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.

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.

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.

Bank holiday today [and I think Memorial weekend in the US] but the other European stocks have declined so I expect a decline in London tomorrow, barring some unexpected, last minute good news [some announcement by an influential body].

One thing that I want to say and it’s about Google. I remember pre 2000 and the run up to the tech crash. The benchmark company was Microsoft and everybody thought it could do no wrong. I feel we’re in the same situation now but the benchmark company has become Google and the Adsense / Adwords business model. Keep a close eye on it because if it starts to flounder, everything else will come crashing around it. Pull out fast.

The above is excaserbated by herd mentality. Even Yahoo and MSN are trying to build similar platforms either individually or through collaboration.

And then there are the opinion makers. They write for magazines / papers etc but what do they know, they’re only journalists with an old fashioned sense of what their opinion should be worth. They’re biggin’ Google up big time. Sure the stock has risen four fold over the last two years, but does that not sound like an over-evaluation?

It’s bank holiday and I ain’t sitting in front of a computer. Tomorrow dudes and dudettes.

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The investment strategy followed by the majority of investors “buy low sell high” will lose money for those investors who follow it. Let’s look at the facts and you will see why it fails over the longer term and discover a better way to trade.

Buying low you can’t do it! Why? Quite simply, it involves predicting the market and not reacting to price strength. In hindsight charts prove it simply does not work. Traders like to buy low on a dip to support, but how often does support fail? The answer is most of the time.

Most traders are so keen to buy low they keep buying into support and then get stopped out. They then lose their equity after a number of trades, as the odds simply are not in their favor when they try this and loses eventually see them wipe out their account equity.

Buy low sell high, is only a good strategy if you have hindsight and can see what happened on the charts and you don’t have the benefit of this when you enter the trade.

We have all heard of the predictive theories of Gann and Elliot, but if they worked and we all knew where prices were going in advance, there would be no market.

The price would simply be known to all traders and their would be no market. Leave the above theories to the far out investment crowd and the dreamers and base your strategy on the reality of how and why markets really move.

Back to basics

So what should a trader do?

The answer is revealed in the well known phrase “a trend in motion is more likely to continue than reverse”.

When do the odds most favour this?

The answer is when prices break to new highs and a trend in motion accelerates at a rapid rate from a new price high. Look at any currency chart and you will see the biggest price moves normally take place from important market highs with NO pullback.

FACT: A “buy low sell high” strategy will see traders miss the majority of major moves.

Traders who wait to buy low never get in to the trade and miss the trend, as the price accelerates away from them and never looks back. These traders therefore never get a chance to enter the trade.

The secret to buying a market and catching the big profitable moves is “buy high and sell higher”, accept the wisdom of this phrase and you will be in on all the major trends.

It’s hard to buy a trend in motion.

The reality is the odds favour that a trend in motion will continue and when a market has broken out to new highs, the odds of a continuation of the trend are at there highest.

Know one likes to miss the start of the move but if we trade this way we can get in on all the major moves.

Which method is best?

Use important breaks of resistance, time entry with momentum indicators such as the stochastic indicator, and be selective with your trades to catch the big moves.

Or:

Try a strategy that involves “buying low and selling high”, get stopped out frequently and watch all the major moves take off from new market highs.

Easy choice really!

For More FREE Tips

Including a 100 page FREE Trader CD Packed with tips and strategies, visit our website at: http://www.welingtoncr.com

Do you know what the top tips are for picking stocks are? No one can tell the future, but we have compiled three of our top tips to getting your investment portfolio to make some real returns in the future. Just because a stock is hot, it doesn’t mean that it’s a really good long term pick for your portfolio. The front page of the New York Times can tell you what is hot, lets take a look at some different tips for the investing world in general are.

