In January 2006, retirement planning became even more complicated with new Roth type accounts being available for 401k and 403b plans. If your employer chooses to offer this option, you may now be given the choice of making tax deductible or non tax deductible contributions.

Employers may amend their plan documents to allow for the new options provided for under recent tax legislation. However, they are not required to make this option available at this time. If implemented, this option would enable employees to make some, all, or none of their contributions either tax deductible or non tax deductible.

The Roth IRA allows for tax free distributions whereas the traditional IRA has a taxable distribution. Of course, there is a tax deduction for the traditional IRA, but not for the Roth. Unlike the Roth IRA, there are no income limits of any kind on the new Roth 401k/403b. Therefore, for those whose incomes exceed the Roth IRA limits, it presents a great opportunity to contribute to a Roth type product.

The tax free distribution on both the Roth IRA and the new Roth type 401k/403b is available at age 59 1/2. One major difference is that the Required Minimum Distribution (RMD)rules do apply on the new option and distributions must occur no later than at age 70 1/2.

The IRS has not issued final regulations on the new law. It is anticipated that new regs will be issued on designated Roth contributions by the end of the year. Due to this factor, most employers will not be making changes to their “defined contribution” plans this year. Until that time, any of the above information is subject to be refined. You may wish to consult your financial or tax advisor to make plans accordingly.

James Robert Coleman, E.A., A.T.A.
Enrolled Agent & Accredited Tax Advisor
Member: National Association of Enrolled Agents http://www.naea.org
Member: National Society of Accountants http://www.nsacct.org
Former IRS Revenue Officer, GS-11
http://www.exirsman.com

The World Wide Web is filled with hundreds of online futures trading brokers who offer services to hedgers and speculators wishing to play the futures markets. To access these brokerages and have round-the-clock information at your fingertips, it is necessary to make sure that your computer has the right configuration in order to run the trading platforms that you will have to use in order to trade in futures.

The services vary depending upon the investor’s depth of knowledge and support he requires, as well. Most have a quiz that you can take in order for them to judge your level of knowledge and recommend the type of account or trading platform you should opt for. When choosing a trading platform, you will be asked about your trading experience, frequency of trades, estimated monthly volume of contracts, type of trade – either electronic futures or pit-traded futures — and the amount of risk capital as well. The platforms that usually run on Java Applets will provide information such as single and multiple account trading functionalities, accessibility to multiple markets, and updated analysis on the markets. They will also have information from a number of stock exchanges incorporated into the platform.

If you wish to deal with pit-traded futures rather than electronic, another trading platform will be made available to you which will allow you direct access to your representative on the floor of the stock exchange.

All these services come along with the option of having a broker give you advice on the buying and selling of futures as well. You can choose the broker by filling out questionnaires available on the site. This will allow you to choose the broker you feel would fit your profile and understand your demands perfectly.

Thus, with the right amount of capital and knowledge of the futures market, plus the right brokerage, you will be able to turn in profits with just the click of a button!

Online Futures Trading provides detailed information on Online Futures Trading, Discount Online Futures Trading, Futures Trading Online Analysis, Online Futures Trading Brokers and more. Online Futures Trading is affiliated with Free Online Stock Trading.

Utilities

Want to know where NOT to invest in 2006? Among the less-than-attractive sectors are utilities. I know, I know – you can never get hurt with a utility stock, right? Wrong. These stocks got whacked in 2001/2002 like everything else did. They also got whacked in 93 and 94, when the rest of the market was doing ok. While it’s good to have a sector that can move independently of the market, that doesn’t make things any better right now for this group. Since the end of January, the S&P Utilities Index (UTIS) is down 3.1 percent. That’s not catastrophic, but adding in the fact that this index is also right where it ended June of last year, what you get is anything but bullish. For the sake of comparison, the S&P 500 is up 2.1 percent since the end of January. Since June, the S&P 500 is up by 9.8 percent. See why I’m not thrilled with utilities? And I don’t think it’s going to get better any time soon.

That said, not all the utility stocks are in dire straits. Public Service Enterprise (PEG) and Exelon (EXC) seem to be surviving. So does Duke Energy (DUKE) and Kinder Morgan (KMI). It’s just that the majority of these stocks are headed lower…..enough to make you think twice about buying them indiscriminately. And if you do happen to have one of the ones that hasn’t been voted off the island yet, be sure to keep it on a tight leash.

S&P Utilities Index (UTIS) – Monthly
http://bluegrassportfolio.com/images/031706utis.gif

Consumer Discretionary

The consumer discretionary stocks are my other least favorite group right now. It’s a bit surprising really, as the economy has been pretty strong, employment has been improving, and consumer spending is as good as it’s ever been (not that it ever really slows down). Yet, the S&P Consumer Discretionary Index (CODI) is just not getting any traction. In fact, this sector has been in trouble for more than a year. Since the end of 2004, this index has pulled back by 6.0 percent, and is still itching to go lower. How bad is that in the bigger picture? The S&P 500 gained 7.9 percent during that time.

