While some investors may argue that when dealing with equities it is important to diversify your portfolio in different sectors combating one another so you do not obtain high capital losses. While the statement may be true in times of volatility, during inflationary periods such as the one that is cautiously approaching and worrying the Federal Reserve, I would recommend avoiding such mutual fund tactics and encourage the purchasing of inelastic stocks.

When I mention the word inelasticity I am referring to how much a certain quantity of goods or services demanded or supplied will change relative to the change in price. Typically when you see prices rise due to inflation, quantity demanded for a particular good such as a car or computer will decline. Now the key for this report is how much will the quantity of that good will decline in terms of a percentage. If the percentage is larger than the change in price, the good is said to be elastic meaning it is volatile in terms of price fluctuations. However, if the percentage of that quantity supplied or demanded is less than the change in price, the good or service is said to be inelastic, taking little to no heed if prices increase. Typically if a good or service is inelastic profits and revenue will bolster during periods of inflation while elastic goods or services will suffer.

Now what does that mean in relation to equities? During inflationary times a company that produces an inelastic good or service will see its revenue, operating margins, net profits, and production usually increase making such a stock desirable to buy juxtaposed to an elastic based company. If these figures ascend creating great cash flow, optimistic future guidance, and increased earnings, a certain inelastic company will be in good position to appease shareholders. While an inelastic producing company may experience some growth typically during inflation the rest of the market may experience lower than expected values creating capital losses.

So what types of sectors should you look at in relation to this inelastic wonder? Probably in times of inflation the best area would be consumer staples and healthcare. Both areas produce goods and services which are required by some of their consumers regardless of their price. Good options would be large capitalization companies such as Coca-Cola, Pfizer, Altria, and Procter & Gamble. All of these companies produce goods such as soft drinks, medicines, cigarettes, and household necessities such as toothpaste which will rarely be affected in terms of quantity demanded if prices rise. If toothpaste, for example, rose one dollar from $3.00 to $4.00 more than likely the average consumer will not stop his or her purchase of toothpaste even with a 33% increase in price because this product is a necessity and worth the sacrifice regardless of price. Returning to equities, statistically all of these companies have done well during earlier periods of inflation, and because they are all low risk stocks with relatively small betas there should be a strong optimism concerning capital gains during an inflationary period.

Sectors that should be avoided during times of high prices are found in technology and retail. Companies such as Dell, Nike, and other corporations found in these sectors typically do not have great capital gains if any during periods of inflation. Since prices have increased for many goods, a bigger portion of a consumer’s income (especially fixed income) will be going to the necessities such as toothpaste while at the same time sacrificing other luxury goods such as new high-tech computer or brand named sneakers. The unfortunate effect is that companies such as Dell will post lower earnings and revenue creating capital losses for its shareholders.

Thus while you may argue that there are more fundamental and technical evaluations that can be utilized for or against the purchases of a few sectors, a good rule of thumb can be attributed to the laws of elasticity and how consumers react to it. Again, to reiterate, if you as an investor are planning to purchase a stock during a time of inflation be sure to check its prospectus and other reports regarding its products and services as the rudimentary checkup may become an incredible determent to your overall gains.

Gasoline sits near record highs, economic growth slows, real estate prices drop, interest rates are rising and cutting money supply and inflation is on the rise.

Yet, many investors simply think stocks will stay high and this is forgetting the problems in Iraq and the huge crisis coming with Iran!

You don’t think stocks are going to fall? Read on.

Simply put Iran does not like the US and vice versa are they going to gave in to UN demands? They are a huge oil producer what if they use this weapon? Prices will soar consumer confidence will drop and stocks could crash!

An unlikely scenario?

Lets see what happens, but if confrontation does come and no one is looking to back down stocks could go into a downward spiral and with other problems in the world economy stocks could go down and stay down.

So how do you protect yourself?

The answer is take action and diversify but into what and how much in terms of capital gains can you expect?

Let’s look at an alternative.

The alternative is one of the secrets of most of the words richest investors.

Howard Hughes made huge profits, Donald Trump still does and even Bob Hope made millions,. as do most of the worlds richest investors, from this investment.

The investment is land and if you have never considered it then you should:

It’s cheap, simple and easy to invest in and has a better risk reward historically than stocks!

The best way to invest in land at present is to look overseas.

There is a place just 3 hours from the US, where increasing numbers of Americans and Europeans are making 50 – 100% annual gains with low risk and the place is Costa Rica.

Now consider these advantages:

- Land is cheap in Costa Rica at up to 70% less than in the US.

- Land has fantastic risk reward low downside and plenty of upside with savvy investors making 50 – 100% + per annum.

- It’s easy to invest Costa Rica, this country wants outside investment and they make it easy. For example, you get the same rights as residents and its very tax efficient.

- The country is stable both economically and politically and has strong ties with the US.

So won’t this market crash?

Consider this:

More and more Americans and Europeans are moving and retiring here to cut costs and live a better life.

The worse it gets in these countries, the more Costa Rica could benefit.

For Americans it’s only 3 hours away and the savings of 70% on property and living costs, mean they can get a better standard of living in a paradise, that’s affordable.

More and more baby boomers are facing up to reality and that is:

Stay in the US and live a life with less comforts than their used to. They don’t want to do this and more and more are looking abroad.

Costa Rica is just a 3 hour flight away with huge expat community and they can not only maintain their standard of living they can improve it.

