Thursday, January 31, 2008

The Options Craze

The Options Craze: Why You Should Be Paying Attention

By Ron Ianieri of Options University

Veteran Floor Trader Discusses the Advantages of the Investments Market's Biggest Secret

Options have been around long enough to beg the question, "Why are they getting so much buzz now?" Mad Money's Jim Cramer recently exclaimed that options are the hottest, fastest growing segment of the market. Barrons shed light on baby boomers moving to options as a way to gain additional income and aid their sagging retirement portfolios. A major online brokerage firm polled its clients about which investment topics they would like to learn about. Options was the number one answer drawing in a whopping 62% of the responses. After 30 years of existence, options are now getting the attention they deserve.

Those of us who understand options have long wondered why more people do not use them. Several reasons come to mind. Due to their sophisticated nature, many investors have avoided options because of their perceived stigma of being too difficult to understand. Investors have bad initial experiences because inadequate training on their use. Finally, monikers such as 'risky' or 'dangerous' are synonymous with options thanks to the media and market leaders. Investors must take into consideration that these leaders might be in the limelight, but they are not necessary 'in the know' as it pertains to options. Options have significant value to the individual investor. They provide increased cost efficiency, are less risky, give higher percentage returns and offer more strategic alternatives.

Cost Efficiency

Options have great leveraging power. An investor can obtain an option position that will mimic a stock position almost identically but at huge cost savings. For instance, in order to purchase 200 shares of an $80 stock, an investor must pay out $16,000. If the investor purchases two $20 calls, the total outlay is only $4,000. The investor then has an additional $12,000 to use at his or her discretion. Obviously, it is not quite that simple. The investor has to pick the proper call to purchase in order to mimic the stock position properly. Still, this stock replacement strategy is viable and extremely cost efficient.

Less Risk

With less money invested, there is less risk involved. This makes options less risky than stocks. Options are also less risky because they are impervious to the potential catastrophic effects of gap openings.

Higher Percentage Returns

Options are the most dependable form of hedge and are safer than stocks in many instances. When an investor purchases stock, they frequently place a stop loss order to protect the position. The stop order "stops" losses below a prefixed price as determined by the investor. The problem is the essence of the order itself. A stop order occurs when the stock trades at or below the limit as indicated in the order.

Let's say you own a stock at $50 and you do not wish to lose anything more than 10% of your investment. You will place a $45 stop order. This order will become a market order to sell once the stock trades at or below $45. This order works during the day, but may have problems at night. You go to bed with the stock having closed at $51. The next morning, when you wake up and turn on CNBC, you hear that there is breaking news on your stock. It seems that the CEO of the company has been lying about the earnings reports for quite some time. There are rumors of embezzlement. They expect the stock to open down around $20 making $20 the first trade below your stop order's $45 limit price. When the stock opens, you sell at $20 locking in a considerable loss. The stop loss order was not there for you when you needed it most.

If you purchased a put option for protection, you would not have suffered this catastrophic loss. Unlike stop-loss orders, options do not shut down when the market closes. They give you insurance 24 hours a day, seven days a week. This is something that stop orders cannot do. This is why many consider options the one and only perfect form of hedge.

Furthermore, as an alternative to purchasing the stock, you could have employed the stock replacement strategy where you purchase an in-the-money call instead of purchasing the stock. There are options that will mimic up to 85 percent of a stock's performance, but cost one-quarter the price. If you purchased the $45 strike call instead of the stock, your loss would be limited to what you spent on the option. If you paid $6 for the option, you would have lost only that $6. Not the $31 you would have lost if you owned the stock.

You do not need a calculator to know that if you spend much less money and make almost the same profit that you have a higher percentage return. Options normally offer investors a much higher percentage return. For example, using the scenario from above, let us compare the percentage returns of the stock (purchased for $50) and the option (purchased at $6). Let's also say that the option has a delta of 80, meaning that the option's price will change 80% of the stock's price change. If the stock were to go up $5, your stock position would provide a 10% return. Your option position would gain 80% of the stock movement (due to its 80 deltas) or $4. A $4 gain on a $6 investment works out to be a 67% return - far superior to the 10% return on the stock.

More Strategic Alternatives

The final major advantage of options is that of increased investment alternatives. Options are an incredibly flexible tool. There are many ways to use options to recreate other positions. We call these positions synthetics. Synthetic positions give multiple ways of attaining the same investment goals. This can be very useful. While synthetic positions are an advanced option topic, there are many other examples of how options offer strategic alternatives.

Many investors use a broker that charges a margin when they want to short a stock. This margin requirement is sometimes cost prohibitive when shorting stock. Some investors are involved with brokers that do not allow for the shorting of stocks by rule. No brokers have any rules against investors purchasing puts to play the downside. The inability to play the downside when needed virtually handcuffs investors and forces them into a one-dimensional world while the market trades in 3D.

The use of options also allows the investor to trade in a third dimension of non-direction that the market has. Options allow the investor to trade both the passage of time and movements in volatility - not just stock movements. Most stocks do not have large moves most of the time. Only a few stocks actually move significantly and then not too often. An investor's ability to take advantage of stagnation could turn out to be the deciding factor in whether or not your financial goals are attainable. Only options offer the strategic alternatives necessary to profit in every type of market.

Click here to learn more about trading options at Options University

Wednesday, January 30, 2008

Four Things To Know When Its Time To Sell

Today is the Fed Meeting so heads up!

Four Things To Know When Its Time To Sell

1) "I never buy at the bottom, and I always sell too soon" - Nathan Rothschild. As difficult as it is, you want to sell stocks when things look like the stock may soar forever. As we all know, all good things do come to an end, and it's far too easy to let a 30% gain turn into a 20% loss because you're trying to squeeze out a 35% gain. You may ultimately leave some profits on the table, but better to leave some profit on the table than none in your pocket.

2) Keep in touch with a company's fundamental data. All of the fundamental research that we do typically comes prior to making the investment, but many times the company's financial statements after you invest in it will clue you in on a pending downturn. If earnings or revenue taper off, you want to be one of the first ones aware of that, prior to a sell-off.

3) In Bill O'Neill's Book 'How To Make Money In Stocks', he summarizes good money management (capital protection) with this simple quote, "The whole secret to winning in the stock market is to lose the least amount possible when you're not right." While it's always more enjoyable to dwell on winning trades, it's important that you protect your investment capital. If you allow yourself to take large losses, you have diminished the amount you can put into your next winning trades. This is why it's crucial to use trailing stops, exit rules, and be willing to accept that every trade is not going to be a great trade.

4) For those of you who use technical analysis to generate automated signals, you don't necessarily have to use the opposite of your entry signal as an exit signal. You may find that an entirely different technique than your buy signal gives you better, and more profitable, exits.

Remember, selling is half of the challenge, and you should devote half of your efforts to making sure you're selling at the right time. You will find the results are an efficient, more profitable portfolio.

Good day, good investing and trading!

Tuesday, January 29, 2008

Is The Worst Over For Stocks YouTube Video

Everyone wants to know, "Is the worst over for stocks?" If you're familiar with Bob Prechter of Elliottwave and his work, you won't be surprised that his short answer is "NO." But . . . it's his long answer that is much more compelling, including insights into what you should be doing NOW to prepare for what's still to come.

As many financial markets across the globe began to decline in January at a faster pace than many times in history, we witnessed the financial news clamoring to try to keep up. We found ourselves wishing we could reach everyone invested in the markets all at once to send them the valuable message of how to stay safe in this kind of current market environment.

So what do we want to share with you to keep your risk as low as possible in these current market conditions? We have chosen to share a message directly from Bob Prechter recorded on October 19, 2007, the 20th anniversary of the 1987 stock market crash he predicted.

Below is Bob’s YouTube Short Answer. For His Long Answer, Click Here to Join his Free Investing Trading Community!



Click here to review and Trial for Free, Elliottwave Trading Software that keeps your risk low, and reward high!

Good day, safe investing and trading!

Monday, January 28, 2008

Weekly Stock Pick

Another volatile week in the markets last week. Now we are looking to the Fed next week as what they will do with interest rates. What happens this week is anybodies guess with un-certainty in the air still.