But like the utilities stocks, it might pay to be selective among these stocks. We have seen – and are seeing – many of the industries within this sector thrive, even though the sector itself is not. The casinos and gaming stocks like Wynn Resorts (WYNN) and Isle of Capris (ISLE) have done pretty well, as have the department stores. Shares of Federated (FD) and Saks (SKS) have both put up decent (albeit volatile) numbers. So clearly, this sector isn’t a lost cause in terms of individual names. But in terms of the broad view, there are a handful of problems. Some of the main culprits are the auto manufacturers and film companies. Time Warner (TWX) and Regal Entertainment (RGC) have been nothing but trouble. The same goes for Ford (F) and General Motors (GM). However, I have to confess that I have the auto-makers back on my watchlist. This just might be they year they get their transmission stuck out of reverse, so to speak.

S&P Consumer Discretionary Index (CODI) – Monthly
http://bluegrassportfolio.com/images/031706codi.gif

Consumer Staples

The list of sectors worth a closer look still includes telecom, financials, and healthcare. None have been great lately, but not much of anything has. One of the other sectors I’m starting to warm up to is the consumer staples group. The S&P Consumer Staples Index (CSTP) is about even for the year, and up by about 9.6 percent over the last twelve months. That trails the market’s twelve-month performance slightly (+10.8%), but I’d gladly give up a little bit of return for the stability that the consumer goods stocks are providing. Plus, I think the underlying improvement in the fundamentals here could accelerate the entire sector. The average P/E here is 21.41 (Hemscott), and dividends are decent. But when industry leaders Procter & Gamble (PG) and Campbell Soup (CPB) are discovered by investors again, I think they could lead the way for the whole group……and end up as market leaders.

S&P Consumer Staples Index (CSTP) – Monthly
http://bluegrassportfolio.com/images/031706cstp.gif

James Brumley is a freelance writer and investment manager. His company – Bluegrass Portfolio Management – offers retail and institutional investors a performance-oriented recommendation service. You’ll also find his commentary in several financial-based websites and periodicals.

You can visit Mr. Brumley’s home site by clicking: http://bluegrassportfolio.com/index.html

Let’s look at how the options will react in the three scenarios:
up, down, and stagnant. Remember, we have entered this trade
already down $5,000 from the stock purchase.

If the stock continued to trade down, the option position would
produce no additional loss. Because it didn’t cost you anything
(ideally) to initiate this strategy, you will not lose anything
additional on the spread as the stock trades down further.

This is a major advantage over doubling down, because the spread
cannot add to the existing losses of the stock position.

With the stock trading down and closing below $30.00, the
February 30 calls and the Feb. 35 calls will both expire
worthless. Since the cost of construction of the stock repair
strategy didn’t cost you anything (in our example), and the
trade is now worthless, then you haven’t lost anything
additional. Although your stock position will continue to lose,
it will not be compounded by doubling your stock position or
doubling down.

If the stock stays stagnant and closes at $30.00, again the
position will not make or lose anything additional. With the
stock at $30.00, both the February 30 calls and the February 35
calls will expire worthless.

The up scenario is where the stock repair strategy is really
powerful. The best way to see how this strategy works on the
upside is to fix the stock price at different levels. With the
stock at $31.00, the Feb 30 calls are in the money and will be
worth $1.00 while the Feb. 35 calls that you sold are
out-of-the-money and will be worth 0.

This gives the 1 by 2 spread a value of $1.00. You purchased the
spread for “even money” so you now have a $1.00 profit on the
spread. Meanwhile, since you still own the stock, it is also up
$1.00. So, with this $1.00 movement, you have recovered $2.00 of
your losses back. This continues to work this way as the stock
rises up to $35.00. At $35.00, the Feb. 35 calls will still have
no intrinsic value, therefore the 1 x 2 spread which you own is
now worth $5.00.

At this moment, with the stock recovering from $30.00 to $35.00
and the spread earning $5.00, you are now even in your overall
position. You had originally lost $10.00 on the stock trading
down from $40.00 to $30.00. Now, with the help of the Stock
Repair Strategy (1 x 2 spread) you have made your loss back on a
50% retracement bounce from the original loss ($40 -> $30 ->
$35) without having to take on any additional risk, as in the
case of doubling down.

Now, if you were concerned about being long only 5 options
versus being short 10 options, you should be congratulated for
your observation of potential risk. Once the stock trades over
35, the Feb. 35 calls become in-the-money and have value. As the
stock continues up the Feb 35 calls will start to outpace the
Feb 30 calls in value.

However, there is not cause for concern because the 5 ITM calls
that you own, coupled with the 500 shares of stock that you
originally bought, are now moving up in tandem with your short
calls, so any loss you experience with them over $35 will be
‘covered.’

Remember, you still own 500 shares of XYZ. No matter how much
higher above $35.00 the stock goes, each of the Feb. 35 calls is
covered. Five are covered by the long Feb. 30 calls, which
created a 1 x 1 vertical call spread (Feb. 30 – 35 call spread.)
and the other Feb. 35 calls are covered by your long stock. You
own 500 shares and that matches the 10 short Feb. 35 calls
exactly when coupled with your long Feb 30 calls. This is why
the exact volume construction we talked about earlier is so
important.