The worse it gets at home, the more people will move, this trend is already in an upward curve.

So why land? Well property is built on it!

Prime property is in short supply and buying land in the right location does and will continue to yield extraordinary gains as new developments spring up all over the country.

If you have never considered land as an investment you should. It’s cheap and easy to do and people have been making large profits with low risk and maybe you could to.

Why do we need to Trade Using Multiple Timeframes?

To improve the efficiency of our trading strategy. We see the major Trend using a higher time frame than what we intend to use & a lower Time frame to enter a trade.

Say we want to trade using the Daily Charts. We take the Weekly charts to see the major trend. Suppose it’s an uptrend in a Weekly chart. We will tend to trade only long positions. We will use entries in the daily charts to enter long positions only. When sell signals are generated we will just exit our long positions. I.e. we don’t short sell.

Suppose it’s a downtrend in a Weekly chart. We will tend to trade only short positions. We will use a entries in the daily charts to enter short positions only. When buy signals are generated we will just exit our short positions. I.e. we don’t enter long positions.

Now that we are using two timeframes. Now coming to timing the entry of trades or adding additional positions. (Pyramiding) We can further use a Hourly chart to time our entries. Suppose the weekly & daily charts are in a uptrend. We will enter a long position or an additional long position when a hourly chart gives us a buy signal. Suppose the weekly & daily charts are in a downtrend. We will enter a short position or an additional short position when a hourly chart gives us a sell signal. This timeframe would not be used to exit the trades. It’s solely to improve the timing for entry. For exits we would use the signals generated in the daily charts.

Using multiple time frames to trade

We take three charts of the same security. First is the weekly chart. Next chart is the daily chart. Third chart is the hourly chart.
We will now use the daily chart to trade. We check the weekly chart for the weekly trend. Lest assume the weekly trend is up. So based on this information we will just trade long positions in the daily chart.
We look for a buy opportunity in the daily chart or we can see the hourly chart to enter a long position.

Now for entering additional positions we use buy opportunities in the hourly chart. We would exit based on the daily chart only, because we were trading based on the daily chart.

Similarly we can trade short where weekly charts are in a downtrend and daily chart generates sell opportunity. Additional positions are entered whenever sell opportunities are generated on the hourly charts.

For Day trading we can use the Hourly, 15 Min and 5 Min charts here we trade the 15 Min chart. Or we can use 15 Min, 5 Mins and 3 Mins charts here we trade the 5 Mins chart.

Good Luck and Happy Trading.

Umashankar Galla is a Technical Analyst with 11 Years of Experience. Is into development of trading systems & analysis of Markets.
His website is http://www.technitraders.com/
Visit Forums at http://www.technitraders.com/forums/
He can be contacted at info@technitraders.com

Investing for the future is important if you ever plan to retire. One form of investment is buying stocks in corporations. Stocks represent a portion of a company, so when you buy stocks, you are essentially buying into the company. You can benefit from any profits it makes, but you can also lose money if the company’s performance, or the market as a whole, goes down.

When you look at investing in stocks, you may want to consult a financial advisor who works with stocks and mutual funds for a living. He or she will have knowledge of which stocks you should buy and which ones you should avoid. If you wish to choose the companies you will invest in, look for companies that are growing and offer some stability. Also, if sales in, say, electronics are very high, you may want to invest in a company that manufactures electronics. Take some time to research the stock market before you make your investment decisions.

Once you have decided on some stocks you would like to purchase, you’ll need to pay attention to what the market is doing. In order to benefit the most from your investments, you’ll need to time when you buy, and when you sell, your stocks. If you choose some stable companies and buy stocks in them while prices are low, because of the market or because of a period of time where the company is not bringing in large profits, it is most likely that your stocks will increase in value.

When you are looking to sell your stocks, it is good to set a price for yourself and decide that when your stocks reach that price, you will sell them. Often, people hang on to their stocks, wanting to get the most out of them that they can, and then the market drops and they lose money.

You can see that there is frequent decision making in the process of buying and selling stocks. If you are willing to put some time and effort into your investments, you will be pleased to see how much you will profit from your stocks.

Day trading is the practice of buying and selling stocks during the same day. Ideally at the end of the day there has been no net change in your position. This means that for everything bought an equivalent amount is sold.

A gain or loss is made on the difference between the purchase and sales price.

An effect of this style of day trading is that the shares are never delivered or received.

Day trading is more risky than any other trading activity. It is very common to use margin with day trading (i.e. using borrowed funds), amplifying gains and also amplifying losses. The downside is that substantial losses can occur very quickly.

A common belief is that 80%-90% of day traders lose money.

Day trading was once the domain of financial firms and professionals along with experienced traders and speculators. It is now very common amongst everyday traders thanks to the internet.

Day trading is officially called “pattern day trading” and means placing four or more buy and sell orders in one day on a regular basis.

Day traders trade various financial instruments including: shares, options, warrants, foreign exchange(forex) and a host of futures contracts.

Day trading evolved with the advent of electronic ordering and discount brokers. The home computer and the internet have made the environment friendly to small day traders.

There are a number of strategies by which day traders attempt to make a profit.

Trend following, a day trading strategy used in all trading time frames, assumes that prices that have been rising steadily will continue to rise, and the same for falling prices. The trend follower buys a share which has been rising or short-sells a falling share, in the expectation that the trend will continue.

Fundamental analysis is one of the biggest tools of the day trader. The basic strategy is to buy a share which has just announced good news, or short-sell a share on bad news.

