With the options buying, time is the enemy. If each day passes without enormous changes, the value of the premium time will decline. In order to solve it, the value of the time premium should be declining more rapidly as the option reaches its expiration. The significant factor that option traders need to evaluate is the amount of time that is probable for a move in the stock to take place. Buying close to a stock’s low may be supportive as a strategy, but if the trader is obliged to wait too long in an options position, the loss of time could more than devastate a reasonable gain in the original stock.Most of the options analysts will inform traders to focus on the volatility assumption within the different options pricing model, for the reason that is the only aspect the standard options model assumes to be indefinite. The reason behind this is the Efficient Market Theory notion that stock prices cannot be predicted in the future. There are a lot of times traders that are way too positive in the scenarios they input, and a way to restrain this is by applying one of the following two tactics: The traders who want to make use of more conservative tactics can either choose to buy one strike further in-the-money or they can buy the next expiration month further out than they think they will be needing.Understanding all the commodity features and other option contracts is very important before investing into those kinds of contracts. You ought to know in advance the rules so that you can guesstimate whether you are competent of handling your obligations.The option trading systems and the futures which have been explained are inherently risky and very intricate. The investors need to recognize that this alternative does not pertain to all of them. In the case of investing, you need to know from the start how much you can lose and earnestly evaluate if you can afford to lose it in the analysis of your financial resources and the investment goals. You need to share your different conclusions with a broker in order to discuss if your decisions are sound and wise. If you think that you are most capable, willing, qualified and you have all the reasons to invest in the option trading and the futures, you also need to settle on the extent to which you wish to proceed, trusting your own intuition after consulting with a broker.

How to Make Money with Future Options Trading

admin — Thu, 26 Nov 2009 20:02:21 +0000

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