Therefore, after the stock trades through $35.00 the positions’
maximum return is locked.

Amazing Options Trading Strategies For Safer Investing
and Explosive Profits. Discover how to protect your
investments with the leveraged power of options. Step
by step video tutorials show you how. Click here now:
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More investors are now inquiring about Coalbed Methane exploration companies. Just as uranium miners were flying well below the radar screen in early 2004, coalbed methane exploration may very well be the next very hot sector later this year and next. Historically, coalbed methane gas endangered coal miners, resulting in alarming fatalities early in the previous century. This is the fate suffered today by many Chinese coal miners in the smaller, private coal mines. Typically, the methane gas trapped in coal seams was flared out, before underground mining began, in order to prevent those explosions. Rising natural gas prices have long since ended that practice.

Today, coalbed methane companies are turning a centuries-long nuisance and byproduct into a valuable resource. About 9 percent of total US natural gas production comes from the natural gas found in coal seams. Because natural gas prices have soared, along with the bull markets found in uranium, oil, and precious and base metals, coalbed methane has come into play. It is after all a natural gas. But because it is outside the realm of the petroleum industry, coalbed methane, or CBM as many industry insiders call it, is called the unconventional gas. It may be unconventional today, but as the industry continue to grow by leaps and bounds, on a global scale, CBM may soon achieve some respect. Please remember that a few years ago, there was very little cheerleading about nuclear energy. Today, positive news items are running far better than ten to one in favor of that power source.

CBM is the natural gas contained in coal. It consists primarily of methane, the gas we use for home heating, gas-fired electrical generation, and industrial fuel. The energy source within natural gas is methane (chemically, it is CH4), whether it comes from the oil industry or from coal beds.

CBM has several strong points in its favor. The gases produced from CBM fields are often nearly 90 percent methane. Which type of gas has more impurities? No, it isn’t the natural, or conventional, gas you thought it might be. Frequently, CBM gas has fewer impurities than the “natural gas” produced from conventional wells. CBM exploration is done at a more shallow level, between 250 and 1000 meters, than conventional gas wells, which sometimes are drilled below 5,000 meters. CBM wells can last a long time – some could produce for 40 years or longer.

Natural gas is created by the compression of underground organic matter combined with the earth’s high temperatures thousands of meters below surface. Conventional gas fills the spaces between the porous reservoir rocks. The coalification process is similar but the result is different: both the coalbed and the methane gas are trapped in the coal seams. Instead of filling the tiny spaces between the rocks, the coal gas is within the coal seams.

One of the past problems associated with CBM exploration was the reliance upon expensive horizontal drilling techniques to extract the methane gas from the coal seams. Advanced fracturing techniques and breakthrough horizontal drilling techniques have increased CBM success ratios. As a result, a growing number of exploration companies are pursuing the early bull market in CBM. Market capitalizations for many of these companies mirror similar “early plays” we mentioned during our mid 2004 uranium coverage (June through October, 2004). Industry experts told us there would be a uranium bull market. Now, we are hearing the same forecasts about CBM.

SEVEN TIPS BY DR. DAVID MARCHIONI

We asked Dr. David Marchioni to provide our subscribers with his 7 Tips to help investors better understand what to look for, before investing in a CBM play. Dr. Marchioni helped co-author the CBM textbook, An Assessment of Coalbed Methane Exploration Projects in Canada, published by the Geological Survey of Canada. He is also president of Petro-Logic Services in Calgary, whose clients have included the Canadian divisions of Apache, BP, BHP, Burlington, Devon, El Paso Energy, and Phillips Petroleum, among others. He is also a director of Pacific Asia China Energy and is overseeing the company’s CBM exploration program in China.

Our series of telephone and email interviews began while Dr. Marchioni sat on a drill rig in Alberta’s foothills, the Manville region, until he finished outlining his top 7 tips, or advices, on how to think like a CBM professional.

1) COAL SEAM THICKNESS

Is there a reasonable thickness of coal? You should find out how thick the coal seams are. With thickness, you get the regional extent of the resource. For example, there must be a minimum thickness into which one can drill a horizontal well.

2) GAS CONTENT

Typically, gas content is expressed as cubic feet of gas per ton of coal. Find how thick it is and how far it is spread. Then, you have a measure of unit gas content. Between coal seam thickness and gas content, you can determine the size of the resource. You have to look at both thickness and gas content. It’s of no use to have high gas content if you don’t have very much coal. The industry looks at resource per unit area. In other words, how much gas is in place per acre, hectare, or square mile? In the early stage of the CBM exploration, this really all you have to work with in evaluating its potential.

3) MATURITY LEVEL OF THE COAL

This is the measure of the stage the coal has reached between the mineral’s inception as peat. Peat matures to become lignite. Later, it develops into bituminous coal, then semi-anthracite and finally anthracite.

There is a progressive maturation of coal as a geological time continuum and the earth’s temperature, depending upon depth. By measuring certain parameters, you can determine where it is in the chemical process. For instance, the chemistry of lignite is different from that of anthracite. This phrasing is called “coal rank” in coal industry terminology.