This week’s stock pick is ComScore, Ticker SCOR Long

ComScore was incorporated in August 1999, provides a digital marketing intelligence platform, which comprises its databases and a computational infrastructure that measures, analyzes and reports on digital activity. The Company delivers its digital marketing intelligence through its comScore Media Metrix product family and comScore Marketing Solutions. Media Metrix delivers digital media intelligence by providing an independent, third-party measurement of the size, behavior and characteristics of Website and online advertising network audiences among home, work and university Internet users. The Marketing Solutions products combine the Company's information gathered from the comScore panel to deliver digital marketing intelligence, including the measurement of online advertising effectiveness, customized for specific industries. It delivers its Media Metrix products electronically in the form of weekly, monthly or quarterly reports. The Marketing Solutions products are delivered on a monthly, quarterly or ad hoc basis through electronic reports and analyses.

Back on December 18, I did a blog post on 10 New IT Tech Trends for 2008. http://invest2success.blogspot.com/2007/12/2008-new-it-tech-trends.html. One of them is Metadata Management. SCOR is already currently, and will be benefiting from this into the future.

Metadata Management: Over the next three years, companies working to integrate both customer data and product data will link these master data management efforts together in an overall enterprise information management (EIM) strategy. According to Gartner "This critical part of a company's information infrastructure will enable optimization, abstraction, and semantic reconciliation of metadata to support reuse, consistency, integrity and shareability." Metadata management, Gartner notes, also extends into SOA software development projects with service registries and application development repositories.

ComScore competes with Compete Inc., Hitwise Pty. Ltd, NetRatings, Inc., aQuantive, Inc., DoubleClick Inc., ValueClick Inc., WPP Group plc, Arbitron Inc., Nielsen Media Research, Inc., Taylor Nelson Sofres plc, Omniture, Inc., WebSideStory, Inc., WebTrends Corporation, Harris Interactive Inc., Ipsos Group, IMS Health Incorporated and Telephia, Inc. We have just taken a position in OMTR Omniture as well as ComScore SCOR.

SCOR Current Price: 26.18 Buy at 24.66 and above. Stop-Loss 22.95. Target Price 30.00 to 39.00

Comscore has issued Q4 2007 guidance in line with analyst’s estimates, and fiscal year guidance above analyst’s estimates. Current Quarters Estimate 0.20. Current Year's Estimate 0.53. Last Quarter's Earnings 0.13. PE on CY Estimate 49.87. Year Ago Earnings 0.30. Next Fiscal Year Estimate 0.76. PE on Next FY Estimate 34.68. SCOR will report financial results for the quarter ended December 31, 2007 and provide guidance for 2008 on Thursday, February 7 at 4:30 p.m. EST.

2007 Quarterly Operating Revenues Q3 22.39, Q2 20.81, and Q1 18.68. 2007 Quarterly Gross Operating Profit Q3 17.38, Q2 15.79, and Q1 14.16. 2007 Quarterly Net Income. Q3 3.79, Q2 1.24, and Q1 1.54

ComScore Media Metrix

Media Metrix provides its subscribers, consisting primarily of publishers, marketers, advertising agencies and advertising networks, with intelligence on digital media usage and a measurement of the size, behavior and characteristics of the audiences for Websites and advertising networks among home, work and university Internet populations. Media Metrix also provides insights into the effectiveness of online advertising. Media Metrix data can be used to identify and target key online audiences, evaluate the effectiveness of digital marketing and commerce initiatives, support the selling of online advertising by publishers and to identify relative competitive standing. The Company's principal product, Media Metrix 2.0, details the online activity and site visitation behavior of Internet users, including use of networks, such as AOL, instant messaging, audio and video streaming, and other digital applications. Its customers subscribe to ongoing access to the Company's digital marketing intelligence reports and analyses, including reports detailing online behavior for home, work and university audiences; demographic characteristics of visitors to Websites and properties; buying power metrics that profile Website audiences based on their online buying behavior; detailed measurement and reporting of online behavior for over 30 countries and over 100 United States local markets; measurement of key ethnic segments, including the online Hispanic population, and reach and frequency metrics for online advertising campaigns that show the percent of a target audience reached and the frequency of exposure to advertising messages.

In addition to its core offering, customers can subscribe to Plan Metrix, World Metrix, Video Metrix, and Ad Metrix products in the Media Metrix product family. Plan Metrix is a product that combines the continuously and passively observed Internet behavior provided by Media Metrix with comprehensive attitude, lifestyle and product usage data collected through online surveys of its United States Internet user panel. Plan Metrix provides advertising agencies, advertisers and publishers with multiple views of Website audiences, including their online behavior, demographics, lifestyles, attitudes, technology product ownership, product purchases and offline media usage. These data are used in the design and evaluation of online marketing campaigns.

comScore, Inc. provides insights into worldwide Internet activity through its World Metrix product, which delivers aggregate information about the behavior of online users on a global basis, for approximately 30 individual countries and for regional aggregations, such as Latin America, Europe and Asia Pacific. Video Metrix provides insights into the viewing of streaming video by United States Internet users. The product measures a range of video players and formats, including Windows Media, Flash, RealMedia and QuickTime. Video Metrix offers site-level measurement and audience ratings by demographics and time-of-day to assist agencies, advertisers and publishers in designing and implementing media plans that include streaming video.

Available through the Media Metrix client interface, Ad Metrix provides advertisers, agencies and publishers with a variety of online advertising metrics relating to impressions, or advertisements on a Website that reach a target audience. Ad Metrix helps customers determine the impressions delivered by advertising campaigns across Websites and online properties, including how many visitors are reached with advertisements and how often. In addition, Ad Metrix allows customers to determine the demographic profile of the advertising audience at a particular site, as well as how the volume of impressions changes over time on that site.

comScore Marketing Solutions comScore Marketing Solutions offer solutions for specific industry verticals, including the automotive, consumer packaged goods, entertainment, financial services, media, pharmaceutical, retail, technology, telecommunications and travel sectors. The core information products offered by comScore Marketing Solutions include Market Share Reports, Competitive Benchmark Reports, Loyalty and Retention Analysis, Customer Satisfaction Reports, qSearch, Campaign Metrix, Internet Advertising Effectiveness Studies and Survey-Based Products.

Market Share Reports track a company's share of market as measured by industry-specific performance metrics. The metrics of choice vary by industry vertical, including share of online credit card spending for credit card issuers; share of online travel spending for travel companies; or share of subscribers for Internet service providers (ISPs). Competitive Benchmark Reports allow customers to compare themselves to competitors using various industry-specific metrics. Loyalty and Retention Analysis provides an understanding of the extent, to which consumers are also engaged with competitors, and identifies loyalty drivers to assist customers in capturing a higher share of the consumer's wallet.

Customer Satisfaction Reports are based on panelist responses to survey questionnaires that ascertain the degree of satisfaction with various products or services offered to consumers. This information is often integrated with the online usage information that the Company collects from its panelists in order to identify which digital media usage activities affect customer satisfaction.

qSearch is a monthly scorecard of the search market that provides a comparison of search activity across portals and major search engines. It helps identify the reach of a search engine, the loyalty of its user base, the frequency of search queries, and the effectiveness of sponsored links displayed on search result pages in driving referrals to advertiser sites. qSearch is used by major search engines and advertising agencies in planning search campaigns.

Campaign Metrix provides detailed information about specific online advertising campaigns. These reports, available through a Web-based interface, describe for each advertising image, or creative within an advertising campaign, the size and demographic composition of the audience exposed to that particular advertisement, the average number of impressions delivered and other details regarding ad formats and ad sizes used in the campaign. Internet Advertising Effectiveness Studies provide an understanding of the effectiveness of particular advertising campaigns by measuring the online and offline behavior of a target group of comScore panelists, following their exposure to a particular advertisement, and comparing their behavior to that of a control group of comScore panelists who were not exposed to such advertisements. This type of a study allows a marketer to understand the impact of their advertising campaign and to estimate the return on their investment in online marketing. Survey-Based Products leverage the Company's ability to administer surveys to its panel members to obtain valuable information that can be integrated with online behavioral data to provide its clients with additional insights into the drivers of consumer behavior.

Click here to review and trial for free, the trading software we used in determining this week's long stock pick.

Good day, good investing and trading!

Friday, January 25, 2008

Free Option Advantage Webinar Video

In case you missed Tuesday night's online presentation by Options University's options expert Ron Ianieri, entitled 'The Option Advantage', you can now view it online below.

