Protect Your Stocks Using Put Options
Feb0
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 learning how to trade. 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.
The most important thing that you can do is learn to trade from a good trading mentor, and also learn about other startegies such as swing trading.
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 well 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 practise 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 theory then you should not be trading options. If Put option, Call option, Married Put and Covered Call are new to you then don’t trade until you have studied sufficiently.
Selling call options 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 down-side 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 a good fit 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/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 cash debit whereas the covered call is a credit. But there are ways of offsetting 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 basic 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 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, along with momentum trading.
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Signing Up for a Stock Trading Course: Investing in Yourself
Feb0
The world of stocks revolves around a whole lot of investments. All the while, we talk about investing in stocks and trading in markets. We talk about maximizing profits and minimizing losses. We talk about making the most of our money and preparing for the future. Sometimes, we forget that we are the main player in our stock trading career and our primary duty is to invest in ourselves first. Educating yourself through a Stock Trading Course is one such investment.
The role of education
Education plays an important role in your growth as a person and as a professional. Any independent day trader would benefit from signing up for such a course. It would add more substance to the knowledge you have already gained through years of experience on the job and exposure in the field. It would add to your credentials as a stock trader, a broker, and an investor. As a stock market analyst in your own right, it would help you play the field better.
The right course for you
Seeking a formal education is a wise investment in itself, but choosing the right course for you makes it even more worthwhile. For the best choice in an online course, you have to examine closely the schools you are considering. They should have high standards in the quality of their education. Look into their methods of instruction and their media for learning. Ask about their time schedules and training sessions. All of these should work in your favor.
The additional resources
Aside from providing you with a good theoretical background on stock trading, an e-course must be excellent at equipping you with effective tools and techniques that apply in the real world. A course that hones your skills via a live trading experience would be more beneficial to you than one which only simulates a stock trading setting.
The individual approach
An e-course entitles you to be treated as an individual with your own requirements and needs. Because of individual differences, a study approach that works well for one person may not necessarily be effective for another. Online learning becomes most effective when you receive one-on-one instruction from a qualified professional who is an expert at stock trading and who has the track record to prove it.
The learning experience
At this stage in your life, as a mature individual seeking to be more, learning should not be an ordeal you have to face or a task you have to finish. To be truly enjoyable and fulfilling, learning should be a pleasant experience for you. As such, it will be easier for you to make the transition from the course to the job with more confidence and competence.
As a whole, stock trading courses are designed to improve your standing by making you a better asset to the stock trading world. They are meant to improve your finances by making you wiser in your investments. You can venture into a Daily Stock Report and come out with sound predictions on stocks and wise decisions on trades. You can understand the agenda and participate in the meeting of stockholders in any boardroom. If you can do this, then you have invested successfully in yourself.
Shane is a financial advisor, stock broker, and professional consultant. He enjoys reporting on the latest stock market happenings and offering advice to both fledgling investors and experienced day traders.
Visit his site to learn more about Stock Trading Course and Daily Stock Report.
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How To Read Stock Charts — A Beginner’s Guide
Feb0
One of the essential tools for securities trading is the stock chart. This chart details the rise and fall of the stock’s price as time passes by. To the casual observer, it looks like a bunch of colored lines and mountain cross-sections. To the trained observer though, they prove useful in analyzing the performance of a company’s stock, providing bases for predictions on future behavior. To the stock trader, they are the very bread and butter of livelihood, the number one tools in the battle of high finance. If you are interested in trading securities, then you had best learn how to read stock charts.
Learning how to read stock charts can differ based on the representation used. Regardless, they all share the same mathematical axes. On the x-axis or horizontal movement is time, while the y-axis or vertical movement represents the change in price. That means the chart is read from left to right, such that you can see the prices rise and fall as time passes by.
Line graphs are among the most common and simplest of these stock charts. Though they are good for spotting trends, they are not quite as useful because they exclude many of the details. For example, they do not show open and close prices, as well as the highs and lows of the stock. As a day trader you may want more resolution than that.
Kagi charts and renko charts are, like line graphs, pretty popular for long-term traders, but not quite so useful for day traders. The time intervals on kagi charts are not uniform, and they only mark points when significant rises or falls in price occur. Renko charts make it easier to read changes according to preset intervals, but they are not too practical for the day trader.
Bar charts and candlestick charts are great choices for the day trader because they show the highs and lows, plus the open and close prices. Candlestick charts in particular give a very concise and uncluttered presentation of the data you need to know as a trader in the securities market.
As to learning how to read stock charts to predict future price movements, you need more than just the ability to spot trends. Sure, it may look like it is rising now, but it could easily take a downturn after you buy. Or what looks abysmal at the moment may be revving up for a meteoric rise. The thing is, the trends and predictions on the securities market are like weather forecasts – they are good to work on, but you cannot avoid reversals of fortune.