Technical day trading uses mathematical formulae to decide when a share is going to rise or fall based on previous price action. Many day traders use technical indicators.

You should avoid the following dangers of day trading:

* Many day traders trade without a plan of any kind as to what to buy and sell and when

* In many cases a day is simply not long enough to realise the profit of a share

* Day trading can be very emotional and gut-instinct based

* Much of the fundamental analysis data day traders use is quite delayed and this will mean that by the time it is received and acted on, the rest of the market, especially the stock broking industry, has already taken action

* Day trading can mean profits are too low to cover fixed costs, such as brokerage

* Day traders often use leverage which can amplify losses as much as it can amplify gains. For the inexperienced it is a huge risk losing more than you have in your float.

In closing, keep in mind that all stock market activity is risky – there are NO guarantees. Having said that, we have found much better results for our students by teaching them how to develop a customised trading system which takes all the emotion and gut-instinct out of playing the stock market. The results speak for themselves! That’s why we don’t teach day trading at HomeTrader – in our opinion, it’s much higher risk for our clients.

Jon Lynch is Marketing Manager of the Capital Intelligence Group of companies, including HomeTrader – Australia’s leading stock market education centres. We focus on teaching you how to create wealth through the Australian stock market using a customised trading plan or system that is right for you, your situation and your goals. Visit our website and register for your free introductory DVD “Learn To Make Money On The Stock Market” at http://www.learnshares.com.au

Typically when you think of trading stocks, the major stock exchanges may come to mind like the New York Stock Exchange (NYSE), the National Association of Securities Dealers Automated Quotations (NASDAQ), and the American Stock Exchange (AMEX). A Penny stock is a low priced security for a very small company with a market capitalization of under $500 million and usually trade in very low volumes. Penny stocks also trade on other “other the counter” exchanges like the OTCBB and Pink Sheets.

Due to the low trading volumes, penny stocks are an investment option that comes with a sizeable amount of risk. According the Securities and Exchange Commission, potential investors in penny stocks should be aware of the fact that due to the low trading volume of these stocks, it is possible that an investor won’t find a buyer for their shares. Finding accurate price quotations are also difficult making it a strong possibility that an investor can lose their entire investment.

Penny stocks do carry a certain appeal for many different kinds of investors. Chances are though, a new investor looking for a potentially lucrative investments with a fairly low entry price will run across the penny stock. The allure comes in the fact that at such low prices any changes are often measurable in hundreds of percent in a given day or two. An investor’s stock value can literally become worth double or even triple the original investment amount.

Conversely, the price of a penny stock can drop in value just as quickly. New and inexperienced investors would do well to avoid making penny stocks a major part of their investment portfolio. Also due to the low listing requirements on exchanges like OCTBB and Pink Sheets, many companies are not to be considered safe investments. Many of the companies listed on alternative exchanges lack enough financial history to be able to accurately determine if they would make a good investment or not. In some cases, companies that are considered to be penny stocks are either new companies or are in some cases dangerously close to bankruptcy.

Unfortunately, some traders have even taken to artificially manipulating stock prices by buying up large amounts of a stock and then convincing individual investors of the need to buy. Since most of these stocks aren’t in such great demand, an investor will have to lower his asking price in order to entice a bidder, oftentimes at a loss.

Not every company that trades for “pennies” should be considered fraudulent. Some are simply small companies trying to grow their business and are working very hard to end up on the larger market exchanges. Wading through the fraudulent companies to find the truly reputable companies capable of helping an investor turn a large profit may not be worth it. Investors with low investment income may be convinced that just one good trade can triple their investment, but in the end an investor is better off choosing an investment from a company that they have researched and are convinced that this company’s value will grow in the future.

People make all kinds of excuses as to why they cannot get involved in investing
or trading the financial markets. In this article, some of the most prominent are debunked.

“I don’t have time”
Despite being one of the most frequently heard, this is probably the most
pathetic excuse for not trading there is. Why? Because the availability of
technology and information in the modern day means that we can operate in
literally any time frame we want. Many people, when they hear “trading”, think
it means sitting in front of the computer all day. While that certainly is one
form of trading, most of us do not have the schedule to allow us to dedicate
hours each day to monitoring the markets. The good news is that we don’t have to
in order to trade effectively.

I will use myself as an example. My college coaching position has me frequently
in the gym, in meetings, and on the road. What’s more, I run a club program and
a couple of businesses on the side. In 2004, even though there were long periods
when I did not trade at all, and I probably only put on a dozen total positions
all year, I was still able to make 200%+ in the stock market. If I can trade
given my schedule, and have performance like that, anyone can.

“I don’t have the money”
In the past, this was a pretty viable excuse for not trading. These days,
though, one can trade with relatively little money. Transaction costs have
dropped dramatically over the last decade and there are more trading options
than ever before. There is one particular trading platform which allows an
individual to put on trades of at little as $1 in value, and they have no
minimum account size requirement.

Is it better to have more money? Absolutely. The more capital you have at your
disposal, the better are your available options and the more actual money you
can make in raw dollar terms.

Having more money is not always a good thing, though. For the inexperienced
trader, it is better to have only a little money at risk. Why? It is the same as
anything else. Just like anyone new to a skill make mistakes as they are
learning, so do new traders. And just as a coach would not willingly throw a new
player in to a championship game against experienced opponents, neither should
those new to the markets to take on large trades and put significant portions of
their assets at risk. It’s common sense. Better to make the inevitable mistakes
when there is relatively little at risk.