Go here to stream the webcast recording now:

They had such a strong demand, with thousands of traders from all over the world trying to 'dial in' that they nearly crashed the media servers Tuesday night!

Even though they recently invested $20,000 in a brand new, state of the art 8-processor webinar server, designed to handle even the heaviest of loads (with a capacity of 1000 users...) the intense demand for this presentation overloaded the system and some people were not able to view the presentation at all.

So they've recorded it, and put up online for you...

(But only for the next 48 hours, or through Noon on Saturday.)

There also was a very special time-sensitive announcement made that was only supposed to be for those on the presentation.

But to be fair to all those who were not able to attend, they're going to also leave this 'open' for the next 48 hours, or until Noon this Saturday, January 26th.

Why should you watch this important presentation?

Their students are telling them they're up 10%, 20%, even 40% in these turbulent markets...

On this presentation they'll show you how you can do the same, using options THE RIGHT WAY!

In this webinar, options expert Ron Ianieri will show you some of his simple, yet very effective and highly profitable, options trading secrets he learned through the hard knocks training of floor trading on the Philadelphia Exchange, where he "honed his chops" for over 15 years.

After just a few minutes with Ron, you'll begin to get a feel for his intense knowledge - and equally intense passion - for options. And it will undoubtedly begin to rub off on you!

Here's that replay link again to view the 3 hour presentation:

One evening spent with Ron could change your whole life. I can say that with complete confidence, after reviewing the dozens and dozens of student testimonials saying that very same thing.

You'll also 'hear' from many of their students in the webinar!

Good Day and Good Trading!

Invest2Success
http://www.invest2success.com

P.S. We've had tremendous feedback from this presentation, so don't miss it. It will not be up for very long we're told. To find out what all the 'buzz' is really about, and 'cut to the chase', here's where you can find out about the online options training web-class that created such a frenzy for traders last Tuesday night.

Here's the link again to watch online now (next 48 hours only)

Thursday, January 24, 2008

Bush's Big Boo-Boo

By Steve Forbes ~ Forbes Magazine

The dumbest, most destructive economic policy of the Bush Administration has been its weak-dollar position--letting the dollar slide in value against the euro, the yen, the pound and gold. The repeatedly disproved theory in operation here is that cheapening your currency will improve your trade balance and that an improved trade balance makes your economy stronger and wealthier.

Put aside the meaninglessness of the trade balance as a measure of economic health or sickness--the U.S., after all, has had a trade deficit with the rest of the world for 350 years out of the last 400. A weak-currency policy has disastrous economic and political consequences--most immediately, our tumultuous equity markets.

Look at what's happened since the Federal Reserve began creating excess money in 2004. The already booming housing market was, in effect, shot up with steroids as lending standards were lowered to put all the excess liquidity to work. We are still feeling the effects of the subprime mortgage crisis, as banks tighten up on lending (they don't even want to lend to each other, which tells you something), which in turn has sharply slowed the economy.

Banks themselves engaged in a binge of creating off-balance-sheet structures, most notably with so-called SIVs (structured investment vehicles). The idea was that you could generate juicy fees packaging subprime mortgages and could finance them with commercial paper and not have to set capital aside. Voilà! Returns on capital blossomed! Now many of these institutions are scrambling for infusions of capital from Asia and the Middle East, as circumstances force them to put these bizarre, loss-laden vehicles back on their balance sheets. The banks' behavior is inexcusable. But, as with bartenders who continue to ply drunken patrons with drinks, the Federal Reserve bears a heavy responsibility for creating loads of excess capital in the first place and the Bush White House for winking and nodding while the dollar was being debased.

The geopolitical fallout from the weak dollar is all around us: Terrorist Iran gets massive windfalls for its oil; ditto Venezuela under its wounded but still reigning lunatic, Hugo Chávez; Russia becomes more truculently anti-American with each uptick in the price of oil; so-called sovereign funds buy up U.S. corporate assets at fire-sale prices; China, which outsourced its monetary policy to the Fed in the mid-1990s when it tied the yuan to the greenback, now faces increasingly destabilizing inflation; and oil-lacking developing countries, many of them fledgling democracies, are being hit with potentially destabilizing economic squeezes.

The prices of oil and other commodities are surging primarily because of the weak dollar. Between mid-2003 and the beginning of 2008 oil has zoomed from $25 a barrel to almost $100. Real demand in oil didn't suddenly massively increase to justify a nearly fourfold rise in price. The best indicator of inflation is gold. In this same time period the yellow metal has zoomed from around $350 an ounce to more than $800 an ounce. More than $50 of the per-barrel price of oil today comes from inflation and the speculation that inflation induces.

President Bush should promptly reverse the government's destructive course by boldly declaring that the U.S. will now actively support the integrity of its currency ( see Current Events). Bush aides might say that the President is no economist and must therefore rely on advice from the Treasury Department and the Federal Reserve, even if it is manifestly misguided.

John Kennedy was no economist either, yet he didn't hesitate to declare that the dollar should be as good as gold. Bill Clinton was no economist, but he understood that a weak dollar and the ensuing inflation it begets destroyed Jimmy Carter's (nyse: CRI - news - people ) presidency. (During the 1978-80 portion of the Carter Presidency, a young currency economist at Citibank named Norman Madrid who got newly hired into a team of five economists advising Fortune 500 companies on global currencies, saw the yen, Swiss franc and German mark wipe out the dollar. Promptly, Carter, who also had a problem in Iran, got kicked out by Reagan.) Ronald Reagan actually did study economics, and he was willing to pay a severe but, thankfully, short-term political price to break the inflation fever gripping the country in the early 1980s. He tightened up the money supply and defended the dollar.

If President Bush is too befuddled or fearful to act now to shore up the dollar, the markets will force him to do so fairly soon. It would be better to act ahead of events than to be seen responding to them defensively and belatedly.

Poisoned Bulbs / Mr. Edison, Come Back!

The idiocies from Congress have made its popularity ratings even worse than those of the current White House occupant. The latest example: Our national legislators are banning traditional incandescent light bulbs, which were invented by Thomas Edison more than 120 years ago. By 2014 these bulbs will be illegal.

Instead, we'll be coerced into paying six to eight times the price of incandescents for supposedly more "efficient" compact fluorescent light bulbs (CFLs) that last longer and consume less electricity. Well, if CFLs are so great, why do we need a law to force us to buy 'em? Why can't politicians set aside their Nanny Bloombergesque dispositions and let the markets work?

But there's a more immediate problem: Each CFL bulb contains about 5 milligrams of mercury, a highly toxic and indestructible substance. It's like bulbs with asbestos. Billions of these bulbs will be everywhere. If one drops and breaks, you've got a problem, especially if you have small kids or pets roaming around.

Here's a harbinger of the crisis to come from an item in Investor's Business Daily: "According to an article in the Apr. 12, 2007 issue of the Ellsworth [Me.] American, [Brandy] Bridges was installing one in her daughter's bedroom when it dropped on the floor and shattered. Luckily, Brandy knew CFLs contained mercury and called the store where she bought hers for advice. She was advised to call the Poison Control hotline, which in turn directed her to the Maine Department of Environmental Protection. DEP showed up and found that mercury levels in her daughter's room were six times the state's 'safe' level. The DEP specialist gave her a 'low-ball' estimate of $2,000 to clean up the room."

Think about the challenge of disposing of all this mercury when the bulbs ultimately burn out.

Too bad Edison isn't around to invent a suitable punishment for the dim bulbs who passed this legislation.

Click here to review Forbes "Prudent Speculator" Stock Investing Newsletter

Good day and good investing!

Wednesday, January 23, 2008

Day Traders Swing Traders and Options? Perhaps!

Protective Puts Could Prove Gainful When Buying On Break-Outs and Bottom Fishing

By Ron Lanieri of Options University

Click Here To Review and Register For Live Online Options Mastery Classes Starting January 27th from Options University.

Day and swing traders typically look for stocks with short-term movements. They are not in the business of holding positions overnight let alone a week or two. Options are, therefore, not a popular component of their trading strategies. With new opportunities for profit now available, many firms are allowing their traders to trade options. They soon find that option strategies do not apply to the in and out nature of day trading. Since these traders often look for break-out and go bottom fishing for profitable opportunities, premium paying options can be gainful.