4) PERMEABILITY

When you are beginning to think about CBM production, this and the next item must be evaluated. How permeable is the CBM property? You want permeability, otherwise the gas can’t flow. If the coal isn’t permeable at all, you can never generate gas. The gas has to be able to flow. If it is extremely permeable, then you can perhaps never pump enough water. The water just keeps getting replaced from the large area surrounding the well bore. The water will just keep coming, and you will never lower the pressure so the gas can be released.

5) WATER

In a very high proportion of CBM plays, the coal contains quite a lot of water. You have to pump the water off in order to reduce the pressure in the coal bed. Gas is held in coal by pressure. The deeper you go, typically the more gas you get, because the pressure is higher. The way to induce the gas to start flowing is to pump the water out of the coal and lower the “water head” of pressure. How much water are we going to produce? Are we going to have to dispose of it? If it’s fresh, then there may be problems with regulatory agencies. In Alberta, the government has restrictions on extracting fresh water because others might want to use it. One could be tapping into a zone that people use as water wells for farms and rural communities. Both water quality and water volume matter. For example, Manville water is very salient so nobody wants to put it into a river; this water is pushed back down into existing oil and gas wells in permeable zones (but which are also not connected to the coal).

6) FUNDING

To be able to access land and do some initial drilling, i.e. the first round of financing, it would cost a minimum of C$4 million. This would include some geological work and drilling at least five or six wells. In Horseshoe, that would cost around C$4 million (say 1st round of finance); in Manville, about C$9 million. This is under the assumption that the company doesn’t buy the land. The land in western Canada is very expensive and tightly held. Much of the work is done as a “farm in” drilling on land held by another for a percentage of the play. (Editor’s note: During a previous interview, Dr. Marchioni commented about his preference for Pacific Asia China Energy’s land position in China because comparable land in western Canada would have cost “$100 million or more.”

7) INFRASTRUCTURE

The geology only tells you what’s there, and what the chances of success are. You then have to pursue it. Can we sell it? Gas prices are “local,” meaning they vary from country to country, depending whether it is locally produced and in what abundance (or lack thereof). How much can we extract? How much is it going to cost us to get it out of the ground? Are there readily available services for this property? Will you have to helicopter a rig onto the property at some incredible price just to drill it? Will you have to build a pipeline to transport the gas? Or, in China as an example, are there established convoys for trucking LNG across hundreds of kilometers?

One addition, which we have mentioned in previous articles, and especially in the Market Outlook Journal, “Quality of Management Attracts PR,” it is important that the CBM company have experienced management. This would mean a management team that includes those who have gotten results, not only a veteran exploration geologist but a team that can sell the story and bring in the mandatory financing to move the project into production.

There are two primary reasons why many of these coalbed methane plays are being taken seriously. First, the macroeconomic reason is that rising energy costs have driven companies in the energy fields to pursue any economic projects to help fill the energy gap. Coalbed methane has a more than two decades of proof in the United States. The excitement has spread to Canada, China and India, where CBM exploration is beginning to take off. Second, the fundamental reason is that exploration work has already been done in delineating coal deposits. There are, perhaps, 800 coal basins globally, with less than 50 CBM producing basins. In other words, there is the potential for growth in this sector.

James Finch contributes to StockInterview.com and to other publications. His archived work can be found at http://www.stockinterview.com Feedback is encouraged and James Finch can be contacted by email at jfinch@stockinterview.com

Today, we live in an age with a huge amount of information at our disposal and the internet has bought a huge volume of currency trading research to everyone.

Yet this information has not helped increase the number of winning traders. Why?

Quite simply traders don’t know how to pick the right currency trading research, or how to use it correctly – here we will show you how and how to make big gains.

First things first

Many traders like to follow currency trading research and then blame it when they don’t make money.

If you follow currency trading research remember – it’s your call at the end of the day, if you did the trade win or lose that was up to you – you are responsible.

You need to check the currency research you follow carefully, fully understand it, to take both profits and losses.

Fundamental or technical

We often see people combine the two. Traders figure that they can use technicals and fundamentals together – they can’t.

With currency trading research you either do one or the other – not both.

Why?

Quite simply, there different ways of trading and you cannot combine them.

Consider this, at important market tops they normally oppose each other!

If they both agree you probably have a losing trade.

Go with one or the other and our view is with currency trading research go with the technicals.

Here are some tips on getting the best from technical currency research.

Have confidence

If you follow someone else’s currency trading research or you have devised your own system, you must have confidence that the logic works.

Why?

Because, if you don’t you will never have the discipline to follow it through your inevitable losing periods.

All currency trading research and the signals it generates will lose sometimes, so you need to stick with it and that requires confidence in it to succeed longer term.

Keep it simple!

It is a fact that simple trading methods are the best, as they are more robust in the face of brutal market trading conditions.

Simple research based on indicators that are easy to understand and apply works best.

Don’t join the far out investment crowd

By this we mean don’t be sucked in by the hype with currency trading research that promises 87% accuracy and their selling it for a $100! Making money is not easy remember that!

