Hoping and praying that the stocks that you just bought will go up is not the best strategy to use, however it is the one very often used by the average Joe stock trader who is stock trading internet. The only salvation they have is that in bull markets most stocks will go up.
Statistics show that in a bull market about 75% of the stocks will follow the general trend and go up, and in a bear market 75% will also go down. Trading with the trend is the best way to trade as 9 out of 12 stocks will follow the trend and give you the best chance of making gains on your stock purchases.
But what if you own some good stocks and don’t want to sell when the market is clearly going down, or about to go down?. There are a couple of tactics that you can consider, both of which involve the use of options, CALL options and PUT options. There is the widely known strategy called Covered Calls, and the much lesser known one called the Married Put.
If you are going to trade options it is essential that before you start trading you get the best option trading education that you can. You should also practice stock trading until you are comfortable with the process. This is a very important point that must be taken seriously, if you don’t understand the terminology and the theory then you should not be trading options. If the terms Put option, Call option, Married Put and Covered Call are new to you then don’t trade until you have studied sufficiently.
Selling calls against your stock in 100 share increments is the basis of the covered call strategy and it can provide about a 2-7% buffer against the loss in stock price. However a bigger drop in stock price will not be compensated for using the covered call strategy, in general.
Stocks in a bear market, and even in a bull market, can drop quickly on news or earnings releases, as much as 15 to 40% within a month. Using covered calls to protect your stocks will only provide limited protection of less than 7% at best and so will not save your account if the stock takes a 40% tumble.
The better solution to providing downside stock protection is the option strategy called the Married Put. As the name suggests the PUT that you buy is used to provide protection when the stock goes down because Put options will increase in value when the stock decreases in value. The term married is used because the option that is selected has to be very compatible with the stock, in other words a good match, if the strategy is to work.
The selection of the best Put option is not straight forward and involves several criteria which are listed below:
1. The strike price of the option
2. The current stock price
3. Choice of options, in or out of the money
4. Put expiration time
Even though the married Put protection only has a limited life span if offers much more protection than the covered call. It can provide as much as 95% loss recovery in the event of a significant drop in the stock price.
The downside of the good protection is that you have buy the Put which is a debit whereas the covered call is a credit. But there are ways of off-setting this expense and there is much more to this strategy when executed correctly. The Married Put can be made to pay for itself and used to generate very good gains if the market, or stock to be specific, moves a lot.
The general idea of the Collar Trade is to combine the covered call and married Put strategy into one, this is what is called the Collar Trade. In effect you put a collar around the stock, sell a call and buy a PUT. If you do this correctly most of the cost of the Put can be offset by the credit from the covered call so you can protect your valuable stock at almost no cost. Yes this is a great strategy which the general public is unfortunately very ignorant of, and most brokers don’t understand.
The strategy that I have outlined above is unknown to the average stock market trader but is one of the best trading systems you could have.
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Have you suffered from stock broker investment losses or fraud?
Legal recovery of investment losses from protected notes.
A class action suit has been filed on behalf of persons who purchased Lehman Principal Protection Notes from UBS Fiscal Services Inc., and other firms. The class action lawsuit alleges that defendants deceived financiers as to the hazards of investing in the Notes and that UBS and other companies offered and sold the Notes as acceptable for investors seeking to protect their entire principal investment from investment losses. Following Lehman Bros bankruptcy filing, Lehman Principal Protection Notes went into default, causing the holders of these Notes to become senior unsecured creditors in Lehman’s bankruptcy proceeding. These stockholders will lose all or significantly all of their principal investments unless they file a litigation claim for their investment losses.
You may recover from investment losses in structured investments that were marketed as 100 percent principal protected.
Gilman and Pastor is currently investigating consumer complaints that certain brokerage firms, financial institutions and entities misled their clients into buying a hundred p.c principal protected notes, through assurances that their principal investment would be fully protected. Certain brokerage firms including UBS, Raymond James, Merrill Lynch, JP Morgan, Fidelity, and Wachovia, marketed and are purported to have sold principal protected notes to their clients, specifically targeting conservative, anti-risk financiers who were wanting to preserve their capital and generate income. In fact, these notes subjected investors to significantly more risk than was disclosed and, following Lehman Brothers’ bankruptcy filing and other finance events in September, holders of these principal protected notes faced losses, in a few cases, of their whole principal investment due to fraud.
Why Gilman and Pastor, LLP for your Investment Losses?
Gilman and Pastor are class action lawyers and a state litigation firm focusing on instruments litigation, investment losses, investment fraud, consumer class actions and complicated business litigation. For thirty years our attorneys have recovered more than a billion dollars on behalf of our clients for investment losses.