Why is this the case? Bottom fishing and break-outs are associated with volatility. A strategy can provide traders with the necessary protection to carry positions through overnight risk while remaining fully protected. They also benefit from the large potential upswing, which is the original goal of identifying the bottom and the break-out. This strategy is the protective put.

The Protective Put

A put option gives an owner the right, but not the obligation, to sell a certain stock at a certain price by a specified date. The owner pays a premium for this right. The buyer, who receives the premium, is obligated to take delivery of the stock should the owner wish to sell at the strike price by the specified date. A strategically used put option offers protection against substantial loss.

The protective put involves the purchase of put options in combination with the purchase of stock. This strategy is very effective in stocks that normally trade under high volatility, or in stocks that do not trade under high volatility but may be involved in an event driven, volatile situation.

When an investor purchases a stock, they can buy the protective put to provide a proper hedge. The construction of this position is simple. The investor buys the stock and the put at a one-to-one ratio, meaning one put for every 100 shares. One option contract is worth 100 shares, so if a buyer purchases 400 shares of IBM, they need to purchase exactly four puts.

Investors must keep in mind that by purchasing an option, they are paying out money as opposed to collecting money. This means that their position must "outperform" the amount of money that they paid for the put. If a buyer paid $1.00 for a put and owned stock against it, the stock must increase in price $1.00 just to break even. The protective put strategy has a time premium working against it, thus the stock needs to move to a greater degree, and more quickly, to offset the cost of the put.

Three potential outcomes exist with stocks. The stock can go up, down or remain stagnant. Only one outcome, the stock going up, can produce a positive return. That occurs only when the stock increases more than the amount the buyer paid for the puts. The other scenarios produce losses. If the stock is stagnant, the investor loses the amount paid for the put. They lose again if the stock goes down, but the loss is limited. This limitation of loss in highly volatile situations makes the protective put so attractive.

How This Strategy Can Work For You

Imagine you buy stock for $31.00 and buy the 30 strike put for $1.00. If the stock goes down, the position will produce a loss. If the stock is down to $30.00 (down $1.00) at expiration of the option, you have a $1.00 capital loss. With the stock at $30.00, the 30 strike puts will be worthless. You incur a $1.00 loss because that is what you paid for the put. Your total loss will be $2.00.The protective put strategy, which allows you to set loss limits, set a cap on your losses.

Let us examine this in detail. We will set the stock price down to $28.00. Since you purchased the stock at $31.00, there will be a capital loss of $3.00. The puts are now in the money with the stock below $30.00. With the stock at $28.00, the 30 strike puts are worth $2.00. You paid $1.00 for them so you have a $1.00 profit in the puts. Combine the put profit ($1.00) with the capital loss ($3.00) and you have an overall loss of $2.00. The $2.00 loss is the maximum you can lose no matter how low the stock goes because the buyer of your put must take the stock at the strike price. The put provides this protection.

It is possible to calculate anticipated maximum loss before every protective put trade by using the following formula:

Anticipated Maximum Loss = (Stock Price - Strike Price) + Option Price

Suppose you pay $30.00 for your stock and you want no more than a $3.50 loss on the position. You would choose the $27.50 strike put that costs $1.00. Following the formula, you take your stock price ($30.00) and subtract the put's strike price ($27.50), which leaves you $2.50. To this $2.50 loss, you then add the amount you spent on the option ($1.00), which gives you a combined maximum loss of $3.50 for this position. You can set your loss limit by the strike price of the put you buy and the cost of the put. This formula will work every time and there are several scenarios where the protective put strategy deserves consideration.

Picking the "Right" Bottom

A stock in the process of a steep decline is an ideal opportunity to implement a protective put when trying to pick a bottom. Quite often, stocks experience bad news or break down through a technical support level and trade down to seek a new, lower trading range. Everyone wants to find the bottom to buy and go long, catching the technical rebound, or to start accumulating the stock at lower levels for the longer term.

There is a potential for a very big reward if you pick the "right" bottom, but with big potential gain comes an equal potential for loss. Here is a perfect opportunity to employ the protective put strategy. It provides protection against substantial loss and allows room for potential gains if the stock bounces. If you feel that the stock has bottomed out and is starting to consolidate, purchase the stock and put at the same time as insurance against further decline.

If the stock runs back up, its profits will well exceed the price paid for the put. Once the stock trades back up, consolidates and develops its new trading range, the need for the protective put is over. If you still like the stock at this time and want to hold on to the long position, you can always start selling calls against it.

Technical Analysis

Another potential opportunity for using the protective put is in combination with Technical Analysis. Technical Analysis is the study of charts, indicators and oscillators. It has proven to be reasonably accurate in forecasting future stock movements. Stocks travel in cycles that form repetitious patterns. These patterns are predictable and detectable by the use of any number of charts, indicators and oscillators.

Although there are many forms and styles of technical analysis, they have several similarities such as the technical "break-out." A break-out is a movement of the stock where its price trades quickly beyond an obvious "technical resistance" or resistance point.

For a bullish break-out, this level is at the very top of its present trading range. Once through that level, the stock has "broken out" of its trading range and will often trade higher and establish an even higher trading range. The "break-out" is normally a rapid, large upward movement that usually offers an outstanding potential return if identified properly and acted upon in a timely fashion. If the break-out fails, the stock could trade back down to the bottom of the previous trading range. You will incur a large loss because you bought at the upper end of the previous trading range. This "break-out" scenario is an opportunity that has large potential rewards but can on occasion, have a large downside risk.

You can drastically limit your downside exposure by applying a protective put strategy with the stock purchase. For instance, if you were to buy the 65 strike put for $2.00 and the stock trades up to $75.00, you would make $9.00 if done naked but only make $7.00 if done with the protective put.

This difference is the cost of the put. This $2.00 investment is more than worth it should the stock fall. If the break-out turns out to be a "false" break-out and the stock reverses and trades down, your 65 put will allow you to sell your stock out at $65.00 minus the $2.00 you paid for the put. This limits your loss to $3.00 instead of a potential $8.00. This is a much better risk/reward scenario.

Click Here To Review and Register For Live Online Options Mastery Classes Starting January 27th from Options University.

Tuesday, January 22, 2008

5 Investment Mistakes You Will Probably Make In 2008

Unless YOU attend this FREE LIVE Webinar!

Wow! Global Stock Markets are tanking lately! Buying opportunity or a bear market? Attend this Free Webinar to learn how to take advantage of available opportunities.

Have you ever looked back on an investment and asked yourself, "What in the world was I thinking?!" The obvious reply is "Yes!", and that is because, every investor makes mistakes. It always has and always will be true. But even so, some mistakes hurt you more than others. When it comes to successful investing, what matters is to keep your mistakes small and make few of them.

That is simple, but it's not easy. The most critical step you can take is to identify your mistakes and, more important, understand why you make those mistakes.

You can learn how to do just that by participating in a unique webinar with EWI's Senior Tutorial Instructor, Wayne Gorman. He knows a thing or two about avoiding investment mistakes; he's been doing it (trying to, anyway) for 30+ years!

Join Wayne LIVE on the web, Jan. 23 at 4:30PM Eastern, for his rapid-fire explanation of why these five factors lead to costly investment mistakes, and how you can avoid falling victim:

The News
Macroeconomics
Microeconomics
The Fed
The "Easy Way"

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About EWI

Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world's largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private investors around the world.

Good day, good investing and trading!

Monday, January 21, 2008

Weekly Stock Pick

Abiomed ~ Recovering Hearts Saving Lives

My weekly stock pick comes at a time it’s sure hard to go long in the market in sea of red, but here goes. This weeks stock pick is Abiomed, Ticker ABMD

Abiomed provides medical products and services in the area of circulatory care. The Company’s products can be used in a range of clinical settings, including by heart surgeons for patients in profound shock and by interventional cardiologists for patients who are in pre-shock or in need of prophylactic support in the cardiac catheterization lab (cath lab). The two products of the Company designed for heart recovery following acute events are the BVS 5000 biventricular support system (BVS) and the AB5000 circulatory support system (AB5000). There are two primary types of devices used in the cath lab and surgery suite for circulatory support for pre-shock and profound shock patients: intra-aortic balloons (IABs), and ventricular assist devices (VADs).