The real suckers though follow predictive theories such as Elliot wave and Gann.

They can predict the market in advance. Fantastic!

However, the reality is these theories don’t work (its obvious why, if we all knew the price in advance there would of course not be a market) forget these theories and leave them for the dreamers and losers.

Focus on technical currency trading research that uses basic chart analysis with a few filter indicators that you understand and have confidence in.

Currency trading research – what works?

Look for currency trading research that uses breakout methods or is based upon Dow Theory and uses common indicators to filter trades like:

Stochastics, moving averages, MACD, Bollinger bands, RSI etc

Keep in mind the following

There is an awful lot of currency trading research on the net and traders have a lot to choose from.

They tend to pick systems that recommend easy profits or predict the market – they think making money is easy and that’s why they lose.

Don’t fall into this trap!

Using currency trading research correctly

If you follow currency trading research, make sure you understand it, feel confident in it and remember – simple methods and research are always the best and NEVER try and combine technical currency research with fundamental research to generate trades – this will ensure you lose.

If you want to win focus on technical currency research and follow the tips above to huge profits longer term.

For a FREE Sample

Of a simple currency trading research newsletter at is easy to understand and trade as well as 100 page CD packed with tips and strategies to make you a better trader visit http://www.wellingtoncr.com

Trading money in the global markets can be great way to make more of it, but it can also be a lesson in how to lose money quickly. More than $1 trillion is traded every day on the foreign currency exchange (Forex), and yet no centralized headquarters or formal regulatory body exists for this form of trade. Foreign currency exchange is regulated through a patchwork of international agreements between countries, most of which have some type of regulatory agency that controls what goes on within their respective borders. Thus, the foreign currency exchange actually is a worldwide network of traders who are connected by telephone and computer screens.

It is very important to understand money jargon in FX trading. The world of foreign currency exchange has a unique language of its own. Prices are quoted two ways, meaning that when one trader talks price with another, they state their respective prices in terms of what exchange rate they will pay to buy it and what they will take when selling it. Bid and ask price differences, or spreads, usually are stated in pips or hundredths of a currency units. Spreads normally are no more than ten pips.

Pips are the smallest incremental price movement permitted in the currency market. Although most transactions deal in thousands or millions of dollars, yen, Euros or other currencies, and a one-cent spread can equal thousands of dollars, most currency price quotes nevertheless are extended out to four decimals. Many times, traders quote only the last two digits or the small numbers, because the incremental changes are so small only the last two digits matter. As a trader in FX trading you need to think in terms of the host currency when receiving a quote for direct exchange, which would be an exchange based on the value of the host country’s currency.

FX Trading provides detailed information on FX Trading, Online FX Trading, FX Currency Trading, FX Trading Platforms and more. FX Trading is affiliated with Online Forex Trading Systems.

Commodity trading is remarkable, especifically because it is possible to make large amounts of money in a short period of time. It is simply a means of trading any physical material that is exchangeable with another like item that investors buy or sell. Commodity trading is basically speculation on the future price actions of a basic raw material. Commodity trading is the one area of the financial markets where any individual with persistence, money to risk, and discipline can be extremely successful. Commodity Trading is also a way to make money fast, but carries considerable risk to your principal. Commodity trading is too risky to try without some sort of trading system or strategy.

Traders enter commodity trading with a view to making big money. Contrary to what many traders say, the mechanics of trading is uncomplicated. You can gain a thorough understanding of how the commodity markets work just by reading a basic guide to Commodity Trading. It should include how to place a trade, contract sizes, margin requirements, and more useful information for newbie traders. Short-term trading is how the majority of traders and would-be traders take part in the markets. Discover what professional commodity trader’s do that separates them from the losing masses. You will also want to find a firm that offers commodity traders low commissions, quick executions, charts and free quotes.

You should be advised that commodities trading is not for everybody, and if you decide to open a commodity trading account be sure you understand all the risks involved. You may make all of your own trading decisions. Or, for individuals who prefer to leave trading up to a professional commodity trading advisor, a managed account may be the better choice for them. Discuss your commodities trading plan with a commodity broker.

Commodity trading is one of the few remaining level playing fields available to traders. Commodity trading is certainly not for everyone because it can be one of the most volatile markets you can trade. If you are thinking about trading on the futures markets, please do your research and read a commodities trading guide to see if commodity trading is for you.

Investment strategy and investments are as different as the many people who are involved with them. And stocks may be the route to your financial freedom.

That being said, what can we suggest to help the average Joe make his way in the world of stocks? Investment strategy can come from your barber, your brother or your neighbor. There are more ‘financial planners’ these days than ever and advisors all have their own agendas. In a word, Caution. Don’t blindly rely on advisors and planners.

You need to establish your own criteria for selecting stocks, making investments and whether an expert is going to help you do it. It’s your money. You need to care more than any planner. And you need to become as educated or more so than the experts who are helping you with investment strategy.

Now don’t be overwhelmed. You can learn to become the expert about where you are going to put your money. Companies, which issue stocks, have to file reports with the regulatory bodies, most notably the SEC (Securities and Exchange Commission). And they will have an Investors Relations department to provide you with expert information to evaluate your investment strategy.

