Friday, December 4, 2009
Profit better than loss. Close trade when profitable....
Another thing that i learnt today is that we don't have to wait until expiration day to make profit. As long as we make profit, close the trade! That's simple. Profit, even small is better than loss...(do not be greedy)
Do NOT sell naked options
My first day listening to EliteOptionMastery Course. Learn something very important. I used to selling put. Made some profits, but made a few BIG loss. Now, i think i should agree with Andrew, NOT to sell put!
Thursday, December 3, 2009
Elite Options Mastery
Attended EOM last night presented by Andrew Baxter. I signed up for its membership.
The reasons:
1. They deal with money maker and trade options in bulk. This ensures the transactions with desired option price.
2. They are proffesional traders with great experience.
3. They analyze the market and give recommendation on what, how,when and why to trade.
4. They send sms for entry and EXIT trade. So i can trade from anywhere in the world with just my mobile phone.
5. I leverage my time by using their service.
I am supposed to get email from them today...
The reasons:
1. They deal with money maker and trade options in bulk. This ensures the transactions with desired option price.
2. They are proffesional traders with great experience.
3. They analyze the market and give recommendation on what, how,when and why to trade.
4. They send sms for entry and EXIT trade. So i can trade from anywhere in the world with just my mobile phone.
5. I leverage my time by using their service.
I am supposed to get email from them today...
Wednesday, December 2, 2009
Monday, November 30, 2009
A Strategy That Lowers Cost, Lowers Risk... And Wins 75% Of The Time
Tuesday, July 21, 2009
by Karim Rahemtulla, Investment Director, Smart Profits Report
Dear Smart Profits Report Reader,
Last week, I explained the nuts and bolts of covered call investing - a bullish strategy that focuses more on returns than it does on risk.
In my column, I used the example of Yamana Gold (NYSE: AUY), showing you how to reduce your cost when buying stocks - and thereby increasing your upside potential if the shares move higher.
Today, we're going to kick things up a notch and explain how you can cleverly take the same covered call strategy and add a twist. When you do so, you can achieve more consistent returns over time, while also protecting your capital.
Simply put, I'm going to focus on mitigating risk...
Make Money... Even When Your Stocks Fall
With a conventional covered call strategy, you buy regular shares of a stock and then sell a call option against them, whose strike price is higher than the current share price. Your aim is that the shares will move higher and will get called away at expiration for a profit.
While this does happen, it doesn't occur as often as you might think. Plus, it usually only happens during an upward moving market.
However, with the deep-in-the-money (DITM) covered call strategy I'm focusing on today, we're not expecting the shares to move higher. In fact, we don't even need the stock to trade higher in order for us to make money. It can actually go lower (sometimes much lower) and we'll still make money.
Pretty compelling, right?
A 75% Win Rate
In short, what we're seeking is safety. And to get it, we need to employ a strategy that protects us much more often than not.
So how about a win/loss ratio of 75%? That's the performance the DITM strategy recorded over the past 13 years that I've used it. That means we've only lost money or broken even 2.5 times out of 10. At all other times, we've made money, usually notching up market-beating returns.
Just yesterday, in fact, in my Strategic Income service, we closed out two winning positions - 13% on Wells Fargo (NYSE: WFC) and 33% on Goldcorp (NYSE: GG) - positions we initiated before the market's collapse.
Here's how it works, using the Yamana Gold example again. Recall that in last week's example, we bought Yamana under $9 and sold the $10 (out-of-the-money) calls against our position.
Go Deep On Yamana
This time, we're going to buy the same Yamana shares. But instead of selling the $10 calls, we go in-the-money instead.
~ Buy 1,000 shares of Yamana at $9.50 - a total outlay of $9,500.
~ Sell 10 contracts of the January 2010 $9 calls (AUY-AL). Trading at $1.75 per contract, you receive proceeds of $1,750 (remember that each contract contains 100 shares, so it's $1.75 multiplied by 100 = $175. Then $175 multiplied by 10 = $1,750).
~ Your cost for Yamana shares is now $7.75 ($9.50 minus $1.75) - a full 18% below the current price. This is the crucial number. If Yamana closes above $7.75, you'll be profitable.
~ If Yamana closes above $9 at expiration, you'll make 16%. You arrive at this number in this way...
$9 (strike price) minus $7.75 (cost) = $1.25 (profit).