Basic Fundamental Info: Market Capitalization $445M. 40% Institutionally Owned. No Earnings Currently. Debt to Equity 10%. Growth Estimates. Current Qtr.16.0%. Next Qtr. 27.3%. This Year 13.6%. Next Year 39.3%. Next 5 Years (per annum) 22.3%. Price/Sales 8.83. Price/Book 4.13.

Technically, here's the trade setup for Monday Jan 21. Buy Stop $14.41. Stop-Loss $13.43. Take Profit Very Short Term $16.06 to $16.66, Short Term $17.29 to $17.94, Intermediate Term 19.83 to $20.57, Long Term $23.18 to 24.04. Take profit subject to stop-loss not taking out the position.

Latest Abiomed FDA Approval News January 7th, 2008

Abiomed Announces AB5000(R) Portable Circulatory Support Driver. Reliable, Lightweight, and Quiet Driver Runs Abiomed's AB5000 VAD. Enables Discharge to Enhance Patient Quality of Life. FDA Approval Received for Expanded One Year Reliability Label on AB5000 VAD.

The combination of Abiomed's new Portable Driver and its FDA-approved AB5000 VAD provides support of acute heart failure patients. In many cases, profound shock patients require biventricular support (both sides of the heart). The AB5000 can assume the pumping function of a patient's failing heart, allowing the heart to rest, heal and potentially recover. AB5000 is designed to provide either uni-ventricular or bi-ventricular support. Abiomed also announced today that it has received FDA labeling approval of one year bench reliability for its AB5000 VAD, which is expected to complement the Portable Driver reliability.

"My experience with the AB5000 Circulatory Support System has been excellent in treating over 30 patients with support duration of up to 40 days," said Louis Samuels, M.D., FACS Surgical Director Heart Failure and Transplant, Director Artificial Heart & Ventricular Assist Device Program, Lankenau Hospital. "The new Portable Driver is lightweight and quiet, demonstrates reliable performance, and has the potential to improve patient care while lowering costs to hospitals."

"There is a clinical need to provide patients requiring VAD support a greater degree of mobility during treatment aimed at myocardial recovery," said John V. Conte, M.D., Associate Director of Cardiac Surgery, Associate Professor of Surgery, Director of the Heart and Lung Transplantation, Director of the Ventricular Assist Device Program, Johns Hopkins Hospital. "The expected durability of this portable driver is a nice match with the AB5000 VAD and could provide an integrated and effective solution for patients requiring uni-ventricular or bi-ventricular support."

Abiomed's Portable Driver is a powerful bi-ventricular system which delivers the pressures and vacuums equivalent to Abiomed's AB5000 console and its recently approved iPulse(TM) console, at only 18 pounds in weight. Internal testing of the Portable Driver and the AB5000 Ventricle has demonstrated high reliability. This testing showed that the Portable Driver is capable of providing full support for a year's intended use. The unit is expected to require low maintenance, approximately every 5,000 hours of operation, which is estimated to be three times longer than existing portable consoles that weigh twice as much. Abiomed's Portable Driver was designed with the latest smart battery technology for extended power capability and the quiet operation of the Portable Driver provides for minimal disruption of the patient's quality of life at-home or while in care centers.

In addition to providing an advanced clinical option for heart centers, Abiomed's Portable Driver is expected to be cost-effective for hospitals. Procedures are supported with associated in-hospital Medicare reimbursement that range from approximately $80,000 to $171,000 per patient stay, with the additional potential for direct console cost reimbursement per patient discharged.

Abiomed's Portable Driver has not yet been approved by the U.S. Food and Drug Administration (FDA). The Company plans to pursue an investigational device exemption (IDE) to conduct a discharge study, which is expected to be submitted in early calendar 2008. Daniel Goldstein, M.D., Associate Professor, Department of Cardiothoracic Surgery, Albert Einstein College of Medicine, Director, Cardiac Transplantation and Mechanical Assistance Programs, Co-Director, Center for Advanced Cardiac Therapy, Montefiore Medical Center, is the principal investigator for the study. "I am excited to begin this study as this new device shows the potential to provide an additional alternative for heart failure patients to improve their quality of life while we focus on heart recovery," said Dr. Goldstein.

The AB5000 VAD is also approved in Europe under CE-mark and has supported patients for up to 312 days. Abiomed expects to start supporting patients with the Portable Driver in Europe in its fiscal fourth quarter ended March 31, 2008 with CE-mark approval. Outside of the U.S., the AB5000 is used as a bridge-to-recovery (BTR) and bridge-to-transplant (BTT) device, and the Portable Driver is expected to greatly enhance the Company's BTT market opportunity.

"The physicians still treat many bi-ventricular patients and want the flexibility to discharge," said Michael R. Minogue, Chairman, CEO and President of Abiomed. "From a business perspective, we believe the Portable Driver will increase the utilization of our AB5000 disposables at heart centers globally."

Abiomed's AB5000 has FDA approvals for all acute heart failure indications. The current installed base of Abiomed's AB5000 Circulatory Support System, prior to the announcement of this Portable Driver and Abiomed's iPulse combination console, is comprised of greater than 50% of the 119 U.S. transplant hospitals and greater than 22% of the 866 U.S. open heart hospitals.

Click here to review and trial for free, the trading software we used in determining our trade position on this stock.

Good day, good investing and trading!

Thursday, January 17, 2008

A Tale of Two Traders Video

Last week, I told you about an interesting new set of videos by the Options University that they just made available.

If you recall, these videos were entitled:

"The Options Trading Manifesto: A Tale of Two Traders."

In Part 1 of the video, you were given four examples of real-life situations facing stock and options traders each and every day.

And in each of the examples, you saw the immense benefit of using options in your trading.

Now it's time for Part 2 - The Rest Of The Story...

In Part 2, you'll not only discover how five real-life trading situations played out, but they also reveal the identities of the two traders in their story.

You may be shocked when you hear who they are!

So click here to view Part 2 of the 'Tale'.


Good day and good trading!

P.S. Be sure to view A Tale of Two Traders Part 2 - The Rest Of The Story. You'll not only discover how the four real-life case studies from Part 1 played out for our two traders, but you'll find out who the traders are!

And when you do, you'll realize why we kept their 'identities' a secret until the end.

Here's that web page again for the video...

Monday, January 14, 2008

Weekly Stock Pick

Our long stock pick for this 2nd week of January, is Aegean Marine Petroleum Network, Ticker ANW.

Aegean Marine Petroleum Network, Inc. is a marine fuel logistics company that physically supplies and markets refined marine fuel and lubricants to ships in port and at sea. As a physical supplier, the Company purchases marine fuel from refineries, oil producers and other sources, and resells and delivers these fuels using its bunkering tankers to a base of end users. As of December 31, 2006, the Company owned a fleet of 10 double hull and two single hull bunkering tankers with an average carrying capacity of approximately 5,940 dead weight tons. As of December 31, 2006, it also owned a single hull Aframax tanker with a cargo-carrying capacity of approximately 92,000 dead weight tons and one double hull Panamax product tanker with a cargo-carrying capacity of approximately 68,000 dead weight tons. In October 2007, the Company acquired Bunkers at Sea, a marketer and physical supplier of marine fuel. In November 2007, it acquired Portland Bunkers International's marine fuel terminal.

The Company sells and delivers these fuels to a diverse group of ocean-going and coastal ship operators and marine fuel traders, brokers and other users through its service centers in Greece, Gibraltar, Singapore, Jamaica, the United Arab Emirates and Belgium, and plans to commence physical supply operations in the United Kingdom and Ghana during the first quarter of 2008.

We like the shipping sector a lot right now. One of our top and best performing holdings is TBSI, an international cargo shipper. Aegean fits right into this same shipping sector growth theme by supplying essential fuel, supplies, and services to ocean going vessels.

Technically, we see a nice long trade setup for ANW on the chart right now. Buy Stop at $31.90, Stop-Loss at $28.66, and Short Term Take Profit at $38.38 to $41.62, and Longer Take Profit at 46.50 to $55.10. This longer reward-risk ratio on this trade setup is 4.5:1, providing the stop-loss doesn’t get hit. Nice returns in which we are always looking in a market of stocks that have the potential to provide us a minimum 3:1 plus reward risk on our money.