1. Do your research. Just because something is trading at 5 times earnings, doesn’t mean it’s an incredible deal. In fact, just the opposite might be true. If its really supposed to be trading at something like 10 times earnings, why do you think it’s so low? The old adage: “if it’s too good to be true, it probably is” holds firm in this situation. Big Wall Street investment houses spend years trying to run various numbers and calculations on different scenarios to determine what the exact valuation of a stock might be. If a stock’s valuation is too low, there is a good chance, that the stock might have some problems associated with it, like impending competition, government inquiries, or even litigation problems.

2. Go with what you know. If you are a computer software engineer, you might be best suited to analyze software businesses or maybe even internet stocks that use a lot of software in their business. This will help you get a better understanding of what you are buying and how the business deals with its costs.

3. Get financially literate. Do you know what a balance sheet is? An income statement? A statement of cash flows. These 3 are the groundings of what it takes to really understand a business’ current and future performance. Learn them and get to know how and what they are and how they are used to base an investment.

These are really just the tip of the iceberg when it comes to learning about investments and their potential. Visit our site today to get more tips, resources, and a blog about different investment tips.

Want to learn about hot stocks and more? Visit http://heyhotstocks.com/blog/index.php to learn about hot stocks and stocks.

News, good or bad, trumps all other market trends. Good news about a company, or about another company in the same sector if the sector is a hot one, can trigger sharp rises in stock prices. The key to taking advantage of price runs started by news is to get in early, before everyone else has. Obviously, if you`re the last one in, you`ll buy at the highest price and then watch the stock price go down.

Likewise, bad news can send a stock`s price plummeting. And, like everything else market trends, are not whether the news is really good or bad, but what the market perceives it to be. You might not think the market trend`s reaction to a piece of news makes any sense, but should not affect your trading. Always go with the market. Remember, news overrides all other trends.

Let`s say you`re holding a company heading into its upcoming split. The stock options is in a hot sector, and it`s a one to four split. The stock options is rising nicely, and the ex date is three days away. The next morning, you see unexpected news that business in the company`s sector has dropped off sharply in the last quarter and that this slowdown is projected to continue for at least the next six months. What`s going to happen to the split run? This news will take precedence over the split trend.

Unless the market trends decide it doesn`t care about this news, which is not likely, the company`s run is over. You will have to get out of the stock options. When important news comes out, all successful traders abandon trades based on other trends. Unexpected news is one of the main reasons why you must set stops on every trade to protect your capital. In the same way, if you`ve sold short to ride a trend in which stocks usually go down, significant good news about the stock options should send it back up.

Now that we`re on the subject of news, let`s look at a related trend: sympathy plays. When a stock options in a hot sector has good news and begins to move up, the stocks of the other companies in the same sector will often start to run up as well in sympathy with the original mover. Likewise, when a stock options has bad news and begins to fall, others in the sector will often start to trend down as well. It may seem strange, but there is a reason for the market trends to act that way.

You would think that good news for one company would be bad news for its competitors and would logically drive their prices down instead of up. This isn`t how the market trends work. As long as the news reflects well on the prospects of the industry or business the news making company is in, it will generate a sense of possibility in the minds of market trends` traders. If one company in the sector is doing well, it`s possible that demand for the whole sector`s business is growing or that the whole sector will develop its products or market trends so that all the companies in the sector will do well. It`s possible, isn`t it? The sector now has `potential.` And that`s all the market trends needs to hear.

A great way to evaluate sympathy plays is to look at all the stocks in the sector to see whether others have started running with the newsmaker. If so, look for stocks that haven`t moved as much, for stocks that should also start running but haven`t yet. By buying slower movers, you`ll get in at a good price and the stock options will have most of its run left. But make sure there`s no other factor keeping that particular stock options from rising, such as bad news of its own that will keep it from following the sympathy trend.

Remember, news overrides other trends. Sectors go through hot and cold phases. Knowing which sectors are hot is especially useful in uncertain market trends. Whenever there`s a sudden general market trends rally, only the stocks in the hottest sectors will participate in the rally. Stocks in cold or dying sectors will remain flat or neutral.