If you want to lessen the gamble and inject some more science into your day trading, you will want to take up online courses on the subject. Not only will you learn how to read stock charts, you will also learn how to buy stocks to maximize profits and how to sell to minimize losses. You can also learn some strategies, but ultimately it will be up to you to find a strategy that works for you.
Shane is a financial advisor, stock broker, and professional consultant. He enjoys reporting on the latest stock market happenings and offering advice to both fledgling investors and experienced day traders. Visit his site to learn more about how to read stock charts and How to Buy Stocks.
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Daily Stock Report: Banking on Your Stocks without Betting All Your Dollars
Feb0
If you are banking on the stock market as a one-time gamble for unprecedented fame and fortune, then you’d better think twice. True success in stock trading will not just happen overnight. To be a real winner, go through your fair share and experience of stock trading days. At the end of the day before you turn out the light, why not go through your Daily Stock Report?
It takes more than the wheel of fate to help you arrive at your destiny as a successful stock trader. Get your gears up and running, and equip yourself with the tools and techniques which drive in the profits and swerve you away from losses.
With stock trading being such a dynamic process, where else would you find the latest, most current resources than in a stock trading website? On the internet, you get quick results and instant answers. You complete your transactions with little investment of money and time. Trading happens 24/7, and you are right in the hub of it. You can bank on your stocks making money daily without betting your last dollar desperately.
To keep you from getting down to your bottom dollar, keep updated and posted on daily stock reports. As online resources, they provide you with the latest stock market analyses. With stock market visuals such as charts and graphs to help you, you bet you have that edge in predicting how your stocks would turn out the next day. Stock prices do have their way of trending up or trending down, and this previous performance helps you determine the outcome of stock markets in the future.
In stock trading, tomorrow is your immediate future. Your tomorrow means the very next trading day. And because trending happens a day at a time, then all the more you should appreciate what a daily stock report can do for you. You only have to turn to your favorite business channel and watch the evening news to get a hold of it. It only takes a few clicks on your computer to access any bit of statistic or worldwide information. When you end your day with closing prices in mind, consider yourself a few hours ahead of time in making your next move and planning the following day. This puts you a step ahead of other day traders who overlook the daily stock report and disregard its importance.
When you value stock trading tools such as stock reports, charts, and graphs, then you behave like a seasoned stock market pro. You recognize how important it is not only to know these concepts in theory but also to use them in practice. You are willing to make them a habit and discipline.
If you seriously want to go professional in stock trading, then a Stock Trading Course would be perfect for you. In educating yourself further as a trader, you add to your credibility as an investor. As a result of widening your knowledge and circulating among your peers, you gain more trust and respect. You become even more successful with your money-making ventures. To others, working with you becomes less of a gamble and more of a profitable business. When others bet this much on you and bank on your credibility, it follows that you can bank on stocks without betting all your dollars.
Shane is a financial advisor, stock broker, and professional consultant. He enjoys reporting on the latest stock market happenings and offering advice to both fledgling investors and experienced day traders.
Visit his site to learn more about Daily Stock Report and Stock Trading Course.
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Eliminate Transaction Costs when Stock Trading
Jan0
Is it possible to pay zero commissions when stock trading? Well yes and no. Right now I do not know of any broker that will execute orders for you for nothing. But there IS a way that you can use your skills as a trader to pay your broker and still execute the trade without it costing you anything.
Welcome to “pajama trading”. Please read on:
If you can eliminate most of your transaction costs you can change the way you trade, reduce risk and make more money. I think the “secret” to realizing this goal is short term trading and that means taking a lot more trades. If you are the kind of stock trader that only takes about ten trades in a year and hangs onto stocks forever you can skip this article because you can afford to pay your broker $50 for a trade and it will not change your bottom line very much. But if you trade like me and execute 10 to 30 trades per day you should not pay any broker more than $4 per trade and you need to strive for positive slippage.
First let us define some terms: Transaction costs, for purposes of this discussion, are the commissions and fees you pay a broker to execute your trade PLUS slippage.
Slippage is the difference between the price your trading system enters a position and the price you actually got when you execute an order in real time based on the trading system you are using. So if you place a resting order with your broker to buy 1000 shares of WOOPS at 1.00 stop and he fills the order at 1.01 your slippage is negative $10. The slippage is negative because that extra penny in slippage is costing you $10 more than the theoretical system trade and this must be added to your total transaction costs.
But slippage can also be positive. Rather than place a resting order with your broker you execute the order yourself “at the market.” And then the market pulls back a tick or two while you are placing your market order and subsequently you may be filled at.98 rather than the system buy point of $1.00. In that case you save $20 and you can subtract that amount from the commissions and fees you pay your broker to execute your market order. The $20 you save is called positive slippage.
