Stock Option Trading Strategy: The Vertical Leap

By Jordan Weir

Most investors view options as strictly a short term tool. The idea of a highly leveraged tool with the potential to make big bucks quickly appeals to the gambler inside all of us. Just like a card counting black-jack player, options strategies can be used to make significant short term profits, provided the user is careful, and knows what they're doing. But while options are usually employed solely by that group of high-octane traders, they actually have enormous benefits that tend to go unnoticed by many a long term investor.

The stock option strategy I'm about to reveal isnt often used. I've only briefly heard mention of them on little known websites, and even then, not in enough detail to give an example. So here it is, what I believe may be the biggest secret kept from long term investors on main street. The stock option strategy for the long term investor.

The strategy is a vertical option spread, using leap options. How this strategy works is you buy one option, while simultaneously selling another option for the same month, but at a different strike price. While XYZ is often my generic symbol, I will use a real company in this case. Keep in mind, this is NOT a recommendation. In actuality, it would probably be a terrible idea to invest in the example I'm about to give. Its just an example. Yet to get realistic prices for this strategy, it may be helpful to use a actual company.

note:I wrote this part of the article about a short time ago, prices may not be 100% current. at this time GE is currently trading at 10.41 per share. In this example, let us talk the January 2011 options, giving GE ample of time to go the direction we believe it will. So if you thought GE was a good long term buy, it would be reasonable to think it is going to at least $20 per share by that point. By January 2011, many people believe the recession to be over, and that single development alone should lead to a substantially higher stock price.

Buy one option to start the vertical spread, and sell a second option at a higher price to complete it. With our price target of around $20, and with the current price, 10.41, I would buy the 12.50 strike call option, and sell the 17.50 strike call option. The 12.50 option can be bought for 2.71 at the moment, while the 17.50 can be sold for 1.40, giving us an total cost basis of 1.31 per share for the option spread.

Now lets look at this trade for a second. If GE is trading under 12.50 on the January 2011 expiration, both options expire worthless, and the 1.31 per option spread invested is gone. On the other hand, if GE is trading above 17.50, then the 12.50 option will be worth exactly $5.00 more then the 17.50 option, and so the position is worth $5.00 per share. If its between 12.50 and 17.50, the call we sold expires worthless, while the call we bought will have value equal to the difference between the stock price and the strike price; 12.50 in this case. Where is the break even? Well we paid 1.31 for the option spread, so if its exactly 1.31 higher then 12.50 (13.81), then well be at break even if the stock is at that point.

That gives us an amazing return of 281% if GE is above 17.50, for an annualized return of 107% (holding period is 22 months). Due to the high potential for risk - a complete loss of investment if GE is below 12.50 in Jan 2011, you shouldn't put more then you're willing to risk in the trade. Definitely a high risk, high reward play. Yet with how much time there is, its a much safer bet then short term options, and significantly more profitable then just buying the shares.

So now that the basic idea is covered, what are some examples of vertical spreads I would consider? I'm a strong believer in investing in emerging markets, so I am long term bullish on EEM (IShares MSCI Emerging Markets Investment Index). The January 2011 25-30 vertical on EEM is only going for about $1.88 at the moment, with EEM trading at 25.30 so I think that would be a wise investment. Above 30 it would be worth $5 at expiration, while below 25 it would be worthless. Unless the economy further deteriorates, I can not imagine that occurring.

Along the same lines, I expect FXI (iShares FTSE/Xinhua China 25 Index) to go up. The "China miracle" isn't over, merely in a subdued state due to temporarily reduced demand. The 30-35 vertical Jan 11 vertical would be worth $5 at expiration if FXI is above 35, which from its current price of 28.51, is perfectly within reason. That vertical spread currently has a $2 price, so that would be an even 150% return from now until January 2011.

A significantly more controversial play would be Bank of America. While the trader in me screams to short the stock, I foresee it being far more valuable then it currently is a couple years down the road. The simple reason is that yes; the financial sector has been hammered by the current collapse. Yes, some banking companies have went bankrupt, or have been on the verge of bankruptcy. Is the financial system going to completely fail? No. Are out of control bank runs going to drive them out of business? No. Are banks going to be lending and making money again after this recession ends? YES! Is pent up demand in housing going to cause a rush to buy houses at prices not seen in a decade? YES! Are banks going to profit from this? Most DEFINITELY. If BAC is at or above $10 at the January 2011 expiration, the 7.50-10 vertical for Jan 2011 would be worth 2.50, while only costing about $0.65. That would give a 286% return, or 108% annualized. The risk of course, is that BAC goes bankrupt, or BAC stays under the $7.50 per share mark past January 2011. In either case, you would lose your investment. Yet with prices as low as they are now, that isn't very likely.

For most people, the financial markets are not the place to make a quick buck. While some short term traders will have tremendous success with these option strategies, long term investors can use these same strategies while focusing on the longer term, to achieve gains vastly exceeding those of the regular stock market, while limiting risk. - 23204

About the Author:

Want to hear more about this fantastic Stock Trading Strategy? Visit my website and find out all you need to know to become a market master. Know what industries to invest in and when, and learn the Stock options strategys the big players use to make money in the markets.