“It’s too risky”
Trading is only as risky as you make it. If you take risky trades, then trading
is risky. If you don’t, then it isn’t. There will always be the risk of losing
money on a trade. That is completely unavoidable. But that could be said about
all of life.

Driving is one of the most risky things in the modern world, but we still do it.
We reduce the risk by obeying traffic rules, planning our route, wearing
seatbelts, paying attention, and all that. Does that completely eliminate the
risk that of ending up in an accident? No, it doesn’t. Nor does it necessarily
keep us out of traffic jams or from getting lost. We understand the risks,
though, and weigh them against our need to get places in a timely fashion.

Trading is the same. We do it because it helps get us where we want to go, in
this case financially. There are going to be hiccups along the way, but if we
are focused and conscientious, we can minimize the risks, and potentially the
damage an unfortunately turn inflicts, and remain on course.

“It’s too complicated”
Technology and competition have combined to make trading so much easier than it
has ever been before. All it takes is a couple of clicks and you can execute a
trade, check your positions, get news, and anything else you need to do.
The fact that you are reading this article says you have all the basic skills
necessary to trade or invest.

Can trading be complex? Sure it can. There are those in the markets who use
complicated software, mathematical algorithms, even artificial intelligence.
None of that is necessary, though. Some of the best traders use little more than
price quotes or a simple bar chart. How intricate you get is strictly a matter
of personal preference, not necessity.

Is there a learning curve? You bet. Trading is like anything else. There are
things you need to know. The good thing, though, is that there are loads of
resources out there to help you learn.

Copyright © 2006 by Anduril, Inc.
Permission is granted to reproduce this article so long as the full text and
resource/author section, including all links, are included.

John Forman is author of The Essentials of Trading (Wiley – April 2006), and a near 20 year veteran of trading and analyzing the markets. Visit Anduril Analytics to learn more about his trading, market analysis, and research activities and to find out how you can get a copy of Anduril’s free report on what every trader and investor needs to succeed.

Arbitrage trading is a well-unknown thing. Not many people know about arbitrage trading or how amazing it is. Arbitrage trading can earn a very good stream of income. Imagine taking $200 and turning it into $1000 in a month. Sounds good doesn’t it. Well with arbitrage trading you can do exactly that.

Arbitrage trading is taking two bookkeepers and playing them against each other. In sports betting when two different bookkeepers disagree on a game it makes an arb, or a surebet. No matter what amount of money you place on these arbs or surebets you are always going to win.

The hard part is find and calculating the arbs. If you cannot find these arbs you cannot make any profit. There is however software programs on the Internet that finds these arbs and surebets for you, and they also do all the calculations for you. Some other better then others, and some you can only use in certain parts of the world.

Lets take a look at and example of just how arbitrage trading works.

If you select the first line of the Arbitrage Lines (with a total of 95.91%)

If you place a trade of $301.70 on Colorado Rockies with bookmaker Hollywood sports book, and place a $198.29 on Arizona Diamondbacks with bookmakers Stan James.

In this example, you will win $520.45 ($500 + 20.45 profit)

This is from a $500 trade

The good things about sports arbitrage trading are that you do not have to know anything about sports arbitrage trading. You do not even have to know how to find or calculate the arbs. All you need to know is how to use a computer.

Arbitrage trading has made people very wealthy. Stop wasting your money one get rich quick scams; invest your money into something that is well worth your money. With arbitrage trading you cannot lose!

Learn how you can use arbitrage trading to make profits risk free. Visit Arbitrage Trading

The first thing you need to know when you decide to trade shares by joining an online trading of stocks system is to visit the websites of the best online trading brokers available. These companies offer a wide variety of market flow previsions and developments in the online trading of stock futures. When you decide to open an account, you must know that this is generally free of charge, but you have to pay every time you engage in a stock or security bonds transaction.

After completing this process, you must choose between several available broker-services specialised in online trading. The cheapest solution to your problem is an execution broker. This type of online trading service provides only an electronic transaction option consisting in buying or selling shares or stocks, without any stock futures prevision, counselling or any other advisory support in finding realistic market trends.

Like all the participants in the stock exchange, you can only decide between three types of operations. The first one is buying, while the others are selling and holding. The single time when you require a broker is when you decide to buy or sell. You don’t need the assistance of an online trading broker to hold your personal stocks or already established stock futures.

The most important advantage in having an online trading account is the enhanced speed with which you can either buy or sell stocks. Of course, you’ll have a limited period of time to transact your stocks or stock futures, but once you get accustomed to the online trading market, you can start earning big money.

Obviously, this is normally easier said than done! To become an ace in the online trading of stocks and in the online trading of stock futures you must frequently analyze (usually daily) the prices’ evolution caused by the development in the leverage balance between demand and offer. This market leverage is widely generated by the market-makers or as, they’re also known, “big fish”. The market-makers are powerful companies that operate on the stock market and set the value for a specific stocks-class (for instance coffee). One of their main goals is to gain control and implicit wealth by speculating in online trading of stock futures. This way, they can raise their income by using the variation leverage of the stock market value in the online trading of stocks system.

The average stock holders and participants both in online trading of stocks and in online trading of stock futures don’t normally have any chance in front of these market giants. Of course, this is not the case for you! Now, there is help available for you on the Internet. You can choose among many free online trading services provided by PhD specialists in the evolution of the stock market.