Get these resources on companies you’re interested in. And read them. Question them; learn them. With these few steps, you will know more about this investment than most advisors and financial planners.

As you go, you’ll learn more expert questions to ask about specific stocks. And you’ll be able to evaluate the answers you get. And whether they are valid with regards to this investment. Learning these skills will help you develop investment strategy and prepare for your financial freedom. Use that as your motivation to understand stocks and investments.

Stephanie Mundle is the managing editor of http://www.MoneyMasteryForum.com an informational forum site for the average investor. Take a look. Information on forex, debt, money management, investing and business.

Come check out the forum at http://www.MoneyMasteryForum.com/forum.html
country.html

Sometimes, Wall Street has a very convoluted way of looking at
things. For instance, consider the term “smart money.” One would
think the term “smart money” would refer to a professional
investor with incredible talent or a fund manager, market
strategist or analyst that has had consistent success over
different market scenarios, spanning many years.

Or perhaps a trader/investor who has an intimate knowledge of
the market and has mastered the tools of his trade, including
technical and fundamental analyses, hedging and option theory,
and an expert knowledge of the global economy.

Wouldn’t this definition be a better fit for the term “smart
money”? Maybe, but not in Wall Street’s eyes. On Wall Street,
the term “smart money” refers to someone with ‘privileged’
information, who uses it to their advantage. This person, fund,
or group doesn’t necessarily have any special ability, talent or
expertise.

They only know something that the public has not been made privy
to. They have a piece of insider information that they sometimes
use illegally to profit in the market. It happens all the time.
So, on Wall Street, “smart money” is often synonymous with
cheating or illegal activity.

For many years, most professional traders and even individual
investors have studied long and hard in order to acquire skills
that would aid them in their quest to be better, more competent
traders or investors. However, not having access to the same
level of information as ‘smart money’ sometimes puts the retail
investor at an extreme disadvantage.

A person with insider information has a crystal ball. He knows
the outcome of the game before the game is even played. The SEC
has rules in place to try to prevent this from happening but
these rules haven’t eliminated the problem because the SEC
cannot always ‘prove’ their case. Therefore, there is still a
lot of “smart money” out there.
Most “smart money” traders try to keep a very low profile for
obvious reasons. The easiest way for them to do this is in the
options market where there are fewer participants thus fewer
eyes and ears to notice any unusual trading.

Further, the options markets offer much greater leverage,
allowing “smart money” to reap even greater rewards. For
example, If you knew that XYZ stock was going to report bad
earnings, and you knew this ahead of the ‘market’, it would be
much cheaper and more profitable buying puts in the options
markets as compared to just shorting the stock.

This is exactly what happens, and it happens more than you
think. The game is always easier when you know the outcome
before everyone else, and these ‘smart money’ players are out
there making fortunes in the options markets because they know
what you don’t.

“Follow in the footsteps of elephants”

What do we mean by this?

When a stock’s option volume and implied volatility increase
significantly, it is often a harbinger of things to come.
Although the stock’s price action may seem quiet and uneventful,
not reflecting any unusual activity, the stock’s option activity
can be telling a very different story.

An unusual and greater than normal increase in option volume or
implied volatility can be an indication that large, informed
‘smart money’ players (the elephants) are placing bets on
upcoming events or announcements. These announcements can often
have a significant impact on the price of the underlying stock,
as with important corporate earnings, or other news.

These “smart money” traders or “insiders” who have privileged
information will try to act on this information before it
becomes public knowledge. The trading of options allows these
“well informed investors” to increase their leverage and enables
them to maximize their gains without risking their identity.

So how can we, as retail investors, benefit from this knowledge?

A significant increase or abnormal fluctuation in the trading
volume of a stock’s options and/or a substantial increase in the
daily implied volatility of the stock’s options can be a
precursor of a major movement of the respective underlying
stock.

Sudden changes in options volume and implied volatility can be a
tip off to potentially explosive moves in individual stocks. A
move of great magnitude is almost always going to be fueled by
news, but correct analysis of option order flow can alert one
before the news is disseminated to the public.

Often this type of news strikes hard at the heart of a company’s
future prospects for growth and profitability.

Examples of these types of news are the following:

1 Earnings substantially better or worse than Wall Street
expectations
2 New product developments or breakthroughs
3 Mergers and acquisitions
4 Upgrades/Downgrades coverage by Wall Street Analysts
5 Media coverage
6 Products waiting for FDA approval or in clinical trials

And fairly often, this type of news is leaked. The people and
organizations who know about this information will use it to
their advantage. By looking for this unusual option order flow,
traders can spot unique opportunities and bank big profits just
by ‘following in the footsteps of elephants.’

There is more to this strategy than we will get into here, like
making sure that there is not also abnormal options size on the
opposite call / put options (usually just indicates hedging),
but it still can be a very effective ‘clue’ to be aware of.

Since wagers are based on irregular movements in respective
companies, this strategy’s performance is not dependent on
interest rate stability, favorable stock market environment or
any other market factor. This may present major profit
opportunities, and returns can sometimes be far superior when
compared to other strategies.