Doing Hedges in the Forex market Performing Hedging in the Forex market How to Hedge in the Foreign Exchange Market

By Tom Wright

For those not familiar with the Forex market, the term "Hedge Group" means absolutely nothing. But these are regular traders know that many ways to use the concept of trade.

Most times, when you hear this phrase, it means trying to reduce their risk of trading. This is something that all investment plans to meet. This is a method that can protect your investment in a degree.

What is it?

While hedging is a popular trading term, it is also one that seems a little mysterious. It is much like an insurance plan. When you hedge, you insure yourself in case a negative event may occur. This does not mean that when a negative event occurs you will come out of it completely unaffected.

It only means that if you properly hedge yourself, you will not experience a significant impact. Think of it as your auto insurance. You buy it in case bad happens. Do not avoid bad things happening, but if they do, you will regain a part better than if you are not insured.

All are involved in trading is to learn how to hedge. From large corporations to small individual investors, hedging is an issue, it is practiced. The ways of doing this is to use market instruments to offset the risk of any adverse movement in price. The easiest way to do this is to hedge an investment in another investment.

For example, the way most people will deal with it is to invest in two different objects with negative correlation. It is still important to some people, however, protect you from doing good is worth the cost of almost all the time.

When you begin learning more about hedging, you start to understand why not many people completely know what it is all about. The techniques used to hedge are done by using derivatives. These are complicated instruments of finance and most often only used by seasoned investors.

Have a negative for all the coverage?

When you decide to hedge, you must remember that it comes with a cost. You should always be sure that the benefits you get from a hedge should be more than enough to make it worth your while. You should make sure the expense is justified. If it is not, then you should not hedge. The goal of hedging is not to make money. You will not make large gains by hedging yourself.

You have to take some risks in order to gain. Hedging is intended to be used to protect your losses. The loss cannot be avoided, but the hedge can offer a little comfort. However, even if nothing negative happens, you will still have to pay for the hedge. Unlike insurance, you are never compensated for your hedge. Things can go wrong with hedging and it may not always protect you as you think it will.

I hedge?

Keep in mind that most investors never hedge in their entire trading careers. Short-term fluctuation is something that the majority of investors do not worry with. Therefore, hedging can be pointless. Even if you choose not to hedge however, learning about the technique is a great way to understand the market a bit more. You will see large corporations and other large traders use this and may be confused at why they are acting this way. When you know more about hedging you can fully understand their strategies.

If you decide to use hedging sets to your advantage or not, you will benefit from additional training on them. You can use it as an insurance policy when trading. You must remember however that hedging sets are expensive. Always check to ensure that the cost of hedging sets will not be against any income you may or may not do.

Make sure the costs are correct and that your need for protection groups are also true. You can use hedging groups to help cut your potential losses, however, hedging set not protect themselves against the negative hero. To learn about them will give you a better understanding of how large traders work the system, which in turn can make you a better player in trade game. - 23204

About the Author:

The Forex Maestro is the most advanced, sophisticated Forex trading system to ever be released. Get your hands on this Forex robot system right now.

Foreclosures & Property Tax Auctions - Real Estate for Cents on the Dollar

By Sherry Finucan

I'm sure everyone knows by now about the real estate crisis going on all across the United States. Bank foreclosures and pre-foreclosures are at record highs and both the home owners and banks are in trouble because of it. It's a material tragedy that many people, most with good intentions, could lose their houses. Some homeowners face bank foreclosure just after missing one or two payments. It's the reverse side of the American Dream.

If homeowners facing foreclosure can act quickly enough, they can go ahead and sell their home for low prices before the banks officially forecloses them. This is called "pre-foreclosure". Pre-foreclosure is a grace period that is given to many homeowners who are close to foreclosure. During the pre-foreclosure period, the home still belongs to the borrowers and they have a right to sell it to interested buyers. The pre-foreclosure grace period can last anywhere from 3 weeks to 6 months, varying from state to state.

Due to the real estate market crisis, many low income Americans now have the opportunity to purchase good homes at low prices. Bank foreclosure homes are put up for sell for as low as 10% of the market value. They wish to regain some of their money back and to get rid of all of the foreclosure homes as quickly as possible. This makes it easier for lower income families to afford a good home for literally cents on the dollar. Lower income families and new home buyers can now afford a home that would normally be out of their financial range.

Bank foreclosures and pre-foreclosures also provide an excellent opportunity to earn a lot of money. Many Americans are learning that investing in bank foreclosure and pre-foreclosure homes can return an excellent profit. For instance, you can buy foreclosure and pre-foreclosure homes for as low as 10% of their market value, and then resell them for nine times that! Imagine all the money you can profit from buying bank foreclosures and pre-foreclosure homes! Even if you've never had an interest in real estate before, now is an excellent time to become involved in it!