The online trading of stocks has become an extremely appreciated occupation for many “nine to five” working class citizens who have rapidly transformed into expert stock holders. To add more points, the even more complex online trading of stock futures has generated even more “over the night” millionaires.

Nowadays, online trading has become one of the few domains in which you can start with little, and quickly earn a fortune. This is a real opportunity available for almost anyone! You only have to think of a realistic plan in buying or selling shares for the online trading of stocks or for the online trading of stock futures. It’s a great chance you should not miss.

Option is a legal agreement between buyer and seller to buy or sell security at an agreed price in a certain period of time. It is quite similar to insurance that you pay an amount of money in order that your property is protected by the insurance company. The difference between these two is option can be traded whereas, insurance policy cannot be traded. There are two types of option contracts; call options and put options. We buy call option when we expect the security price will go up and buy put option when we expect the security price will go down. We also can sell call option if we expect the security price will go down and vice versa if we sell put option. Usually, option is counted by contract, one contract equivalent to 100 unit options. 1 unit option protects 1 unit share. So, one contract protects 100 unit shares.

Before learning how to trade option, terminologies that you need to know are as follow:

a) Strike price: Strike price is the price that is agreed by both buyer and seller of the option to deal with. That means if the strike price of the call option is 35, seller of this option obligates to sell security at this price to the buyer of this option even though the market price of the security is higher than 35 if the buyer exercises the option. Buyer of this option can buy a security with a price that is lower than the market price. If the current market price is $39, the buyer will earn $4. If the security price is lower than the strike price, buyer will hold the option and leave the option to expire worthless. For put option strike price, buyer of the option has the right to sell the security at the strike price to the seller of the option. That means if the put option strike price is 30, seller of this option obligates to buy the security at this price from the buyer if he or she exercises the option even though the market price is lower than this price.

If the market is $25, the option buyer will earn $5. It looks like a lot of transactions have been involved; but actually, seller of the option will not buy a security and sell it to the buyer. The broker firm will do all the transaction but the extra money that has used to buy the security has to be paid by the seller. This means, if the seller loss $4, the buyer will earn $4.

b) Out of the money, in the money and near/at the money option: Option price comprises of time value and intrinsic price.

Time Value + Intrinsic Value = Option Price

Time value is the amount of money that the option worth due to the time the option has until its expiration date. Longer the time the option has until its expiration date, higher the time value of this option. Time value of an option will become zero if the option has expired. Intrinsic value for in the money call option is the difference between current market security price and option strike price. Conversely, in the money put option’s intrinsic value is the difference between option strike price and current market security price. If the current security price is lower than the call option strike price, this option is an out of the money option. It only has time value. Call option with strike price that is lower than the current market security price is an in the money option. This option has time value and also intrinsic value. Near or at the money option is the option, which strike price is close to the current market security price.

c) Delta value: Delta value shows the amount of the option price will change when the security price changes by $1.00. It is a positive value for call option and negative value for put option. It ranges from 0.1 to 1.0. Delta value for in the money option is more than 0.5 and out of the money option is less than 0.5. Delta value for deep in the money option usually is more than 0.9. If the option delta value is 0.6, meaning that when the security price goes up $1, option price will go up $0.60. If the security price goes up $0.10, the option price will goes up $0.06. Usually, $0.06 will round up to $0.10.

d) Theta value: Theta value is a negative value, which shows the decay of the option time value. Option, which has longer time to expiry, has lower absolute theta value than option, which has shorter time to expiry. High absolute theta value means the option time value decays more than the low absolute theta value option. A theta value of -0.0188 means that the option will lose $0.0188 in its premium after passage of seven days. Options with a low absolute theta value are more preferable for purchase than those with high absolute theta value.

e) Gamma value: Gamma value shows the change of the delta value of an option when the security price increases or decreases. For an example, gamma value of 0.03 indicates that the delta value of this option will increase 0.03 when the security price goes up $1. Option, which has longer time to expiry, has lower value of gamma than option, which has shorter time to expiry. The gamma value also changes significantly when the security price moves near the option strike price.

f) Vega value: Vega value shows the change of the value of option for one percent increase in implied volatility. This value is always positive. Near the money option has higher vega value compared to in the money and out of the money option. Option, which has longer time to expiry, has higher vega value than the option, which has shorter time to expiry. Since vega value measures the sensitivity of the option to the change of the security volatility, higher vega value options are more preferable for purchase than those with low vega value.

g) Implied volatility: Implied volatility is a theoretical value, which is used to represent the volatility of a security price. It is calculated by substituting actual option price, security price, option strike price and the option expiration date into the Black-Scholes equation. Options with a high volatility stocks are cost more than those with low volatility. This is because high volatility stock option has a greater chance to become in the money option before its expiration date. Most purchasers prefer high volatility stock options than the low volatility stock options.

Actually, there are twenty-one option trading strategies, which most of the option investors and traders use in their daily trading. However, I’m only introducing ten strategies as follow:
a) Naked call or put
b) Call or put spread
c) Straddle
d) Strangle
e) Covered call
f) Collar
g) Condor
h) Combo
i) Butterfly spread
j) Calender spread

Naked call and put meaning buy call and put option only at the strike price, which is close to the market security price. When the security price goes up, the profit is the subtracting of the security price to the strike price if you buy call and the reverse if you buy put.

