Everything seems to go going down. Charts mostly red. Despite yesterday’s gains, the fundamental problems causing the significant drops of last week haven’t disappeared. I think we’re heading for another dip. But this time I kind of know what the bottom of the next spike / trough will be and i’m waiting for it. But don’t take my word for it - nobody knows anything.

What can I say except down is good: there’s money to be made in the short term.

Even in the (v) long term, I think you’re safe if you followed the macro trend: e.g. mining will go up because the demand from China / India will be sustained; some biotechs will pay off big; African mobile / telecoms will develop etc…

I think it is a fools day for buying. Which means, what to do all day?

Have you seen the new surgically enhanced Faye Dunaway? Scary. Facial surgery for women is like the comb-over for men. You think it looks good but it doesn’t. Don’t they know that?

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Many traders love the idea of currency options, they have unlimited gains and limited risk - sounds great in theory, but in practice 90% expire worthless!

This article is all about how the pros use currency options to generate big consistent gains and how the losing majority don’t understand the odds of success.

This article will give you 3 powerful ways to make huge money in currency options

Don’t gamble with options!

Consider this simple scenario.

You’re betting on a horse race and you have a 3:1 favourite and you have a 15:1 outsider.

Which one is the better bet?

Well, bet on the outsider and you have bigger winning potential, but betting on the favourite gives you a better chance of winning.

How often do you see a betting shop go broke?

Not very often they know the odds of success and the betting odds reflect this. It’s obvious! Bet on the favourite.

Currency options and odds

In currency options though traders continually take the outside long shot bet.

They buy options way out of the money with short time to expiry and this means the odds of winning rely on lady luck.

If you want to put the odds in your favour you need to trade options for less potential gains but greater odds of success and this involves keeping in mind two points:

1. Buy at or close to the money

Don’t take the long shot; buy at or in the money options, in strongly trending markets.

This way you have time for the trend to take a correction and move in the right direction and keep in mind a trend in motion is more likely to continue than reverse.

If you do this, the odds are more in your favour and that what currency options’ trading is all about.

Brokers and guru’s like to tempt you with the long shots and appeal to your greed, Don’t listen, stay with at or in the money currency options and only trade trending markets - this scenario is where your chances of success are highest.

2. Get time on your side

FACT: The shorter the time to expiry of currency options the greater the affect of time decay.

Many traders think these options are cheaper (they are in terms of cost) but not in their odds of success!

Make sure you give yourself plenty of time and keep it on your side.

Buying in or at the money currency options with a lot of time value costs you in terms of profit potential. However, potential that does not become cash in your bank is just that - potential.

Keep in mind the horse betting scenario earlier. Do you know someone who bets on the outsider and wins consistently? I don’t.

Keep profit potential realistic

Ok, so you have less profit potential, but you have greater odds of success.

Now let’s look at the best strategy of all.

3. How to trade with odds of 90% success

Consider this 90% of currency options bought expire worthless.

On the other hand, the person who has sold the option has profit odds of 90%.

The real way to make money is selling options. What options do you sell?

You guessed it already! Options out of the money with short time to expiry.

In reality option selling looks a bad bet - unlimited risk for a limited reward, but keep in mind the odds are hugely stacked in your favour.

Huge consistent gains

To sell currency options you need to be well capitalized and take short term swings against you. However, if you sell out the money options with time decay killing them and you spread your risk, you can pile up huge gains over time.

The above is not rocket science! Its common sense, you don’t get anything for nothing in financial markets and limited risk and the unlimited rewards of currency options comes at a cost.

Understand this and you are well on your way to making big gains in currency options.

If you are small trader be patient and take the high odds of success for lower potential gains. If you are large trader sell options and take advantage of the majority of mug traders who are keen to give you their money.

Currency options can make you money follow the above and get the odds on your side, that’s all you can do in financial trading and over time you could pile up some huge profits. Good luck!

For more FREE info

On currency options a FREE newsletter and 100 page CD packed with tips and strategies on how to enhance your trading visit http://www.wellingtoncr.com.

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As a performance incentive many companies are starting to offer employees the “option” to buy company stock as a part of their compensation packages. These “options” are referred to as stock options and they provide a unique opportunity for an employee to potentially increase his or her wealth along side company shareholders. The employee receiving company stock options should have a good understanding of the characteristics of the different types of stock options in order to maximize their potential benefits.

A stock option is a right granted by a company to an employee to purchase one or more shares of the company’s stock at a set time and predetermined purchase price. The employee benefits when the value of the company stock appreciates over and above the predetermined purchase price following the granting of the stock options, enabling the holder to purchase the company stock at a discount. There are two types of stock options: non-qualified stock options and incentive stock options.

Non-qualified stock options (NQSO) are more frequently offered to employees than Incentive Stock Options because of their flexibility and minimal requirements. NQSOs afford the employee the right to purchase a set number of employer shares at a specific, predetermined price. If the employee wishes to acquire the employer stock then he or she will exercise the option and purchase the employer stock at the predetermined (exercise) price. If the stock’s value has appreciated over and above the predetermined price the employee has received the benefit of acquiring the stock at a discount. The difference between the exercise price and the market value (commonly referred to as the bargain element) will be taxable income to the employee as ordinary income, potentially as high as 35%.