$1.25 divided by $7.75 = 16%.
If the stock moves higher, your returns are capped at 16%, regardless of where it goes.
~ Even if Yamana shares stay at today's level, you'll still make 16%. So you have an additional chance of profiting from the trade, versus just one with a straight long strategy, which requires the shares to move higher.
Additionally, you reduce your cost of ownership in Yamana to $7.75.
Basically, you're saying that you're willing to own Yamana at $7.75 - 18% below current prices. But if you don't get the shares at that price, then you want to be paid for trying - something that happens nearly 80% of the time.
Things to remember:
~ You can execute a deep-in-the-money covered call strategy in any trading account.
~ If you do end up with the shares, you can sell additional calls against your position to reduce your cost even further. The goal is to own the shares for zero dollars or even a negative cost over time.
~ Always make sure you employ position sizing - i.e. never put too much in a single investment.
~ At expiration, if the shares are trading above your strike price, they'll be automatically taken from your account.
That's all for this issue.
Karim Rahemtulla
by Karim Rahemtulla, Investment Director, Smart Profits Report
Dear Smart Profits Report Reader,
Last week, I explained the nuts and bolts of covered call investing - a bullish strategy that focuses more on returns than it does on risk.
In my column, I used the example of Yamana Gold (NYSE: AUY), showing you how to reduce your cost when buying stocks - and thereby increasing your upside potential if the shares move higher.
Today, we're going to kick things up a notch and explain how you can cleverly take the same covered call strategy and add a twist. When you do so, you can achieve more consistent returns over time, while also protecting your capital.
Simply put, I'm going to focus on mitigating risk...
Make Money... Even When Your Stocks Fall
With a conventional covered call strategy, you buy regular shares of a stock and then sell a call option against them, whose strike price is higher than the current share price. Your aim is that the shares will move higher and will get called away at expiration for a profit.
While this does happen, it doesn't occur as often as you might think. Plus, it usually only happens during an upward moving market.
However, with the deep-in-the-money (DITM) covered call strategy I'm focusing on today, we're not expecting the shares to move higher. In fact, we don't even need the stock to trade higher in order for us to make money. It can actually go lower (sometimes much lower) and we'll still make money.
Pretty compelling, right?
A 75% Win Rate
In short, what we're seeking is safety. And to get it, we need to employ a strategy that protects us much more often than not.
So how about a win/loss ratio of 75%? That's the performance the DITM strategy recorded over the past 13 years that I've used it. That means we've only lost money or broken even 2.5 times out of 10. At all other times, we've made money, usually notching up market-beating returns.
Just yesterday, in fact, in my Strategic Income service, we closed out two winning positions - 13% on Wells Fargo (NYSE: WFC) and 33% on Goldcorp (NYSE: GG) - positions we initiated before the market's collapse.
Here's how it works, using the Yamana Gold example again. Recall that in last week's example, we bought Yamana under $9 and sold the $10 (out-of-the-money) calls against our position.
Go Deep On Yamana
This time, we're going to buy the same Yamana shares. But instead of selling the $10 calls, we go in-the-money instead.
~ Buy 1,000 shares of Yamana at $9.50 - a total outlay of $9,500.
~ Sell 10 contracts of the January 2010 $9 calls (AUY-AL). Trading at $1.75 per contract, you receive proceeds of $1,750 (remember that each contract contains 100 shares, so it's $1.75 multiplied by 100 = $175. Then $175 multiplied by 10 = $1,750).
~ Your cost for Yamana shares is now $7.75 ($9.50 minus $1.75) - a full 18% below the current price. This is the crucial number. If Yamana closes above $7.75, you'll be profitable.
~ If Yamana closes above $9 at expiration, you'll make 16%. You arrive at this number in this way...
$9 (strike price) minus $7.75 (cost) = $1.25 (profit).
$1.25 divided by $7.75 = 16%.
If the stock moves higher, your returns are capped at 16%, regardless of where it goes.
~ Even if Yamana shares stay at today's level, you'll still make 16%. So you have an additional chance of profiting from the trade, versus just one with a straight long strategy, which requires the shares to move higher.
Additionally, you reduce your cost of ownership in Yamana to $7.75.
Basically, you're saying that you're willing to own Yamana at $7.75 - 18% below current prices. But if you don't get the shares at that price, then you want to be paid for trying - something that happens nearly 80% of the time.