Call and put spread is established by buying in the money or near the money option and selling out of the money option. When the security price goes up, in the money call option that you buy will generate profit and the out of the money option that you sell will loss money. However, due to the difference of the delta value, when the security price goes up, in the money call option price goes up with a higher rate compared to the out of the money call option. When you deduce the profit from the loss, you still earn money. The purpose of selling the out of the money option is to protect the depreciation of time value of in the money call option, if the security price goes down. However, if the security price continuously goes down, this will cause an unlimited loss. Therefore, stop loss has to be set at certain level. This strategy also has a maximum profit that is when security price has crossed over in the money option strike price.

Straddle can earn money no matter the security price goes up or down. This strategy is established by buying near the money call and put option at the same strike price. The disadvantage of this strategy is the high breakeven level. The sum of the call and put option ask price is the breakeven level of this strategy. You only generate profit when the security price has gone up or down more than the breakeven level. If the security price fluctuates within the upside and downside breakeven level, you still loss money. The money that you loss is due to the depreciation of the option time value. This strategy is usually applied for the security, which has high volatility or before the release of the earning report. The maximum loss of this strategy is the total amount of call and put option price. This strategy can generate unlimited profit at either side of the market direction.

Strangle is quite similar to straddle. The difference is strangle is established by buying out of the money call and put option. Because both the options are out of the money option, therefore, both options have different strike. The maximum loss of this strategy is less than the straddle strategy, but difference between the upside and downside breakeven level is slightly higher than the straddle strategy. For this strategy, the upside breakeven is calculated by adding the total call and put option prices to the call option strike price. While, the downside breakeven level is calculated by subtracting the put option strike price with the total call and put option prices. The difference between the strike prices usually is about 2.50 or 5 depending to which stock that you select to buy with this strategy. If the security price fluctuates within the upside and downside breakeven level, you still loss the money due to the loss of the option time value. Application of this strategy is the same as the straddle strategy.

Covered call is established by buying a security at the current market ask price and selling out of the money call option. Selling out of the money option has limited the profit that generated from this strategy. If security price continuously goes down, it will cause an unlimited loss. Therefore, stop loss must be set. When the option has comes to its expiry, if the security price is not moving up significantly, you still earn the total option premium that you have received. If the security price goes up, sure you will earn a limited profit. If the stock price continuously goes down, it will cause an unlimited loss. Therefore, stop loss must be set. Usually, stop loss is set at the security ask price after subtracting by the option bid price. If this security price goes down and passes over the price that you set as stop loss, the loss that is incurred to you is about half of the total option premium that you have received. This is because the delta value of the out of the money call option that you have sold is about 0.4 – 0.5. The out of the money call option strike price must be the closest strike price to the entering security price.

Collar is also known as medium covered call. It is quite similar to covered call strategy. It is only added one more step in order that stop loss is unnecessary to be set in this strategy. This strategy is established by buying a security and near the money put option and following selling an out of the money option. Due to the put option that you have bought, it is unnecessary to set a stop loss because put option will protect the security if the security price goes down. However, out of the money option premium that you have collected has to be used to pay for the put option premium. If the security price goes down, you still loss about half of the total put option premium. This is because out of the money call option premium is less than the near the money put option premium. This strategy is for half or one year long term investment.

Condor strategy has four combinations. Two of them are for stationary market and the other two are for dynamic (volatile) market. Long call and put condor are for stationary market whereas short call and put condor are for dynamic market. The former strategy involves four steps that are buying and selling in the money and out of the money call option with an equivalent amount of contract. With this strategy, profit can be generated as long as the security price does not fluctuate out from the upside and downside breakeven level. Short call and put condor are for dynamic market, which also involves four steps like the long call and put condor strategy. The difference is that in short call and put condor, the strike prices of the options that have bought must be within the strike prices of the options that have sold. For short call and put condor strategy, profit can be generated as long as the security price has fluctuated out of the upside and downside breakeven level. The upside breakeven level is calculated by adding the whole position total pay out or receive to the highest strike price in the strategy. The downside breakeven level is calculated by subtracting the whole position total pay or receive to the lowest strike price in the strategy.

Combo strategy has two combinations that are bullish and bearish combo. Bullish combo strategy is for bullish market and the bearish combo strategy is for bearish market. This strategy involves two steps that are buying out of the money option and selling in the money option. If the security price goes up more than the higher strike price, profit can be generated. But if the security price goes down lower than the lower strike price, loss is incurred. If the security price fluctuates within the higher and lower strike price, you won’t loss anything. This strategy can earn an unlimited profit but also will cause an unlimited loss depending to the market direction and also which strategy you have used.

Butterfly spread strategy is quite similar to the condor strategy. It has also four combinations that are long at the money call and put butterfly spread and short at the money call and put butterfly spread. Long at the money call and put butterfly spread are for stationary market and short at the money call and put butterfly spread are for volatile market. Steps that involve in long at the money call butterfly spread are buying in the money and out of the money call option and following selling at the money call option. At the money option means the strike price of this option is quite close to the current market security price. Number of contract of the at the money call option must double the number of contract of in and out of the money option.

Profit can be generated as long as the security price does not move out from the upside and downside breakeven range. The upside breakeven level is calculated by adding the total pay out of this position to the highest strike price. The downside breakeven level is calculated by subtracting the lowest strike price with the total pay out of this position. The short at the money call butterfly spread is established by selling in and out of the money call option and following by buying at the money call option. Number of contract of at the money option must be double the number of contract of in and out of the money option. As long as the security price has move out the upside and downside breakeven range, profit can be generated. This strategy generates limited profit and also cause limited loss if the security price does not go to the right direction.