Class action lawyers at Gilman and Pastor LLP publishes a Class Action Suit Against AIG and Merrill Lynch, As Well As further Inquiries of Structured Investments.
The countrywide legal company of Gilman and Pastor LLP with offices in Boston, Massachusetts, and Naples, Florida, announces that a class action court action has been brought for people who purchased Structured Notes from AIG and Merrill Lynch. Money crime is running at epidemic proportions. The most recent wave of the purported highly fraudulent investments is “structured investments”. The complaint alleges that brokerage firms and financial establishments aggressively marketed structured investments as being structured promissory observes that have complete principal protection, as contrasted to other instruments such as equity-backed mutual funds that do not provide principal protection.
Such structured notes subjected investors to noticeably more risk than may have been divulged. Holders of these supposedly principal protected notes face losses, in a few cases, of their entire principal investments. Gilman and Pastor LLP is finding that many backers haven’t been conscious of their monetary plights since their finance statements typically don’t reflect current worth but only purported worth at maturity. Likewise , holders of these investments are unfortunately learning that almost all of the investments are illiquid, leaving holders without a cure except filing a litigation claim.
Gilman and Pastor LLP is investigating over thirty 30 structured note issuers and more than forty banks who have issued or sold structured offerings. These include:
ABN AMBO Bank N.V.
AIG
Bank of America
Barclays Bank
Bear Stearns
Charles Schwab
Citigroup
Countrywide Securities
Credit Suisse
Deutsche Bank
E-Trade
Harris National Association
Incapital LLC
JP Morgan Chase
Lehman Brothers
Merrill Lynch
Morgan Keegan
Morgan Stanley
RBC Royal Bank
Societe Generale
Sun Trust Bank
UBS
Wachovia Corporation
The structured investments were typically offered and sold as suitable for financiers looking to protect their whole principal investment. Each of the issuers and sellers purportedly offered and emphasised the protection of principal as a chief
objective when investors are now learning they may be in danger for losing nearly all of their investment. Investors should act quickly to protect their interests.
For nearly 30 years, class action lawyers, Gilman and Pastor LLP has been one of the nation’s leading firms representing backers in stocks fraud actions and litigation to fix egregious corporate practices and breaches of fiduciary duty to investment losses that exceed $100,000.
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If you are a stock market investor you would know that buying a stock for a particular company entitles you as the investor partial ownership in the corporate entity that issues the shares. To put it another way you are purchasing an “equity” participation in the company.
You will find that the majority of the US stocks listed and traded in the stock exchanges are known as equity securities. Trading in stocks is pretty simple. You make your selection, buy the stock at the listed price and then sell it if the price increases if you choose to do so. You can also earn dividends from the company while you hold a stock.
This article is about helping you with Learning Options Trading. Time to learn just what they are? To make it simple, an option is really just a contract.
The difference with a stock and a stock option contract is that the purchaser of a stock option is that they do not take ownership of anything. An option contract makes it so the owner has the right to buy or sell the underlying financial instrument on which it is based.
The type of options most commonly referred to in financial circles is known as “equity options”. There are different expiration dates for the options. The “regular” options can have expiration dates up to 9 months from the time of issue. There are also options known as LEAPS. This type can have an expiration date of up to three years.
Now lets dive into a bit more detail about an option contract. Equity options just like stock are classified as securities. To get more specific equity options are called “derivative” securities. If you don’t know what that means it is simply that the value is in part based on, or derived from, the value of the particular underlying stocks.
You will find that as equity options are classed as securities they are able to be traded on any of the exchanges in the US that list equity options. If you are looking to trade equity options if should come as some comfort to you that exchange listed equity options are overseen by the Security and Exchange Commission (SEC).
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The process of stock trading has of course evolved a lot over the years as technology as developed. In the early part of the 20th century you had to physically visit a stock brokers office or trading room to buy and sell stocks.
When the postal mail became into common use you could then buy and sell stocks by mailing a letter to your broker, of course today nobody would think of doing either of these.
Today the most common form of trading uses either the telephone or stock trading online. When using the telephone to trade stocks you can still do it by speaking to a broker and giving them your clear instructions, or you can do it all yourself by using some form of menu system using the digital key pad.
But by far the most common form of trading is done online, so what do you need to know about stock trading online?, more than you may think!
Here are some points that you may not have considered:
1. Virtually every broker can do stock trading but what about options, Forex and futures?. While you may not be interested in trading either Forex or futures it is quite likely that at some time you will want to trade options online, even if it is just covered calls. Make sure that your chosen broker allows you to trade all the markets that you want to.