Things to remember:
~ You can execute a deep-in-the-money covered call strategy in any trading account.
~ If you do end up with the shares, you can sell additional calls against your position to reduce your cost even further. The goal is to own the shares for zero dollars or even a negative cost over time.
~ Always make sure you employ position sizing - i.e. never put too much in a single investment.
~ At expiration, if the shares are trading above your strike price, they'll be automatically taken from your account.
That's all for this issue.
Karim Rahemtulla
What You Need To Know About Covered Call Trading
Tuesday, July 14, 2009
by Karim Rahemtulla, Investment Director, Smart Profits Report
As promised last week, this is the start of a series on options strategies I've planned in order to show you a world of possibilities that the mainstream "press" quite simply doesn't want you to pay attention to.
At the risk of sounding like a conspiracy theorist, I firmly believe that most investors are intentionally kept in the dark about anything that breaks away from the "buy stocks and mutual funds" mantra that makes Wall Street money.
Most mutual fund managers can't see much further beyond Investing 101, and too many people in general are skeptical of options altogether. The problem is that they have no idea what they're missing.
The options market was created for professionals, institutional money managers, and those who report to their wealthy, sophisticated constituents instead of the general public. But that doesn't mean that the average Joe and Jane can't use it too. They just need to get a few pieces of inside information first.
When George Soros took down the Bank of England to the tune of billions of pounds, he did it by using the leverage that options provided him. Basically, he saw a trend and figured out how to exploit it legally and with a surprisingly small amount of risk.
Sure, if it went against him, he would have lost out big time, but not nearly as much as someone who played the game the usual way. You see, the key to trading options is knowing how to use them to maximize the efficiency of your money. And the first and easiest strategy for doing that is the covered call trade...
Get "Free" Money
In order to execute a covered call trade you need to use both a stock and an option, hence the term "covered." It means that your trade is covered by the underlying shares that you own.
There is no risk to the broker when you execute it since there is protection of equity by the shares you already own even if it goes against you. And that's the reason why covered calls can be used by anyone in any type of account, including your retirement account.
When you enter into a conventional covered call trade, you're essentially pledging to sell your shares at a certain price - known as the strike price - on a certain date, commonly referred to as expiration.
For pledging your shares, a buyer pays you an amount of money called a premium. And it doesn't matter what the final outcome is; you still get to keep that premium regardless of who ends up with the shares in the end.
Since it's yours to keep, spend or reinvest, you reduce the basis of your stock. Remember: Anytime you reduce your basis or capital risk, you also reduce your risk.
The One, Two, Threes Of A Covered Call
A typical covered call trade would go something like this:
Step 1: You buy 1,000 shares of Yamana Gold (NYSE: AUY) for $8.40 per share, totaling $8,400, and since you believe that the stock can go to $10 by year's end, you look at an options chain (a listing of options available) to find out what the market is buying and selling the Yamana $10 options for.
(Note: This market is open to anyone who wishes to buy or sell options)
Step 2: The option is trading for $0.90 on the bid and $0.95 on the offer, so you sell 10 contracts of the Yamana January $10 call options, receiving proceeds of $900.
Now a few things to keep in mind before we go on...
~ Just as with stock, you buy at the offer and sell at the bid.
~ Options are always priced in increments of $0.01, $0.05 and $0.10 depending on volume traded and selling price. The Yamana options are priced in $0.05 increments and the price reflected is per share x 100 shares.
~ Options trade as contracts, and each contract is equivalent to 100 shares of stock. So while the Yamana options are priced at $0.90 by $0.95, the minimum dollar amount that you need to be aware of is for 1 contract or $90 by $95. And it also means for the purpose of covered call trading, that you need to own at least 100 shares of Yamana to execute the trade.
~ The strike price of $10 means that the buyer or seller of the option has the right to either buy or sell Yamana at $10 depending on the strategy used. If the option is sold - as in the case of a covered call trade - the seller of the option is obligated to deliver shares of Yamana to the buyer of the option if the shares close at $10 or higher.
The buyer of the option then has the option of taking delivery of the shares or selling the option back into the market.
As Close To A Win-Win Conclusion As You Can Possibly Get
Step 3: With your cost now reduced by 90 cents per share to $7.50 ($8.40 - $0.90), you wait for one of three possible outcomes.
Yamana closes at $10 or higher at expiration in January, in which case your shares will automatically be sold to the buyer of the option at $10 per share.