Calendar spread is also known as horizontal or time spread. This strategy is solely used to earn money from the security, which price trades sideway. There are quite number of stocks have this kind of price trend. This strategy is established by selling at the money call or put option, which has a shorter time to expiry and buying at the money call and put option, which has a longer time to expiry. This strategy merely generates the money from the time value of the option. The option that has shorter time to expiry depreciates the time value faster than the option that has longer time to expiry. Usually, the option that has shorter time to expiry is left for expire worthless. The total money that you receive after closing this position will be more than the total money that you have paid out when opening this position.

With these ten strategies, you can use to earn money from upside and downside market and also the market that trades sideway.

Alexander Chong
Author of “Workable Option Trading Strategies”
http://www.makemoneystocks.com/

Most people commit the bulk of their savings for long term growth to stocks and mutual funds.

However the fact is they don’t perform well as a group and there are plenty of investments with higher growth potential and lower risk.

Let’s look at one.

If you look at stocks over the long term, you will see a good manager can do around 12% annually, but with inflation and downside swings frequently being 20% or more and losses lasting several years, the risk is high as well.

Most people saving for the future want low risk investments with high potential gains. Here we are going to outline one that has the following characteristics:

1. Its easy to understand by anyone

2. Its cheap and easy to do

3. Gains can be in excess of 30% and even more annually

4. It’s the secret of the worlds top investors and Howard Hughes and Donald Trump used this investment to great effect, as do many of the world’s wealthiest investors.

5. It’s not just for rich however and is rising in popularity with small investors around the world.

The investment is simply buying plots of land.

Land!

Well you may never have considered it, but it’s easy to do and is a low risk investment, with huge growth potential.

Get the right location and you can be making 30% annually or more, year on year with no real downside swings.

The way to make money in land of course is pick the right location!

You want land in high demand and this means ocean view land, everyone wants to live on the coast.

The US is expensive, so many US and other investors are looking at Costa Rica where Americans are buying in record numbers and prices look set to soar further than the huge gains that have been made for the last 10 years.

Why are gains so good?

Because, beach front property here is 70% less than in Florida for example and it’s only a 3 hour flight away from the US, so more US investors are buying property here and of course it needs to be built on land.

More advantages

Buying land in Costa Rica is easy as well:

You get them same rights as residents, its tax efficient and is easy to buy and sell, making it a perfect low risk investment with high returns.

Low risk high return

We all want 30% + annual gains and year on year profits with no real drops in value or sharp drawdowns.

If you invest in land you get a low risk investment and rewards that will make your asset manager envious!

Don’t take our word for it

Find out how cheap and easy it is to do and how the gains are stunning and risk is low. Discover this low risk investment and you may be glad you did.

There is a lot of money to be made from stocks and shares but the only hitch is nobody knows a sure fire way of a method. Let us now see some of the basics of stocks and shares. You can earn money in two ways by investing in stocks and shares. One is trading and the other is investing.

Buying and selling stocks, shares, futures and options over a short period of time is known as trading. If you buy shares, stocks, futures and options and retain them for a longer period of time then it is known as investing.

Besides the above, there is no get rich quick scheme which works. If such schemes work then almost everybody would be a millionaire. Money can be made by selling stocks and shares but it cannot be done quickly by buying and selling without reason. The patient, careful and intelligent investors definitely make big profits in the stock market when compared to the overeager and reckless speculator.

Stocks and shares should be bought when their prices are low and wait for the price to rise to earn a decent profit over a longer period of time.

A prudent investor should not worry about the downs and ups and look for the long-term cycles. If these simple principals are not followed, there is not going to be any profit for an investor.

Presuming it is going to fetch more money, never buy a stock or share when the price is going up, it is wrong. If the peak price is reached at the time of buying then the investor will be holding a stock or share of which its price will be slowly sliding down and you will ultimately end up with a loss

There are certain golden rules to be followed when investing money in stocks. Never invest more than three percent of the total portfolio in one stock. Over time, a successful investor should make all efforts to protect the capital base.

When a wrong decision is made, accept it and cut down the loss immediately by five to fifteen percent rather than wait for more time thinking the situation will improve. Follow the performance of the stock and never deviate from the “stop loss point” to limit the loss in case the stock does not perform up to the expected standard. Find more info at www.investmentresourcesonline.info

Never set price targets. Stick on to one style of trading instead of following various trading methods. The performance of a stock or share is reflected in the volume and price it is traded. Never get influenced by the opinions expressed by individuals.

Take note of all the signals emanating from the market which is connected with the stock or share you are holding. Do not get swayed by variations in data during the trading day. Reliance on such swings will lead to wrong decisions. A trader who is stressed out will be making a lot of wrong decisions, so take time out periodically during the day.

Day traders quickly buy and sell stocks during the day, hoping their stocks will continue climbing or falling in value for the seconds to minutes they own the stock. This allows them to lock in quick profits. Day traders usually buy on borrowed money, hoping that they will reap higher profits through leverage.

Day trading, however, can be highly risky. Most individual investors don’t have the wealth, time, or temperament to make money and sustain the devastating losses that day trading can bring.