You can always look through your local classified ads, but there are also state by state listings that can be found on the internet! There are many foreclosure and pre-foreclosure listing sites which will allow you to bid and purchase electronically. Unfortunately though, wherever there is money to be made, there are also scams. Some so called "foreclosure" and "pre-foreclosure" listing sites will charge you an outrageous membership fee, but then fail to give you the access to any real listings! They will only provide you with expired and out of date listings.

Of course there really are legitimate, truthful foreclosure and pre-foreclosure listings found on the internet for every city in America. Many government auction sites offer real bidding opportunities for foreclosure homes. So how will you know exactly which membership sites are trustworthy and which ones are not? Thankfully there are government auction review sites that have all the information you'll ever need. The professionals behind the government auction reviews go digging into government auction sites and test their legitimacy. They have inside information on several government auction sites and listings.

Many of these membership sites offer real, top deals on real estate, bank foreclosures, and pre-foreclosures. Make sure you read the government auction reviews before you venture into foreclosure and pre-foreclosure listings. You will be ahead of the foreclosure buying game and will be provided with the best real estate advice! - 23204

About the Author:

For free research and evaluation of the top most legitimate government auctions sites, visit Government Auction Site Reviews. This way you'll be well-informed on how to get in on the greatest values available while avoiding the many government auction scam sites that exist.

Forex Blogs - A Trader's Indispensable Source of Knowledge

By Bart Icles

The Internet is teeming with a lot of Forex blogs which can be an immediate source of useful information and resources about the Forex market and how to make a profit from it. You should look for a quality Forex blog which is being posted and maintained by a legitimate trader who has actual experience and connections with the market.

Forex blogs are meant to inform and impart knowledge about the ins and outs of currency trading; it should provide comprehensive analysis, news, and articles, and advice on current trading issues. Since there are a lot of them proliferating on the web, you should look for the quality one's that come from active traders who are accredited, and avoid the one's posted by someone who isn't active and is just sharing information based on theory. This website is most useful for beginners, and even to experienced traders.

A legitimate Forex blog or website should offer useful information or advice that helps you know additional or new and useful information regarding anything related to Forex trading. Together with the knowledge you have acquired through actual Forex trading, you will know what particular information or advice is useful or not. With enough free information from reputableForex websites circulating today, you should be able to get most of the basic data about the Forex market, and how it operates.

One of your primary objectives is to learn all the possible lessons, and get all the best trainings programs you can get your hands on in hopes that these tools will help you get better and better at trading. When you come across a Forex blog that promises highly impossible gains with the lowest risks, then it's not worth your time delving into; better to look for another one that looks and sounds "real" by your standards and observations.

Forex blogs maintained by an experienced trader are the most popular and numerous sites in the foreign currency trading niche, and are sometimes used by brokers and affiliates for online traders. Valuable information and real time tips, a review of different broker services, platforms, and Forex systems are just some of the data you can get from Forex blogs.

A Forex blog can be a great source of help for anyone interested in Forex trading, and perusing one should not be so hard once you find the particular information and resources most helpful for you particular needs. - 23204

About the Author:

A forex blogger is a powerful tool in your forex education. Learning with a USA blog or a london forex blog takes dedication and a good writer and teacher. But is well worth it, once you learn how to trade and do so successfully your life will change and you have options and financial resources you never had before.

How To Trade Forex?

By Hass67

Learning forex trading should not be difficult for you. With decent understanding of money management rules and a good trading strategy, you can conquer the forex markets.

Always try to understand the big picture. You should start each trading session by looking at the daily charts and than zooming into 4hr, 1hr, 30min, 15 min etc charts. Forex trading is all about interpreting the past as well as about interpreting the future.

You need to ask: Is the market ranging or trending before each trade. You should ask: Is there any long term patterns that have developed. By taking a general look at the different charts you will develop a general understanding of how the forex markets are behaving in the short as well as the long term.

Figuring out the general direction of the currency markets is easy. Candlestick analysis and moving averages are a good way to identify long term patterns and reversals.

Bollinger bands applied to 4hr charts can be used to identify the daily trading range. Most of the price action is expected to be within the Bollinger bands. Any moves outside the bands can be viewed as short term abnormalities and ignored.

You need to do some scenario planning, once you have a general overview of the market. You should know what news is scheduled to be released and what is the expected market reaction for that day.

Keep this in mind that understanding the big picture does not mean knowing the whole picture. You should only focus on your favorite currency pairs. It takes time and study to understand a currencys behavior, how it reacts to things like oil prices, interest rates etc. So focus only on a few currency pairs while trading.

Always try to take notes and keep a daily trading journal in which start by analyzing the general direction of the markets for that day. What is your thinking about how the markets are going to react to different news that is expected to be released that day? Your entry and exit for the trade. What is your expected profit?

After each trade, analyze what went wrong and how to avoid it in future! In case of a good trade, analyze how many pips you could have made more and how to tweak your trading strategy for better results in the future trades.

Keep these general tips in mind while you learn forex trading. Never ever trade without putting stop losses! Practice on the demo account for at least three months before starting live trading with your real money. - 23204

About the Author:

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading and swing trading stocks and currencies. Learn Forex Nitty Gritty. Read about Trend Forex System. Try Netpicks Forex Signal Service.