(In order for the buyer in this case to have made any money, Yamana would have to close at $10.90 ($10 strike price + cost of $0.90 per option) or higher. Anything less, and it wasn't worth it.)
If it closes at $10 or higher you make 33% on your money ($10 strike minus $7.50 cost = $2.50 profit. $2.50 profit divided by $7.50 cost equals 33%). Or...
Yamana stays at $8.40 come expiration. In that case, as the seller, you still make money because you took in $0.90 per option you sold. Therefore, your return on the trade would be 12% ($8.40 minus $0.90 = $7.50. $0.90 divided by $7.50 = 12%) and you would still retain ownership of the shares since they didn't close above $10. Or...
Yamana closes below $8.40, in which case you still make money, since your cost was $7.50. The only way you lose money if Yamana closes below $7.50, your adjusted cost and your breakeven point.
Covered Calls: As Simple As That
Basically, just as long as Yamana closes below $10, you retain ownership of those shares. And from there, you can either sell your stock at a time you see fit or keep it to sell even more call options against your position, reducing your cost even more in the process.
And as the owner of the shares, you're entitled to any dividends paid out to shareholders during your stint as owner.
So let's summarize:
A covered call trade requires you to own the shares that you then sell options against.
The money received from selling the options is yours to keep immediately.
If the shares close above your strike price, they will be taken away (called away) from your account automatically and the money will be deposited in your account.
Covered calls can be done in any type of account, including retirement accounts.
Covered call trading can generate additional income while reducing your risk.
Next week, we'll explore a variation on covered call trading that can reduce your risk substantially while still providing double-digit returns.
Karim
by Karim Rahemtulla, Investment Director, Smart Profits Report
As promised last week, this is the start of a series on options strategies I've planned in order to show you a world of possibilities that the mainstream "press" quite simply doesn't want you to pay attention to.
At the risk of sounding like a conspiracy theorist, I firmly believe that most investors are intentionally kept in the dark about anything that breaks away from the "buy stocks and mutual funds" mantra that makes Wall Street money.
Most mutual fund managers can't see much further beyond Investing 101, and too many people in general are skeptical of options altogether. The problem is that they have no idea what they're missing.
The options market was created for professionals, institutional money managers, and those who report to their wealthy, sophisticated constituents instead of the general public. But that doesn't mean that the average Joe and Jane can't use it too. They just need to get a few pieces of inside information first.
When George Soros took down the Bank of England to the tune of billions of pounds, he did it by using the leverage that options provided him. Basically, he saw a trend and figured out how to exploit it legally and with a surprisingly small amount of risk.
Sure, if it went against him, he would have lost out big time, but not nearly as much as someone who played the game the usual way. You see, the key to trading options is knowing how to use them to maximize the efficiency of your money. And the first and easiest strategy for doing that is the covered call trade...
Get "Free" Money
In order to execute a covered call trade you need to use both a stock and an option, hence the term "covered." It means that your trade is covered by the underlying shares that you own.
There is no risk to the broker when you execute it since there is protection of equity by the shares you already own even if it goes against you. And that's the reason why covered calls can be used by anyone in any type of account, including your retirement account.
When you enter into a conventional covered call trade, you're essentially pledging to sell your shares at a certain price - known as the strike price - on a certain date, commonly referred to as expiration.
For pledging your shares, a buyer pays you an amount of money called a premium. And it doesn't matter what the final outcome is; you still get to keep that premium regardless of who ends up with the shares in the end.
Since it's yours to keep, spend or reinvest, you reduce the basis of your stock. Remember: Anytime you reduce your basis or capital risk, you also reduce your risk.
The One, Two, Threes Of A Covered Call
A typical covered call trade would go something like this:
Step 1: You buy 1,000 shares of Yamana Gold (NYSE: AUY) for $8.40 per share, totaling $8,400, and since you believe that the stock can go to $10 by year's end, you look at an options chain (a listing of options available) to find out what the market is buying and selling the Yamana $10 options for.
(Note: This market is open to anyone who wishes to buy or sell options)
Step 2: The option is trading for $0.90 on the bid and $0.95 on the offer, so you sell 10 contracts of the Yamana January $10 call options, receiving proceeds of $900.
Now a few things to keep in mind before we go on...
~ Just as with stock, you buy at the offer and sell at the bid.