Fundamentally, Aegean PE is almost 50, which may look expensive at first glance, but after analyzing the entire shipping industry and forward earnings potential, we see growth rates expanding over time for Aegean. Institutions currently own about 30% of Aegean, leaving plenty of room for them to invest more. Their current debt to equity is about 40% which is below the maximum 50% or less requirement we look for in most companies we look to invest in short or long term. Total Net Income for past years has been 17.62 for 2004, 21.48 for 2005, and 24.23 for 2006 showing respectable bottom line growth. We don’t see margins getting squeezed anytime soon, and Aegean could possibly see their margins expand now with their addition of another service ship into their fleet, thus providing more support for a higher stock price.

Aegean has some new news that promises to grow its business in the near and long term. Aegean has just taken delivery of a New Bunkering Tanker.

Aegean Marine Petroleum January 8th announced that it has further expanded its marine fuel logistics infrastructure with the delivery of the Amorgos, a 4,600 dwt newly built double-hull bunkering tanker from Fujian Southeast Shipyard in China.

E. Nikolas Tavlarios, President, commented, "With the delivery of our
fourth bunkering tanker newbuilding since our IPO, management continues to execute its well-capitalized growth plan. By further expanding our marine fuel logistics infrastructure, we have once again strengthened our position to take advantage of the growing demand for a full-service marine fuel solution from procurement to delivery."

Mr. Tavlarios added, "We remain intensely focused on pursuing growth
opportunities that meet our strict return criteria exclusively within the global marine fuel logistics industry as we have in the past. The launch of our new service center in Northern Europe combined with our new service centers in the United Kingdom and West Africa, which are scheduled to commence operations in the current quarter, bodes well for Aegean to further increase sales volumes as we continue to enhance our leading industry reputation."

With the delivery of the Amorgos, the Company has deployed the Aegean
Tulip, a 1993-built 4,853 dwt double-hull bunkering tanker to West Africa from Gibraltar.

Click here to review the trading software we used in determining our trade position.

Good day and good trading!

Friday, January 11, 2008

Free Options Trading Video

"Options Trading Manifesto: A Tale of Two Traders.”

With apologies to Charles Dickens, this video will tell the tale of a two traders– a stock trader and an options trader. The story is actually a real-life case study of a certain similar situation that each of these traders found themselves in – and the trials, tribulations, and eventually the triumph of one of the traders over the other.

But here’s a warning…

Quite frankly, after watching this video, you may never want to trade stocks again. At least not ever quite the same way...

In Part 2 of the video, you'll discover the identity of the two traders in the surprise ending, but for now and to view Part 1 online now, just click here. (Don't miss it!)

Anyway, I don’t want to give too much away right now. To get “the rest of the story”, you’ll need to watch the video.

P.S. “Manifesto” is defined as “A public declaration of principles, policies, or intentions, especially of a political nature.” In this new video called “The Options Trading Manifesto: A Tale Of Two Traders”, you’ll understand completely the principles, policies and intentions of Options University through an exciting, real-life case study.

But even more exciting, you’ll discover how this Options Manifesto just might make 2008 your most prosperous year ever.

Here's that web page again for more information...

Good day and good options trading!

Thursday, January 10, 2008

How To Shake Out The Best 2008 Stocks

If you're like most stock traders, you want to speed up the trading activities that take up most of your time.

Click here for your complimentary 49-page guide that reveals a critical time-saving tactic that all successful traders use.

Let's be honest, it's not a lot of fun spending hours staring at charts trying to find the best stocks to trade.

But there ARE a few things that successful traders do to get a definite edge in the markets (again and again).

Do you know what they are? Click here to find out.

Well, for the next few days, a premiere online trading mentor has opened up access to one of his most popular trading guides, where you'll discover:

How to shave hours off your trading routine forever, so you can spend more time with your favorite people, activities, and hobbies.

The "sweet spot" of any trend that gives you the greatest profit potential.

Where to place your stop loss order in any market (Hint: it's NOT where most traders would place it).

How you can increas e your trading opportunities dramatically when you learn the truth about "selling short", and why long positions can be far more risky than short positions.

How to take the guesswork out of trading and minimize trading stress.

Plus, a ton of other insider trading tips.

It's yours as his "New Year Surprise". Grab it today and digest it NOW so you're ready to trade with a whole new set of tools in 2008.

This report is available by clicking here, but it won't be there forever, so go ahead and grab it while it's still open to the trading community.

Good day and good stock investing trading!

Wednesday, January 09, 2008

What You Have to Do to Win in Trading

By Tony Beckwith of MTPredictor Ltd

Professional traders want to make money; amateur traders want to be right...

Let's be clear about this -- traders can fail for many reasons (and, unfortunately, the vast majority will fail)…professional, psychological, physical or some combination of all three. Traders who win have mastered the vital skills necessary to function well in all categories. They will take the money in markets away from the failures, as they always have.

Professional traders follow a process...

Without a disciplined and logical process, a trader has very little hope of staying in the game, let alone making any money -- which is, in case we forget, the whole point of the activity!

Traders, both new and experienced, need a disciplined and controlled process to follow that will take them from stage one of finding a trade set-up to the second stage of assessing its potential reward versus the money risk involved in taking the trade, through stage three of working out how much money to risk (to prevent overtrading or undertrading) and on to the final stage of managing the trade with patience and confidence -- right from having the order filled to exiting the position.

Find a trade...

The process has to be simple, understandable and committed to a trading plan you review regularly. Ideally, you need a way to identify a trade set-up the same way every time and without confusion.

One way is to focus on finding the simple ABC correction-to-trend, arguably the simplest part of Elliott wave theory because it has the beauty of being unambiguous -- that means there are none of the typical Elliott wave arguments over what pattern it is, how it fits into bigger patterns, whether smaller patterns fit into it and so forth.

Not only should it allow you to enter a trade with a small, controlled money risk, it should also provide definite and unshifting profit targets. These are clearly important in enabling you to calculate the risk / reward on a trade before risking any of your precious capital.

It goes without saying that one of the best places to enter a trade is after a correction to a trend because you are then positioned for any resumption of that prior trend. And, fortunately for us, simple ABC corrections happen on all liquid, freely trading markets, from lightening-fast tick charts all the way up to monthly charts.

Real-time (and End-of-Day) scanners, such as those offered by MTPredictor Ltd., automatically identify these corrections on eSignal charts and tell us if they are completing in decent price support (long set-up) or resistance (short set-up). This allows us to concentrate time and energy on the real elements of trading -- risk control.

Free Trial

Assess the potential reward against the definite risk...

If you have definite profit targets, you can calculate your risk / reward. Your potential reward is the distance from your entry to the first profit target, and your definite risk is the distance from your entry to your initial protective stop.
You can decide if it is above a certain minimum (for example +2.0x). This is critical because your win / loss ratio is almost certain to fall below 50 / 50 over time, such that you have more losing trades than winning trades (just ask the successful traders at the big banks and institutions about win / loss!).

You then need to take steps to ensure that your winners are making you at least 2x your money risked on those trades compared with your losers -- which are losing you 1x your money risked (-1R in risk multiple terms). This also means the size of your winners is directly related to the size of your losers. Again, this is vital. Otherwise, you have no way of knowing how many consecutive losses you can fund from a previous winner -- yes, a string of losses is inevitable.

As leading trader-educator, Van Tharp of the Van Tharp Institute says succinctly, "Losses as large as 20% don't require that much larger of a corresponding gain to get back to even. But a 40% drawdown requires a 66.7% gain to breakeven."

Free Trial

Money management -- do it or fail...

Money management, more accurately termed position-sizing or bet-sizing, is absolutely essential. Again, as Van Tharp says, “Poor position sizing is the reason behind almost every instance of account blowouts.” This is precisely the reason why position sizing as explained by Tharp is central to risk control and is made easier by having defined entry and stop triggers for trades based on the extremes of signal / reversal bars.

For example, consider a long trade set-up with a +2.0x minimum potential risk / reward. Using the standard fixed fraction (important phrase) position sizing, you have a ready method to decide how many shares, contracts or lots to actually trade. Divide a fixed % risk of your account -- say 2% if you’re trading leveraged instruments such as futures or Forex (and contracts for difference or spreadbets if in the UK or Australia) -- or 0.5% for unleveraged products such as plain vanilla equities -- by-the-money risk per share, contract or lot.