Always be aware of which sectors are hot or `in play` so that you`re ready to trade into the right stocks when the market trends rallies. At the same time, be aware of which stocks are overvalued so that you`ll know what to sell short when the market trends make a downturn. As a trader, your goal is to be positioned in the strongest stocks and sectors when you buy, and in the weakest when you sell short.

-=-=-==-=-=-=-==-=-=-=-=-=-=-=-=-=-=-=- David Jenyns is recognized as the leading expert when it comes to designing profitable options trading systems.

Discover the “secret formula” of trading that anyone can use to consistently generate BIG profits from the market by downloading your FREE copy of David’s new Ultimate Options Trading Systems course.

Click Here To Download ==> Options Trading Systems http://www.ultimate-trading-systems.com/options.html -=-=-==-=-=-=-==-=-=-=-=-=-=-=-=-=-=-=-

Fundamental Analysis

Fundamental analysis is a methodology for analysis of a company as a viable stock that you want to hold for long term. Fundamental analysis is more widespread in the world of investing since you are going to hold your companies for 10 to 20 years, you do not wish that your companies go bankrupt the next day. Some of the common ratios used are P/E ratios (price earnings ratios) which measures the relative price of the stock to the earnings of the company, the EPS (earnings per share), the debt equity ratio and tons of other ratios.

Although I have spent considerable time studying such ratios I discovered that you do not really need such information to be successful in day trading. I repeat, fundamental analysis plays a marginal role in day trading. In fact, most of the time, I don’t follow it at all. If you still have reservations about ignoring fundamental analysis, I recommend trading ETFs (exchange traded funds) such as QQQQ which mirrors the movement of the NASDAQ 100. In essence, you are actually trading the index like a normal stock. Indexes usually have a huge number of stocks in them, making them less susceptible to company specific news. However if you are paranoid, then you might still want to follow the news of the major companies in the index.

here is no lack of information and no end to analysis. Knowing the fundamentals might seem cool when you discuss company so and so over a cocktail party, but it will not help you rip money off Wall Street in day trading. Being able to remove fundamental analysis from the decision making process is also one of the reasons why I recommend trading Emini index futures.

Paper Trading: Don’t Ever Underestimate it!

Paper trading refers to trading with virtual money, you do not use real money. You jot down in your notebook when you bought at what price and why. When you sell, you record in your notebook again why you sold and calculate the profit or loss associated with the trade.

If you cannot make money by paper trading, you can forget about making money in real trading. Always test a new trading idea with paper trading first before using real money. Also start with paper trading after a long period of break, to help you get back in touch with trading.

Although there is very little difference between paper trading and real trading in Emini, real trading is subjected to slippage and psychological factors come into play when you are using real money. Do not underestimate the impact of psychological factors on your trading. After you have a reasonable method and money management techniques, it is the psychological factors which will determine whether you make a profit or loss.

Some traders have created software to paper trade. You hit the buttons like you are doing real trading but only virtual money is involved and no real cash is used. The system will record down the time, price, symbol and the position opened or closed. This saves you the trouble of keeping a paper record.

About The Author
Michael Taylor is a professional trader and webmaster of http://www.daytradeemini.com. He regular updates his trading blog at http://www.daytradeemini.com/blog with educational articles and trading records.

In Part 2, of Designing a Trading System in MetaStock I covered how to code the first two of the four major components of a mechanical entry system. I had explained the coding of price and liquidity. In this article, I will cover the steps for coding the remaining two components, trend and volatility, into MetaStock. In the end, you will have the complete codes for a mechanical entry system.

Let’s begin with trend identification. Remember, ‘the trend is your friend’ when trading. You always want to trade with the trend, not against it. Think of it this way, if you were swimming in the sea, and got yourself caught in a rip tide, is it easier to swim with the current or against it? It is the same with trading with a trend.