Here are some of the facts that every investor should know:

-Be Prepared For Severe Financial Losses

Day traders typically suffer severe financial losses in their first months of trading. Many never graduate to profit-making status.

Given these outcomes, it’s clear: you should only risk money you can afford to lose. Never use money you’ll need for daily living expenses, retirement, or take out a second mortgage, or use your student loan money for day trading.

-Day Traders Don’t “Invest”

They sit in front of computer screens and look for a stock that is either moving up or down in value. They want to ride the momentum of the stock and get out of the stock before it changes course. They don’t know for certain how the stock will move, but they’re hoping that it’ll move in one direction, either up or down in value.

True day traders don’t own any stocks overnight because of the extreme risk that prices will change radically from one day to the next, leading to large losses.

-Day Trading Is a Stressful and Expensive Full Time Job

You must watch the market continuously during the day at your computer. It’s extremely difficult and demands great concentration to watch dozens of ticker quotes and price fluctuations to spot market trends.

You’ll also have high expenses, paying your firms large amounts in commissions, for training and computers. You should know up front how much you need to make to cover expenses and break even.

-Day Traders Borrow Money Heavily Or Buy Stocks On Margin

Borrowing money to trade in stocks is always a risky business. Day trading strategies demand using the leverage of borrowed money to make profits.

This is why many day traders lose all their money and may end up in debt as well. You should understand how margin works, how much time you’ll have to meet a margin call, and the potential for getting in over your head.

-Check Out Day Trading Firms With Your State Securities Regulator

Like all broker-dealers, day trading firms must register with the SEC and the states in which they do business. Confirm registration by calling your state securities regulator, and ask if the firm has a record of problems with regulators or their customers.

You can find the telephone number for your state securities regulator in the government section of your phone book, or by calling the North American Securities Administrators Association at (202) 737-0900. NASAA also provides this information on its website at http://www.nasaa.org/.

Just like anything else in life with potentially great rewards, there’s risk involved with day trading. Just make sure you’re in the right mindset and armed with sound information before you through yourself headfirst into buying and selling stocks.

Kori Puckett provides more self-help and success oriented articles, which can be found at http://www.KoriPuckett.com Find out the secrets Wall Street doesn’t want you to know about, including the most common, avoidable mistakes traders make. Visit: http://invest.koripuckett.com

Trading requires time in a couple of ways. The first is the time dedicated to developing a trading system. This can be thought of as a one-off thing, but in reality it is more an on-going process. Once a system is in place, time is required in terms of monitoring the markets for signals, executing transactions, and managing positions. How much time all these different elements require depends on the trading system. The trading system, in turn, needs to take in to account the amount of time the trader has available. This article discusses the considerations which go in to helping one determine
their best trading timeframe.

The first question to be answered is how much time each day/week/month (whichever is most appropriate) can you dedicate to the various requirements of trading and managing a trading system? Different trading styles require different time focus. As a rule, the shorter-term the trading, the more specifically dedicated time required. A day trader, for example, runs positions which are opened and closed during the same session. This normally means a lot of time spent watching the market for entry and exit signals. An intermediate or longer-term trader who holds trades for weeks or more does not have to dedicate the same amount of time to watching the markets. He or she can usually get away with only spot checking from time to time. Of course there is a whole array of possibilities in between. Knowing where you fall in the spectrum of possibilities is an important part of developing your Plan.

At this point it is also important to consider distractions. There is a major difference between having 6 hours per day of uninterrupted time to watch the markets and having 6 hours of time during which you will be making and receiving phone calls, having meetings, and otherwise not being able to focus on the markets and make trades when required. In the former case one could day trade. In the latter, however, day trading would probably be a disaster as the trader would most likely miss important trading situations on a frequent basis. This sort of thing needs to be taken in to account.

The basic decision one has to make is in what timeframe the trader can reasonably expect to operate on a consistent basis. The individual must be able to do all the data gathering, research, market analysis, trade execution and monitoring, portfolio management, and any other functions required of her or his trading system. That means a trading timeframe has to be selected which allows the trader to handle all of these duties on a consistent basis without the kinds of disruptions which can cause poor system input from the user, and therefore poor system performance.

By the way, nothing says a trader cannot operate in multiple timeframes. The point of this
assessment is really to determine the shortest timeframe realistically workable for the trader. He or she would then certainly be able to trade in ones longer-term than that base point. For example, just because one has the ability to day trade does not mean he or she cannot operate in a longer-term trade horizon.

One other thing to consider, especially where it relates to short-term activity such as day trading, is time of day. It is all fine and good if a trader has 8 hours of uninterrupted free time available during which to trade. What if that time is between 6:00pm and 2:00am Eastern, though? None of the primary US markets is open then, so the day trading options are a little thin for a US-based trader. (Forex might be an option).

It is also worth stating, as a final comment, that sometimes trading is not a good idea. We all go through spells in our lives when we are distracted by any number of things. This can be through illness, injury, family or relationship issues, or work-related stress. These tend to be temporary in nature, but nevertheless are a factor in our trading. If you cannot focus on trading the way you need to—and by that we mean following your plan—then no timeframe is going to be the right one. It’s perfectly fine to take time off and not trade.

John Forman is author of The Essentials of Trading (Wiley – April 2006), and a near 20 year veteran of trading and analyzing the markets. Visit Anduril Analytics to learn more about his trading, market analysis, and research activities and to find out how you can get a copy of Anduril’s free report on what every trader and investor needs to succeed.