For instance, in this US E-mini S&P 500® futures example, say you are risking 2% of a US$20,000 account on each trade. That means $400 per trade. If your trade set-up has, as in this example, an entry price of 1443.50 and an initial protective stop of 1445.50...your initial risk of loss is 2 full points x $50 per point = $100. $400 / $100 = 4 contracts can be traded. Simple, yet vital.

Free Trial

Run the winners, cut the losers!

This is exactly what almost all amateur traders have real problems doing. So, the answer is to have a method of forcing yourself to stay with your winning trades as long as logically possible, while cutting your losing trades at a pre-defined price.

If you are trading off a simple ABC correction on your chart, profit targets can be determined based on the length of the correction and the length of the prior trend that it may be correcting. Targets for the trend, if it resumes, to aim for.

If you are only taking trades with a minimum potential risk / reward of +2.0x to start with, you can use the profit targets to take profits on your trades -- because you know they are at least +2.0x risk / reward themselves. Mission accomplished.

Alternatively, you may rightly use the first profit target to determine whether your minimum risk / reward outlook is +2.0x. However, choose to trail, say, a volatility stop as your exit strategy.

Welles Wilder's Average True Range, for example, has been developed into just such a trailing stop, adjusting continuously for price volatility and often keeping profitable trades open for longer. As long as such a concept is incorporated into your trading plan and not used on an emotional whim, that is fine.

Again, to quote Van Tharp, "Trading and investing are very simple processes, and we human beings try to make it into something much more complex." Keep it simple!

Click Here to Review and Trial for Free MTPredictor Trading Software


High Reward Low Risk Trading Software Free Trial

Tuesday, January 08, 2008

Free Option Trading Webinar Jan 9

Here’s How the Pros Use Technical Analysis to Trade Options Successfully.

Click here for this Free Option Trading Webinar Wednesday night January 9, 9PM EST. Professional traders will show you how to use technical analysis the RIGHT Way!

Technical Analysis. The mere mention of this trading system implies some heavy, highly “technical” method where you have to do lots of hard work to “analyze” a trade setup for profitability.

And you’ve no doubt seen the encyclopedic volumes of TA books on the shelves of the library or your local bookstore. Crack open one of those tomes and you’ll be nstantly bombarded by a dazzling array of hundreds of chart patterns, esoteric terms you’ve never heard of, complicated-looking charts with dozens of parameters displayed on them, etc.

Sounds like a tough, complex system to master, doesn’t it?

Well, it doesn’t have to be that way. In fact, you really don’t need to know that much of TA at all to be a successful trader.

You certainly don’t have to master the hundreds of setups and chart patterns explained in the 5-pound technical analysis “encyclopedias” found in the library or the corner bookstore.

Truth be told, there is just a tiny subset of TA you even need to be aware of. About 20 setups to be exact. These are the ones found to be the most reliable – and the most profitable – in stock and options trading.

Would you like to know what those 20 setups and chart patterns are?

Click here to register and attend this complimentary webinar by the Options University this Wednesday night, and you’ll find out.

In that webinar, entitled “Introduction to Technical Analysis – An Overview of the Top 20 Technical Indicators Professionals Use (And Why You Should Too)” trading expert Ron Ianieri will be joined by two other trading expert faculty at the Options University to reveal the most important (and most profitable) aspects of Technical Analysis you need to know to be a successful trader.

This is not some ivory-tower trading “theory.” These are the actual indicators some of the top traders in the world pay close attention to before they even think about entering a trade.

The two instructors were professional traders on the floor.

Bottom line, if you’ve ever felt confused about Technical Analysis, or just didn’t even know where to start, this one webinar can steer you in the right direction. You’ll discover what parts of traditional TA are truly important, and you’ll learn the top 20 technical indicators the pros use to enhance the likelihood of their option trading gains to the highest degree possible.

Profit from the top 20 indicators from traditional technical analysis professional floor traders value the most. Attend this free webinar Wednesday night and learn from the pros!

Click here to register for the free options trading webinar:

Good day, and good options trading!

Monday, January 07, 2008

Weekly Stock Pick

Happy New Year! Here’s my first long stock pick for 2008. It’s Cubist Pharma. Ticker CBST.

Cubist Pharmaceuticals, Inc. (Cubist) is a biopharmaceutical company focused on the research, development and commercialization of pharmaceutical products that address unmet medical needs in the acute care environment. The Company focuses on developing products for the anti-infective marketplace. Cubist’s flagship product, CUBICIN, is approved in the United States for the treatment of complicated skin and skin structure infections (cSSI) caused by S. aureus and certain other Gram-positive bacteria and for S. aureus blood-stream infections (bacteremia), including right-sided infective endocarditis caused by methicillin-resistant staphylococcus aureus (MRSA) and methicillin-sensitive staphylococcus aureus (MSSA). CUBICIN has also been approved for marketing for complicated skin infections caused by various Gram-positive pathogens in the European Union, Israel, Taiwan and Argentina, and also has been approved for S. aureus bloodstream infections in Israel.

I like CBST on the intermediate to long term basis, but for the trader in you, and I, here’s my short-term buy strategy starting today Monday Jan 7. CBST Buy stop at $20.43, stop-loss at $19.64, and take profit at $25.10 to $25.97.

Cubist 2007 EPS numbers showed strong growth with Q1 at 0.10, Q2 at 0.24, and Q3 at 0.32. Cubist current P/E is 26.53 compared to the biotech industry average of 49.91 and the S&P500 of 17.29. With its market cap at 1.13B its 95% institutionally owned. Quarterly earnings release will be Jan 23, at 12PM EST with a earnings conference call at 5PM.

Currently, Cubist's future success or failure is based on its approved antibiotic drug, Cubicin. There are many successful one-drug pharma’s. Like the others, Cubist is looking to acquire new drugs to fill out their empty drug pipelines and diversify away from a reliance on one drug.

With their attempt to infuse more drugs into their product pipeline, CBST exercised its option to buy Seattle’s Illumigen Biosciences. The deal, and very cheap we think, originally announced in October, gives Illumigen $9 million in cash and up to some $330 million in milestone payments. We think the deal is very cheap for Cubist, and that it will not affect their balance sheet at all, with all the potential to add to their bottom line longer term.

Cubist paid $6 million in October for the option to acquire the development-stage company and its preclinical hepatitis C drug candidate. If all works out and the Illumigen drug gets approved to treat HCV, then Cubist will only have to pay up to $76 million in clinical trial and regulatory milestones for the drug. That's cheap for a marketed HCV drug.

The Illumigen drug is expected to start phase 1 testing this year, and then it will be another year or two before this drug goes to phase 2 proof-of-concept studies. The Illumigen drug is a protein and an interferon replacement product.

With many hepatitis C patients of all genotypes not responding well to even the most promising therapies like Vertex Pharmaceuticals Telaprevir, and some others, there should be room for new HCV drugs, even if their dosing is inconvenient or their efficacy worse than current therapies.

Click here to review the trading software we used in determining our short term trade position.

Good day and good trading!

Friday, January 04, 2008

Options Strategies

Five Proven Options Strategies You Can Use Today

Former Floor Trader Reveals Strategies to Maximize Returns with Minimum Risk

By Ron Ianieri of Options University

The proliferation of online brokerage firms combined with low commission costs has empowered the average retail investor to navigate the options market like never before. Despite their reputation for being risky and difficult to master, options can present a unique advantage to the individual trader. They provide increased cost efficiency and are not as risky as equities. Options can also offer higher percent returns than stocks and strategic alternatives.

"A mastery of options is very achievable if you learn the right way," states Ron Ianieri, Chief Strategist of The Options University. The former Philadelphia Stock Exchange floor trader offers five proven strategies for maximum returns with minimum risk.

The Covered Call/Buy-Write Strategy

The covered call is a premium selling strategy with two components - stock and options. The stock component consists of a long stock position in which the investor owns stock. The options component consists of selling one call per every 100 shares of stock owned. One options contract is worth one hundred shares of stock, so the ratio of stock to calls must be exactly 100 shares to one option contract. The philosophy behind this strategy entails using a long stock position with a short call option to create a positive stream of additional income. "It is similar to person purchasing a house then leasing it to pay the mortgage," says Ianieri.