The other type of stock option is the Incentive Stock Option (ISO). In direct contrast to a nonqualified stock option, there is no income tax consequence when an employee exercisers the option to buy the employer stock. The difference between the exercise price and the market value (bargain element) is only taxable upon the ultimate sale of the employer stock. In other words, a gain is only recognized when the employer stock is sold and not when the option is exercised. If the stock is held the appropriate time period before being sold, all the gains recognized may qualify for long-term capital gains treatment, a maximum rate of 15%.

Being able to take part in an ISO program allows an employee to receive a number of tax saving benefits. But with these tax benefits comes added complexity to keep track of and to understand. For example, to qualify for the favorable long-term capital gain taxation, the employee must hold the stock for at least two years from the date the ISO was granted and for at least one year from the date the option was exercised. This is commonly referred to as the “2 year / 1 year rule”. If the employee sells the stock before these requirements are met, gain on the stock is taxed as ordinary income in the year of the sale, essentially converting the ISO to a non-qualified stock option.

An additional complexity of an ISO that should be kept in mind by the employee is the potential for an alternative minimum tax (AMT) consequence upon exercise of an ISO. For this and other reasons, it remains important to work with your financial advisor and tax professional when evaluating the strategies to take full advantage of the opportunities and benefits of stock options.

Fearing the American worker is being left in the dark, Mr. Morris, a fee based Investment Advisor Representative with Raymond James Financial Services, Inc., helps 401k participants get the most out of their retirement plan.

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The Foreign Exchange market, also referred to as the “FOREX” is the biggest and largest financial market in the world. It has a daily average turnover of US$1.9 trillion- just imagine that amount of money! Don’t you want to join this trillion-dollar industry?

FOREX is the simultaneous buying of one currency and selling of another. Currencies are traded in pairs, for example Euro/US Dollar (EUR/USD) or US Dollar/Japanese Yen (USD/JPY). So basically, FOREX is trading.

There are two reasons to buy and sell currencies. About 5% of daily turnover is from companies and governments that buy or sell products and services in a foreign country or must convert profits made in foreign currencies into their domestic currency.

The other 95% is trading for profit, or what you call speculation. Investors frequently trade on information they believe to be superior and relevant, when in fact it is not and is fully discounted by the market.

On one side of each speculative stock trade is a participant who believes he has superior information and on the other side is another participant who believes his information is superior.

For speculators, the best trading opportunities are with the most commonly traded (and therefore most liquid- meaning its in cash or convertible to cash) currencies, called “the Majors.” Today, more than 85% of all daily transactions involve trading of the Majors.

A true 24-hour market, FOREX trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, London, and New York. Unlike any other financial market, investors can respond to currency fluctuations caused by economic, social and political events at the time they occur - real time- day or night.

The FOREX market is considered an Over The Counter (OTC) or ‘interbank’ market. This is because the transactions are conducted between two counterparts over the telephone or via an electronic network. Trading is not centralized on an exchange compared to stocks and futures markets.

Understanding FOREX quotes

Reading a FOREX quote may seem a bit confusing at first. However, it’s really quite simple if you remember two things: 1) The first currency listed first is the base currency and 2) the value of the base currency is always 1.

The US dollar is the centerpiece of the FOREX market and is normally considered the ‘base’ currency for quotes. In the “Majors”, this includes USD/JPY, USD/CHF and USD/CAD. For these currencies and many others, quotes are expressed as a unit of $1 USD per the second currency quoted in the pair. For example, a quote of USD/JPY 110.01 means that one U.S. dollar is equal to 110.01 Japanese yen.

When the U.S. dollar is the base unit and a currency quote goes up, it means the dollar has appreciated in value and the other currency has weakened. If the USD/JPY quote we previously mentioned increases to 113.01, the dollar is stronger because it will now buy more yen than before.

The three exceptions to this rule are the British pound (GBP), the Australian dollar (AUD) and the Euro (EUR). In these cases, you might see a quote such as GBP/USD 1.7366, meaning that one British pound equals 1.7366 U.S. dollars.

In these three currency pairs, where the U.S. dollar is not the base rate, a rising quote means a weakening dollar, as it now takes more U.S. dollars to equal one pound, euro or Australian dollar.

In other words, if a currency quote goes higher, that increases the value of the base currency. A lower quote means the base currency is weakening.

Currency pairs that do not involve the U.S. dollar are called cross currencies, but the premise is the same. For example, a quote of EUR/JPY 127.95 signifies that one Euro is equal to 127.95 Japanese yen.

When trading FOREX you will often see a two-sided quote, consisting of a ‘bid’ and ‘offer’. The ‘bid’ is the price at which you can sell the base currency (at the same time buying the counter currency). The ‘ask’ is the price at which you can buy the base currency (at the same time selling the counter currency).

About The Author
Frederic Madore is the founder of the http://forex-information-center.info website. Get the best information about Forex. Learn how to do Online forex trading.
(c)Copywright 2005

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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.

Jason Ng is the Founder of Masters ‘O’ Equity international. He is a fund manager specialising in options trading and his Star Trading System has helped thousands of traders worldwide achieve financial freedom. Please visit Masters ‘O’ Equity’s website at http://www.mastersoequity.com.

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