~ Options are always priced in increments of $0.01, $0.05 and $0.10 depending on volume traded and selling price. The Yamana options are priced in $0.05 increments and the price reflected is per share x 100 shares.
~ Options trade as contracts, and each contract is equivalent to 100 shares of stock. So while the Yamana options are priced at $0.90 by $0.95, the minimum dollar amount that you need to be aware of is for 1 contract or $90 by $95. And it also means for the purpose of covered call trading, that you need to own at least 100 shares of Yamana to execute the trade.
~ The strike price of $10 means that the buyer or seller of the option has the right to either buy or sell Yamana at $10 depending on the strategy used. If the option is sold - as in the case of a covered call trade - the seller of the option is obligated to deliver shares of Yamana to the buyer of the option if the shares close at $10 or higher.
The buyer of the option then has the option of taking delivery of the shares or selling the option back into the market.
As Close To A Win-Win Conclusion As You Can Possibly Get
Step 3: With your cost now reduced by 90 cents per share to $7.50 ($8.40 - $0.90), you wait for one of three possible outcomes.
Yamana closes at $10 or higher at expiration in January, in which case your shares will automatically be sold to the buyer of the option at $10 per share.
(In order for the buyer in this case to have made any money, Yamana would have to close at $10.90 ($10 strike price + cost of $0.90 per option) or higher. Anything less, and it wasn't worth it.)
If it closes at $10 or higher you make 33% on your money ($10 strike minus $7.50 cost = $2.50 profit. $2.50 profit divided by $7.50 cost equals 33%). Or...
Yamana stays at $8.40 come expiration. In that case, as the seller, you still make money because you took in $0.90 per option you sold. Therefore, your return on the trade would be 12% ($8.40 minus $0.90 = $7.50. $0.90 divided by $7.50 = 12%) and you would still retain ownership of the shares since they didn't close above $10. Or...
Yamana closes below $8.40, in which case you still make money, since your cost was $7.50. The only way you lose money if Yamana closes below $7.50, your adjusted cost and your breakeven point.
Covered Calls: As Simple As That
Basically, just as long as Yamana closes below $10, you retain ownership of those shares. And from there, you can either sell your stock at a time you see fit or keep it to sell even more call options against your position, reducing your cost even more in the process.
And as the owner of the shares, you're entitled to any dividends paid out to shareholders during your stint as owner.
So let's summarize:
A covered call trade requires you to own the shares that you then sell options against.
The money received from selling the options is yours to keep immediately.
If the shares close above your strike price, they will be taken away (called away) from your account automatically and the money will be deposited in your account.
Covered calls can be done in any type of account, including retirement accounts.
Covered call trading can generate additional income while reducing your risk.
Next week, we'll explore a variation on covered call trading that can reduce your risk substantially while still providing double-digit returns.
Karim
Thursday, November 26, 2009
Most (uneducated) options traders lose money
Most options traders (about 85%) lose money. Only a fraction of stock and options traders consistently make good returns. While many options newsletter claim to have made 100%, 200%, 300% or more, they fail to inform their subscribers that they could also lose their entire invested amount overnight - which explains why they only will invest a small portion of their portfolios on these positions.
Wednesday, November 25, 2009
Why trading in Australia market better than US market? (for me)
Although many 'experts' said US market has many advantages compared to Aus market, which i believe, I personally prefer to trade in Aus market. The main reason is that I know the Aus market better. Since i just trade option in my spare time (about 5 hours a week), it suits me best.
Best FREE trading charts, newsletter and education available
I use FREE incredible chart to do charting. It shows the ASX optionable stocks. It's free and easy to use.
You can download it at http://www.incrediblecharts.com/.
You also can subscribe their great newsletter for free, of coz..
The website is also gives you free education on charting.
You can upgrade to premium with a fee if you want more...
You can download it at http://www.incrediblecharts.com/.
You also can subscribe their great newsletter for free, of coz..
The website is also gives you free education on charting.
You can upgrade to premium with a fee if you want more...
Sunday, November 22, 2009
1st post
This blog contains lots of links, articles, videos and my own stories about option trading journey. At the moment i'm only trading options in Australia market.
I learnt heaps from the links...
However, if you read this blog, make sure you get your own financial/investment before trading....
I learnt heaps from the links...
However, if you read this blog, make sure you get your own financial/investment before trading....
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