The Protective Put Strategy

The protective put is a premium purchasing strategy that is ideal for an investor who wants full hedging coverage for their position. The investor buys the stock and put at a one-to-one ratio, meaning one put for every 100 shares. The protective put strategy is optimal for situations when the stock has a potential for an aggressive upward or downward move.

Stock Replacement/Covered Call Strategy

Consider 1,000 shares of a stock trading at $58, but an investor is unable to take advantage of this because of the capital requirement of $58,000. This is the time to consider using the stock replacement strategy. An alternative to purchasing the stock outright is to find a way to replace the actual stock with something that is not as expensive. In this case, that alternative is a deep-in-the-money call.

Vertical Spreads

Vertical spreads provide the buyer and seller an excellent percentage return while providing limited loss scenarios.

Time Spreads

The time spread strategy is excellent for premium sellers who want to capture a premium in a hedged way. It involves the purchase of one option and the sale of another in different months, with both having the same strike. Important elements in the construction of the time spread are: using two calls or two put options on the same stock, using the same strike for both, choosing different months for each, and using a one-to-one ratio.

Summary

While these strategies lay the groundwork for a successful entry into the options market, ongoing education is the best asset that any investor can have. Ensure your success by staying abreast of the latest information such as articles, classes and the advice of professionals, along with option trading software.

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Good day, and good options trading!

Thursday, January 03, 2008

Dow Off to Worst Start Since 1983

3 Seasonal Patterns To Watch as Dow Off to Worst Start Since 1983

The Dow closed lower for the month of December and then proceeded to drop 220 points today, January 2, to get off to its worst start since 1983. Whoa! What happened to the seasonal pattern that says markets close up in December? We seemed to have left that one behind, and today's downdraft has a lot of people scratching their heads.

Maybe now is the time, as everyone looks forward to 2008, to recognize that the seasonal patterns are backwards. As Bob Prechter of Elliottwave.com points out in his December Theorist, the stock markets have been turning away from normal seasonal patterns during the past year. For evidence, he points out that the market bottomed in August, was up in September, made a high in October and was down in November. All contrary to the usual patterns for those months.

Normally, when down is up and up is down, it's difficult to decide which way to move. People like to have a pattern to go by that helps them decide whether to trade or not. Here is Bob's suggestion about how to view the seasonal patterns in 2008:

"Today everyone knows three things about the future"

1. The stock market is always up in December.

2. Years ending in 8 are always up.

3. Pre-election years are always up.

"So you can bet that the vast majority on Wall Street is poised to get rich on the long side from now through the end of 2008. But if the market keeps going counter to seasonal patterns, it would go down this month [December] and for most of 2008."

There's an old saying, variously attributed to either Abraham Lincoln or P.T. Barnum: "You may fool all the people some of the time; you can even fool some of the people all the time; but you can’t fool all of the people all the time."

When it comes to stock markets, Bob puts it this way: "A falling market this month [December 2007] and next year would certainly fool the majority, and it’s about time the majority got fooled."

Making choices based on seasonal patterns may be the best way to get fooled in this new year. Make yourself a resolution to learn more before investing on a not-to-be-trusted seasonal pattern.

Click here to review their Financial Forecast Service which includes a subscription to Bob Prechter's Elliott Wave Theorist.

Good day, good investing and trading!

Wednesday, January 02, 2008

2008 Stock Market Outlook

First, welcome to 2008! May it be a prosperous year of health and wealth for you and beyond!

I'll start the New Year with looking at the potential outlook for the broad market.

Ok, no guaranty this is going to happen, as a lot can change in a years time. Lets get started here.

The election year can easily impact stock prices. On average in past election years, during the last year of a Presidential term, the Dow has risen about 11% to 15%. Lets say its a 50/50 split, and the difference is about a 13% gain, and still better than the average.

So how does that fit into Dow's technical analysis?

Without showing the charts here, pull up your own charts, and take a look at our analysis.

Take a look at your weekly charts. Draw and review long term support and resistance trend lines. Notice the trendlines support and resistance points, then the low-end can easily bring a possible return for 2008 at about 6%, with the top-end at about 17%. The average of those two possibilities is about 11%, which just happens to be in line with typical election year projections.

Dow Jones Industrial Average - Weekly

11% to 13% range looks obtainable.

Lets talk about fundamental valuation now. The average trailing P/E for the 30 Dow stocks is about 16. The projection for the next twelve months is 14.10. This is in the middle of current high low levels. The average P/E for the Dow Jones Industrial average since 1950 has been about 16.5.

In the past, a P/E reading that would be considered too high is 22 or above, and too low is under 10. With that, those extreme levels are in reality rarely seen, but the Dow can move up and down quite a bit and never actually reach those outside P/E readings. The too high and too low levels to P/E's would then be 18 and 14. With that, we're in acceptable ranges. So, all seems to be normal so far.

What is the best measure we see is to analyze expected growth in earnings? Who actually knows until it happens, but we have to try to figure it out someway somwhow. With the broad market at a current P/E of 16 with a projected P/E of about 14, then companies are basically looking for earnings growth at 14%.

What's likely and not likely? As we've all seen in the past, stocks don't trade at what they're worth most the time. Companies could just grow earnings by 10%, the underlying stocks could still go up by 11%, and the Dow's P/E could still remain under 18 in that case.

This measure of valuation on individual stocks could be all wrong, but I don't think it will affect the indexes much at all.

Now, what will the 2006 election bring about, and is it going to make normal market conditions become not-normal conditions? The race for the White House is still not a done deal yet. It's still unclear as to whether a democrat will seize the oval office or a another republican will.

Does it matter at all? Two things that are important here.

Number One Change: Markets don't like uncertainty, and change has uncertainty written all over it. Fear of the unknown, fear of change, and a general fear of what a new administration will do or not do, is enough to scare the daylights out of investors, and is something to be think about and be ready for this 2008. Candidates want to get elected, so they're going to talk lower taxes. I can't but think that any taxes that are promised to be reduced, and even if reduced after the election, can and will be raised somewhere else later on.

Normally in the past, the markets tends to perform better under Democrats than Republicans. So until the election happens, and the official results are in, the 2008 election could go either way here, as the market might do also.

Maybe its a little early to think about who's going to be in the White House next term, but there's no doubt it will be a market moving idea in 2008, however the story unfolds.

Now for some forecasts for the S&P500 and NASDAQ.

S&P 500 Weekly Outlook

The SPX's weakness in 2007, compared to the NASDAQ's, and even the Dow's, was just weird to say the least. At the end of 2007 it was a 3.5% gain. As we look at the chart we don't see a lot to get thrilled about either.

On the S&P500 chart, the highs and lows tend to suggest a low-end return of about 1.0%, and a high-end return of almost 19%. The more immediate area of movement suggests the same low-end return of about -1.0%, and a high-end result of almost 16%.

The median return for the S&P 500 might be around about 8%. Considering the S&P has been leading for many months now, it wouldn't be a surprise to see it lag, as it has been lately. We are looking at selected small to mid cap stocks possibly outperforming this year.

NASDAQ Composite - Weekly

With technical analysis of the NASDAQ, its charts show many possibilities. We see a likely high-end return at about 17%, and a low-end possibility at about 6.0%. The higher end of that range at about +20%, and the lower end of a loss at about -11%.

The NASDAQ 100 has a current P/E of about 39. Is this historically high? Not even. It was over 200 in late 1999, so we could see much more upside before everyone decides companies PE's are unsustainable.

Flipside of that analysis, and by historical standards, the PE is still pretty high, and I'll admit we like to invest in growth stocks do provide some value to future earnings. The projected P/Es suggest the biggest NASDAQ stocks are going to increase earnings by 35%. Tall order many might say right now, but in the financial markets anything can happen. Who says stocks have to trade at what they're worth? That's where fear and greed play in.

With uncertainty brings volatility, and volatility is a traders dream come true. So what's your pleasure? Invest or trade? Investing in 2008 will be all about stock picking, and trading will be great if uncertainty cranks up the volume.

Any which way in our opinion a lot of things will have to happen the right way for the NASDAQ to put in another strong year as it did in 2007. It could happen, so stay tuned daily to protect your financial worth!

Good day, good 2008, good investing and trading!