There are many ways to identify trends, and it’s not particularly important which method you use. You just need to use one. One of my preferred methods for identifying trending stocks is to find stocks that are trading at their current highs. You can do this by stipulating that the highest high price must have been achieved in the last ‘x’ number of days.

Once again, the variables you use will depend on the time frame you are trading. But for this example, you want the highest high price in the last 240 days to have occurred in the last 20 days.

Using the formula reference section in the MetaStock Programming Study Guide, you can find the syntax of the highest high function, and then plug in the details. Then, using the ‘less than’ symbol, you can specify the number of days must be less than 20. In MetaStock language that would be:

HHVBars(H,240) 1.5 and

ATR(21)/Mov(C,21,S)*100 1 and

Mov(v,21,s)*C > 200000 and

HHVBars(H,240) 1.5 and

ATR(21)/Mov(C,21,S)*100 < 6

You now have now a workable entry system. Not only did you construct a robust system, but it also adheres to the KISS principal (Keep It Simple Simon). This system can be cut and pasted into the Explorer within MetaStock. However, the entry is only the beginning of a successful trading system. In later parts of this series, you’ll find the rest of the components that you need to design a profitable trading system.

About The Author
David Jenyns is recognized as the leading expert when it
comes to MetaStock and designing profitable trading systems.

His MetaStock website offers a huge free collection of trading
related tips and tricks. Gain free access now.
Click Here ==> http://www.meta-formula.com/subscribe

Know the Rules

Employee stock options can provide you with a substantial source of deferred income and permit you to control the recognition of taxable income. You generally pay no tax when an option is granted because you are not receiving any shares of stock, only the option to purchase shares at a later date.

In general, holding an option to acquire stock may be better than holding the stock itself. The option provides protection against loss should the value of the stock decline below the exercise price. In addition, the option gives the holder equivalent ownership rights in the corporation, without requiring any immediate investment. Employee stock options offer the potential to have post-exercise stock growth taxed as capital gains rather than ordinary income. This provides an advantage for those who are in the top tax brackets

Know the Difference

Nonqualified Stock Options (NSOs) give an employee the option to buy corporate stock at a specified, fixed price (usually at fair market value at the time the option is granted). In general, you must exercise your option to buy within a specified time period–typically 10 years or less.

Upon exercising your rights, any gain realized from the spread (the difference between the exercise price and the fair market value) is taxed as ordinary income. However, any gain realized from the date the option exercised until the date the stock is sold is taxed as capital gain.

Incentive Stock Options (ISOs) also offer the option to purchase corporate stock at a set price, but ISOs cannot be issued with an exercise price below the current fair market value of the stock.

Generally, the spread on ISOs is not subject to ordinary income tax at the time you exercise the option. However, spreads may be subject to the alternative minimum tax (consult your GROCO financial adviser for more information). Gain realized upon the sale of the ISO stock may be taxed as capital gain. Provided you have held the ISO stock for at least one year from the date of exercise and at least two years from the date the option was granted, the entire gain recognized upon sale of the stock is taxed as a long-term capital gain.

When to Exercise Your Options

The decision of when to exercise your options depends on several factors as well as your particular situation:

Your Company’s Plan

Generally, options become exercisable over a period of years. For example, options granted in the company plan vest 20 percent a year over five years. It’s important to know the details of your firm’s plan before you make a decision.

Your Company’s Growth

Understanding how your company is poised for growth is another important factor in your decision making process. Issues to review and understand are:

• How your company makes money – understand the industry that their earnings are tied to.
• Evaluate sales – compare your company’s sales to the industry average of competitors.
• Industry trends – monitor the industry that your company operates in. Look for growth opportunities and understand your company’s strategy for capturing market share.
  Hot Tip! Don’t take the long shot; buy at or in the money options, in strongly trending markets.
• Understand the factors that can affect the liquidity of the market – are lower interest rates and tax cuts freeing up resources for the company’s growth plans?
• How your company is financing growth – are they growing as expected?
• Know your leaders and their track record – a company’s strong executive team will likely yield continued success.
• Understand your company’s P/E (price to earnings) ratio – look for strong cash flow and well-managed costs.