2. Of course the fee’s charged by your online broker is an obvious point to check, the fee’s can vary a lot and if you are doing hundreds or thousands of trades a year it can add up to quite a lot of cash. Did you know that you can just call up your online broker and ask for a reduced commission charge?, yes you can, I’ve done it. Of course they don’t advertise it but if you do a lot of trades they will want to keep your business.
3. Have you planned what you will do if you are in a trade and your internet connection goes down for any reason, it could be a power failure, problems with the internet or your PC crashing?. If you are in a day trade you will want to telephone your broker and manage your trade, probably you will just want to close it. How will your broker deal with your call, will they answer quickly, will they look at charts for you and describe what is going on?. Make sure that your broker has good telephone support.
4. Are your trading funds safe?, make sure that your broker is a member of SIPC, the Securities Investor Protection Corporation, which protects against losses caused by the financial failure of the broker-dealer, but not against losses resulting from depreciation in a security’s value. Usually accounts are protected by the Securities Investor Protection Corporation (SIPC), up to $500,000 (including up to $100,000 for cash claims).
Whatever you decide to do, before trading stocks, options or anything else make sure that you get a good trading education by reading the best trading books that you can.
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About a month ago the blogger at The Money Philosophy Blog decided to get back into the stocks game after having been out of it for a few years. He was initially drawn to stocks like GM and C (Citigroup) which had taken a big hit since the stock market fell through the floor in the fall of 2008.
His C and GM picks were extremely successful and that got him to look for other stocks similar to them. He came across a couple of microcap stocks, LJPC and CTIC, that looked like they may break through in a similar way.
That ended up being correct as both CTIC and LJPC ended up being big winners.
He thought that he may actually be onto something with the way he was choosing these stocks so he decided to try to create a stock screen screen which would find more penny stocks like them right before they were about to go up.
The reason I’m writing this blog post today is because his first pick with this new screen reached a high 20% above it’s open today and that certainly impressed the heck out of me. My imagination is off and running with the big gains I could make by following his stock picks.
Obviously I don’t expect every pick he or anyone else makes to have big gains. No way. And it’s key to remember that a gain isn’t “real” until the point where you sell the stock. Making the decision of when to sell is just as important as deciding when to get in. The really cool thing is that he also makes a post on his blog (and on his Twitter account) when he gets out.
He does not share exactly how he screens for these stocks as I guess he’s a little too selfish to share all of his trading secrets but he shares more than most do.
He doesn’t suggest that anyone follow his picks. There’s actually nothing to gain from that. He’s clear that he’s only sharing what he does, sort of like a diary, not giving investment advice. And that’s an important thing to note. You should always do some of your own investigating before buying stock.
While I understand wanting to buy The Day Trading Robot or The Forex Autopilot System, I really think I’ll have better gains just by doing what he’s doing. And the really great thing is that it’s free.
Consider this: It’s definitely a good idea to make “imaginary trades” before you start making trades with real money when trying a new method.
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Risk tolerance is essential for stock market investing for beginners. When you first study how to invest in the stock market, you’ll find each person has a risk tolerance , which should be analyzed and understood. A professional financial planner worth his salt should understand this so he can help you determine your risk tolerance. Then, that person needs to help you by recommending which stock market investments suit your risk level.
It’s commonly assumed that risk tolerance is related only to your emotional reaction to investing. That’s not the case at all. Several things have to be considered when deciding what your risk tolerance level is, and emotions aren’t the only factors involved.
Determining your risk tolerance, with regards to basic stock market investing, involves the consideration of multiple factors. One of those factors being that you know how much investment capital you have available, and the other is your total awareness of what you are trying to achieve financially. As an illustration, if you plan to take retirement in 12 years and you haven’t saved any money at all, you’ll need a substantial risk tolerance and do some hardcore investing to have plenty of money to retire when you want to.
As a contrast, If your investing begins when you’re 20, your stock market investing risk tolerance will be low. Developing the saving habit early will allow you to let your money grow over time. When you combine this with what you know about your emotional reaction to risk, the right investment formula will become obvious. It can be hard to figure this out yourself, so experts recommend that people use a reliable professional who can expertly assess you risk tolerance and assist you with investing for retirement.
Knowing your risk tolerance will help you establish an investment style and allow you and the investment professional you select to invest with confidence. While there are many different types of investments that one can make, investment styles come in only three types – and those three styles tie in with your risk tolerance. The three investment styles are conservative, moderate, and aggressive. But I will cover those in another article!
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