Conclusion: this trading strategy analyzes options data for the
purpose of identifying significant increases (or abnormal
fluctuations) in trading volume and volatility of the stock’s
options as an indicator of movement and the timeliness of that
movement in the underlying security. Options order flow analysis
can be an indicator of “smart money” positioning, prior to
publication of significant business announcements.

Another clue traders can look for are ‘block trades’ on the TOS
(Time of Sales) reports. This is a related strategy, and does
not necessarily indicate ‘insider’ buying, but can alert the
astute trader to large institutional blocks of options being
bought on either side of the underlying stock.

For example, if the average option trade size on a particular
stock’s options is 5, 10, or 20 contracts, and you suddenly see
large blocks of 200, 500 or 1000 contracts going into the close,
then this is sometimes noteworthy and worth paying attention to
the underlying stock.

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Traders in FX trading can be grouped into one of four basic types- bankers, brokers, customers and central banks. Bankers, banks and other financial institutions do the lion’s share of trading. They make profits buying and selling currency to each other. Approximately two-thirds of all Forex transactions involve banks dealing directly with each other.

Brokers or dealers sometimes act as intermediaries between the banks, helping them or other traders looking for a good deal find out where they can get the best currency trade. Buyers and sellers like working through brokers or dealers because they can trade anonymously through intermediaries. Brokers make profits on currency exchanges by charging a commission for the transactions they arrange.

Customers, which primarily are major companies, trade currency so they can operate globally or invest internationally. Companies that trade currencies regularly have their own trading desks, while others conduct their currency trading through brokers or banks.

Central banks like the US Federal Reserve, acting on behalf of their governments, sometimes participate in the Forex market to influence the value of the currencies of their respective countries. For example, if the Federal Reserve believes the dollar is weak, it may buy dollars and even encourage central banks of other countries to do the same in the Forex market to increase the value of the dollar.

Among the many factors that impact the value of a nation’s currency are business cycles, political developments, changes in tax laws and stock market news. Traders must monitor all these potential factors so that they can stay on top of political or economic changes that impact the value of the currencies they hold. Currency trading, like other forms of trading, is affected by the basic economic principle of supply and demand. When a large amount of one type of currency is available for sale, the market can be flooded with it and the price of that currency drops. When the supply of currency is low and the demand for it is high, then the value of that currency rises.

FX Trading provides detailed information on FX Trading, Online FX Trading, FX Currency Trading, FX Trading Platforms and more. FX Trading is affiliated with Online Forex Trading Systems.

Want to know what buying strategies to use when buying stocks that can potentially return triple digit gains? In part one of this series, I told you what factors you must consider when buying a small or micro-cap stock. In part two, I’ll review intelligent buying strategies when it comes to buying small caps.

Rule Number Two: Remove emotions from your buying decisions with a disciplined strategy.

Ok, so let’s assume that you’ve done your homework now and discovered a company that you believe will run up at least 60% or higher over the next year. Decide on a predetermined buying price and do not waver from this price. Period. End of discussion.

Why?

Ok, let’s take a look at hypothetical stock YYY. Company YYY is the industry’s leading innovator in a huge growth industry that has seen the biggest growth spurts in history for the last three trailing quarters, yet the general public still does not know about them. In addition, they have patented technology that lets them protect their first mover advantage and high entry costs into the industry gives them nice barriers to entry. On top of all of this, Company YYY is trading at a ridiculously low P/E and a ridiculously low price of $3. In fact, its price would have to appreciate 200% just to equal the P/Es of the giants in the field. You study YYY’s historical price chart and see some volatility, so you decide you will wait until the price drops to $2.80 to get in. But in the two days you wait for company YYY’s stock to drop in price, it unexpectedly shoots up to $5.50. Or perhaps it plummets way below your $2.80 buy in price to $2.00. On no new significant news.

Depending on what scenario happens, you may be thinking “I’m so dumb not to have bought at $3. I guess I’m just going to have to bite the bullet and dive in at $5.50,” or “This is so great. I wanted to get in at $2.80. Now it’s so much cheaper at $2.00 that I’m definitely going to buy now.”

Right? Wrong.

Stick to your original plan. If you throw your buying strategy in the trash and decide to get in at $5.50, you’re letting emotions drive your decisions instead of logic. If you were only willing to pay $3, why would you possibly be willing to pay 83% more for the same stock just 48 hours later? And if we consider the second scenario where the stock plummets to $2 a share, don’t you think that this merits more caution instead of haste? Remember, in both hypothetical situations, we are assuming there is “no new significant news” surrounding stock YYY to justify these huge price movements. Under these assumptions, the volatility of the stock is probably occurring because of jumpy day traders taking profits off the board or dumping shares.

But let’s take a closer look at why letting emotions creep into your decisions is a bad idea. Let’s look at the situation again where stock YYY blew through your designated buy in price of $2.80 and went to $5.00 in two days. Let’s assume you stick to your guns, wait two weeks, and buy-in when YYY stock finally dips to $2.80. Now employing a stop loss of 15% against your buy-in price, your sell-out price of the stock is $2.38 versus $4.68 if you had bought the stock when it spiked up to $5.50. This huge gap in stop-loss price points may very well be the difference between holding on to the stock and earning 80% gains versus selling out 48 hours later and feeling confused as to whether or not you should buy back in.