Your Current Financial Needs

The decision to exercise should consider the need for cash, the proximity to the option’s expiration and/or the current stock value as compared to its expected future value. With regard to ISOs, because of taxes, the required holding periods should be considered when determining when to exercise the options and/or sell the underlying stock.

Balancing Your Portfolio

You may also choose to exercise an option if your company’s stock represents a large portion of your investment portfolio and you wish to diversify your holdings. Some professionals say to reduce investment risk, company stock should not represent more than 40 percent of your portfolio.

Market Conditions

Obviously, market conditions will play a large role in your decision to exercise your option. If the stock underlying the option appreciates, you may wish to hold on to options as long as possible in order to take advantage of future gains.

Tax Ramifications

In the case of NSOs, you may want to consider exercising your option over a few years to avoid being forced into a higher tax bracket. Remember, the spread on NSOs is subject to regular income tax at the time of exercise. Because appreciation occurring before exercise is taxed as ordinary income, it may be advantageous to exercise over time.

Your company’s nonqualified stock options may be transferable to family members. If so, you may be able to trim your estate tax by giving options to your heirs. The transfer may be gift tax free if the value transferred is $11,000 or less ($22,000 if married). notwithstanding the transfer, upon exercise the executive will be responsible for any income taxes generated.

Alan L. Olsen is the Managing Partner at Greenstein, Rogoff, Olsen & Co., LLP, a top Bay Area CPA firm. A specialist in income tax planning, he frequently lectures and writes articles on tax issues for professional organizations and community groups. Alan has over 21 years experience in advanced tax planning including international tax, company reorganizations, multi-state taxation, financial statement preparation, stock options, estates and trusts, and representation before tax authorities. Alan received a BS in Accounting from Brigham Young University and an MBA in Taxation from California State University at Hayward. His website is ranked among the top accounting sites in the nation, featuring tax tools and wealth management articles: http://www.groco.com

As expected, the trend is downward today. The mainland European markets were down yesterday and oil is up today ($71.50) – there have been street fights in the US about high prices, it’s called GAS RAGE.

Not a good day to buy.

There’s been a rally from the lows of the last week or so but I think we’re in a bear market [short term]. This is a boring phase, things will tinker along, up one day and down the next with no overall movement until something drastic drives the direction.

I’m expecting, hoping for and ready to pounce on a dip and another rally. I love spikes.

Sounds like a weaker dollar is on the way. I don’t know what this means yet, but I think it is a sign of a lack of confidence in the US economy from all sides – those that buy it to raise its value / hold it as a safety etc. Surely the Euro is becoming a good alternative. What does that mean for the world?

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Are you confused as to the question of how to deal with your incentive stock options? Or are you worried about owing a large amount of tax on options that you have not even exercised and do not have the cash to pay for it? Well, luckily, if you manage your affairs well and take on board some simple advice, you will be able to avoid owing too much tax on your stock options, and also postpone paying it until you have the cash to do so. In most cases, if you have a large amount of money tied up in stock options, then you should probably get some professional advice. This article is only intended to give you an idea of the steps that can be taken when tax planning with stock options.

First of all, you do not have to pay any tax owed immediately, if you do exercise your stock options. This is the case so long as you do not sell the stock you receive. If you exercise an option to buy some shares, then so long as you do not sell that stock, you do not have to pay any tax at that time.

The second piece of good news is that you can end up only paying 15% tax on the options when you do sell. This will apply if you hold on to the stocks for long enough to qualify for a long-term capital gain.

So things are starting to sound a lot better on stock options taxation. By postponing the tax owed until you sell the shares, you can avoid the hardship of having a tax fall due without any money coming in to pay for it. It is similar to the cases in the past where people received valuable paintings or other works of art in a will, and then immediately had to sell the painting in order to pay the tax that was owed on the inheritance. Also, 15% is quite a low rate of tax and it should also be remembered that this is the highest rate that can be payable on a long-term capital gain.