In this case you, rather than the broker, may be making money when you add up your transaction costs. If the broker only charges you a $5 commission for doing a market order and you get $20 in positive slippage you are going to gain an extra $15 when this trade is closed out over and above what your trading system gains.
So how can you get positive slippage? To get positive slippage you need to practice a style of trading I call “pajama trading”. I call it pajama trading because I do not have a regular job. I work at home sitting in front of a computer six and a half hours per day watching 96 stock markets. And I like to be comfortable and so I trade in my pajamas.
So how does trading in your pajamas get you positive slippage and reduce your transaction costs to next to nothing?
Before answering this question let’s define some more terms: A RESTING ORDER is an order you place with your broker either by phone or electronically by way of a computer. There are basically three kinds of orders: 1) Market Order 2) Stop Order 3) Limit Order.
A market order is just that, it is an order to buy the market at what ever price the market is trading at right now. A market order is always filled. A stop order is a kind of order that becomes a market order only when a certain price is first hit. But a stop order is often filled at a price higher than where the stop is placed. However a stop order is always filled. A limit order is just that, it limits the price the order can be filled at and it cannot be filled at a higher price. The problem with a limit order is that it may not be filled. For a limit order to be filled price must first hit the limit price and then pull back a tick or two before moving higher. If it does not pull back a limit order will not be filled.
My experience is that limit orders do not work for systems traders. The sacred rule of a system trader is that he or she MUST TAKE ALL THE TRADES. If you do not take all the trades you really have no system. So limit orders do not work for system trading because limit orders cause you to miss trades. And to make the problem worse it has been my experience that the best trades, the trades that make the most money, do not pull back and allow limit orders to be filled. Limit orders cause you to miss the best trades.
Stop orders on the other hand are always filled. Stop orders are what you usually place with a broker so you do not have to watch the markets. The problem with stop orders is that they are frequently filled at a tick or two higher than where the stop is placed. If a tick is worth $10 and you “are slipped” 100 ticks in a trading month it is going to add $1,000 to your transaction costs. You can only get negative slippage with stop orders and you will never get positive slippage. If there is positive slippage you can bet your broker will keep it.
So that leaves us with market orders. The great advantage of market orders is that you can get BOTH negative and positive slippage and the two tend to cancel each other out. And that brings us back to pajama trading. If you are sitting in front of your computers and your 1.00 buy price is hit you then hit the Buy-1000-shares-of-WOOPS-at-the-market button on your computer. Stock prices can change more than a hundred times in a single minute and sometimes your market order for 1000 shares of WOOPS will be filled at a price higher than 1.00 and sometimes it will be filled at a lower price. But unlike those resting orders placed with your broker it can go either way.
Without any experience at all you will find you can reduce transaction costs by “pajama trading”. It is virtually impossible that you will not get some positive slippage by pajama trading. But after watching markets for 6 ½ hours every day you are going to discover that sometimes you need to jump on a trade and sometimes you can pour yourself a cup of coffee before hitting the buy key. You can develop a feel for this based on how those ticks are flashing across your computer screen. By watching markets you can become a better trader with keen judgment and not be at the mercy of brokers.
I would like to think that years of pajama trading have made me a better trader. But what I do know for sure is that because of my pajama trading skills my transaction costs are close to zero. And that makes a huge difference in profits if I am executing 10 to 30 trades a day. If you want to be a truly active trader and limit your risks by trading smaller positions in more markets you should consider pajama trading. And believe me short term trading is much more profitable without transaction costs.
http://einsteinstocktraders.com Fifteen years ago, Robert Buran wrote, “How I Quit My Job and Turned $6,000 Into a Half Million Trading”. Bob set the system vendor industry back on its heels by publishing all his broker statements to prove the validity of his methods. Bob went on to trade European money in the U.S. stock market and pushed nearly two billion dollars in trades through the stock market in less than two years with annual yields close to 100 %. Although he is quite familiar with trading millions of dollars his interest remains with what he describes as the greater challenge of trading a few thousand dollars into a small fortune and his current work is geared to the small investor. Bob posts all his real time trades twice daily on his website, http://www.einsteinstocktraders.com along with news and market commmentary. Bob is a TradeStation programmer and his current interest is working with intra-day data and multiple market data streams to develop “hit and run” short term trading strategies that combine high yields and low risk. Bob insists that the current U.S. economy and its stock markets present an ideal environment for his methods and he presently refuses to short any U.S. stock market. Einstein Stock Traders.com http://einsteinstocktraders.com is a unique real time stock trading site geared to the small investor and short term trader interested in high investment yields and limited risks. Real time trades and some market commentary by “Trader Bob” is posted twice daily every market day.
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