To summarize, never throw out a pre-designated buying price for a risky stock due to unexpected price spikes. If this happens, stick to your original buying strategy if you still believe in the stock and wait until volatility decreases before you buy at your pre-designated buy-in price.

Remember, there are literally hundreds of stocks every year that make rapid double or triple digit gains. If it turns out that you missed out on one opportunity because the stock soared right through your buy in price and kept soaring higher or the stock’s price took a sudden plunge, know that there are hundreds of other opportunities waiting to be discovered. If the stock you loved so much never returns to your buy-in price, move on. You’ll find a better stock to buy soon enough.

© 2006 Global Market Opportunities

About the author:

This article may be freely reprinted on another website as long as it is not modified, changed, or altered and as long as the below author byline is included along with the active hyperlink exactly as is.

J. Shin Kim is the founder of Global Market Opportunities. If you’re tired of measly 6%, 7%, and 10% returns from your stock portfolio, learn more about how to identify small and micro cap stocks that consistently and significantly beat the market indices by clicking the following link, Learn to Invest Money and Achieve Financial Freedom. Also subscribe to our free investment advice newsletter by visiting this link.

Commodity day trading most commonly refers to the practice of buying and selling stocks during the day. By the end of the day, there has been no net change in position. For every share of stock bought, an equivalent share is sold. A gain or loss is made on the difference between the purchase and sales prices.

Studies have shown that the more money you have to trade in commodity, the better your chances of success. While some vendors (who want to sell you something) suggest you can trade with any amount you may have, most experts agree that with less than $10,000, your success depends on luck. You just don’t have enough to diversify and apply proper risk management principles.

Risk is always commensurate with reward. If you are trying to “get rich quick,” the high risks you will have to assume will probably break you. Commodity trading is not inherently risky. It is only as risky as you want to make it. Most people lose, because they can’t control themselves or the urge to gamble. A disciplined person trading a solid, trend-following system with sufficient capital to diversify can reasonably expect consistent returns of 25 to 50 percent a year, with drawdown of 15 to 30 percent.

You won’t find many people who have made a long-term career from commodity day trading. Short-term price data is too random to exploit. This has been demonstrated mathematically. The only way to trade successfully is to follow trends. The trends you follow must be large enough so that the average trade result is greater than the costs of trading. Day trading in commodity does not permit you to do this on a consistent basis. Long-term trading is much easier.

Rolling is defined in options as moving a position from one
strike to another either vertically in the same month,
horizontally to another month or some combination thereof.

Other times, you may have to buy your short call back so that
you will not lose your stock. Sometimes, you may even want to
allow the stock to be called away if you have decided that the
stock has reached a level were you want to take your profits and
begin to look for another opportunity.

The term “roll” means to move your position either out to the
next strike or to move your position up or down a strike in the
same month. The term “roll” means “to move.”

Rolling is normally done via time spread and/or vertical
spreads. Without getting into the trading of spreads, which is a
unique strategy in itself and a topic for future Options
University courses, we will talk a little about the “roll.”

As stated before, the covered call strategy is most effective
when executed month in and month out over an extended period of
time.

In order to do this, an investor must re-initiate the position
every month at the option’s expiration. The re-initiation of the
position every month is where the term rolling comes from.
However, there may be times when you may want to give yourself a
little more upside room for capital appreciation. In those rare
cases, you will not want to “roll” the position, because it
might be called away if the call you sold is exercised when it
becomes ‘in the money.’

When an option’s expiration approaches, your short option can
either be in-the-money or out-of-the-money. As we discuss the
two potential outcomes, let’s first assume that we want to hold
onto our stock.

If the option is going to finish out of the money, you would let
it expire worthless and then sell the next month’s call. If the
option is going to expire in-the-money and you want to keep the
stock you will need to buy the short option back and sell the
next month’s call.

This trade will consist of two option trades. You will be buying
one option and selling another, which is commonly known as a
spread and is referred to as a single trade.

So, when you roll out your covered call or buy-write, you do it
by doing a spread. The front month option, the one that you
happen to be short, will be bought back thus ensuring you keep
your stock.

The second month option will be sold short thus re-initiating
your covered call strategy. The position that remains is long
stock and short calls. As far as the selection process of the
spread used for the rolling of the position, there will be some
choices.

Of course, there is no choice as to the front month option, you
must buy back the option you are short. However, you do have a
choice as to the next month option you are going to sell,
whether it be near term or farther out in expiration.

This goes back to our earlier conversation about lean. If you
are no longer bullish then you would not have bought back your
short call and instead allowed it to be exercised and have the
stock called away from you. If you choose to roll the position
then you must be somewhat bullish on the stock. Your lean will
dictate to you which new option to sell.

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and Explosive Profits. Discover how to protect your
investments with the leveraged power of options. Step
by step video tutorials show you how. Click here now:
http://www.options-university.com