For more information, consult a qualified financial advisor.

Check out http://www.trading-futures.org for articles about eminis futures trading and commodity futures trading.

Free stock quotes are valuable for looking at your investments and determining whether or not you want to trade in the stock market. There are several free stock quotes online and one of the most popular is Yahoo Finance. This site will allow you to search your stocks to see the growth or decline and determine if you want to buy or sell. Free stock quotes are ideal for the novice investor. They can practice their skills without investing any money until they are comfortable enough to actually invest. Once you decide to invest, though, you will need to get with a broker and there are additional fees associated with trading. However, there are many do it yourself places that only require a small fee and will often have valuable articles and free stock quotes so you can watch your portfolio continually to ensure you have made sound investments.

Before investing in the stock market, you should be aware of the basics of stock trading. This can be learned by doing some research online or by getting a book at your local library. Once you know the basics, you can start looking for individual investments. It is recommended that the novice investor start off with only the amount of money they can afford to lose. There are no guarantees you will earn money and sometimes you will lose it. So, it is important to carefully watch the stock market by looking at free stock quotes each day. You may want to buy or sell your stocks depending on how well the individual stock is doing and what forecasts are for the stock.

Free stock quotes are also great for classes in finance or the stock market. This is ideal for investor clubs, high school classes or college projects. You can either use mock money to track an investment from start to finish without actually putting in money or you can use pooled money to determine which investment you will watch and what you will do with it. This is a great way to have a bit of fun with a group while learning about investments and possibly making a bit of money.

Hot, free stock quote information updated all the time.

In part one of this series, we looked at the problem of continually switching trading strategies in the hope of finding something better, and why that can never bring us long-term success in our trading.

In this second article, I’m going to talk about a closely related problem many traders suffer from – a lack of planning.

Mistake Number Two – Not Having a Trading Plan

“If you fail to plan, then you plan to fail”. I don’t know who first said that, but it’s a very sound piece of advise indeed. Planning is something that is all too often overlooked by traders, and yet a well drafted trading plan is one of the most important tools for success and profit.

In talking to struggling traders, I am constantly amazed at not only how many don’t have a trading plan, but how many don’t even know what such a plan is. In fact a trading plan is quite simple, it’s a document that details every aspect of your trading strategy. It is literally a blue-print for your trading methodology.

What should be in this document? Here are the most important areas it should cover:

• Mission Statement – A defined objective for your trading; if you don’t know what it is you are trying to achieve, how will you know when you have achieved it? Having a well defined goal is essential to success in any venture.

• Pre-market preparation. Actions required before the market opens, setting up for the trading session, reviewing economic calendars, and so on.

• Trade enty rules

• Trade exit rules

• Money management rules

• Post market actions – trade logging and analysis.

As anyone who has traded in a live market knows, we must often overcome our natural emotional responses in order to execute our trades correctly. Cutting losses and letting winners ride can be easier said than done. By defining as precisely as possible, our criteria for entering and exiting trades, we have a reference that we can use to help us overcome these responses.

The trading plan should be kept at hand throughout the market session. When we see a possible entry coming up, refering back to our strict written entry criteria we can objectively look at the chart and make a informed decision about whether to enter or pass. The same applies to exiting, whether the trade is winning or losing. Over time, trading becomes almost mechanical and stress-free.

Action: We must have a written plan that defines all aspects of our trading, and we must commit to following it to the letter. Only by ridgidly sticking to our strategy can we honestly determine if any problems in our trading lie within the system itself or within our execution.

In Part Three, we’ll have a look at one area of that trading plan outline in more detail – money management – and how position sizing can lower risk and increase profits.

About The Author
Harvey Walsh is a trader and trading writer. Through his training materials and personal coaching, he has helped numerous students learn day trading.
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