Long Term Investing with Options

By Jordan Weir

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

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

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

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

To do a vertical spread, you have to buy one option, and sell another one. Giving our price target of around $20, and given the current price, 10.41, I would buy the 12.50 strike call option, and sell the 17.50 strike call option. The 12.50 option can be bought for 2.71 at the moment, while the 17.50 can be sold for 1.40, giving us an overall cost basis of 1.31 per share for the option spread.

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

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

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

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

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

For many people, the financial markets are not the place to make a quick buck. While some short term traders will have tremendous success with these option strategies, long term investors should use these same strategies while remaining focused on the longer term, to achieve gains vastly exceeding those of the regular stock market, while limiting risk. - 23226

About the Author:

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

Do You Know Which Gold Krugerrands Are Considered The Most Valuable?

By Christina Goldman

The gold bullion coins found, minted and sold in South Africa are known as South Africa Gold Krugerand Coins. As there is an abundant supply of these precious metals that come from the deep mines surrounding Johannesburg, South Africa is, therefore, one of the largest producers of gold in the entire world.

Countries regularly connect the designs of their currencies according to particular historical achievements. That is why one person named Stephanus Johannes Paulus Kruger was selected to bear the imprint on their legal tender. The gold bullion coins manufactured in SA derived its name from him and called it the Krugerrand.

The reason why there is a high convincing price for these Gold Krugerrands in the market is that these gold coins can register up to 22K in its fineness. So, which gold krugerrands are regarded as the most valuable?

It is the outstanding 1 troy oz. Gold coin deemed as the most valuable of all Krugerrands. It has got 32.77 millimeters in diameter, weighing 33.930 grams and sparkles with a 91.67% fineness. Some of these coins goes from one troy ounce to oz., oz. and the 1/10 troy ounce.

Now that SA's legal tender was purposely made to trade for its gold value with only a minimum cost to turn out as well as distribute it, more and more investors are choosing them over other gold bullion coins offered by other states as well as the US of America. Bear in mind that gold coins offer low premiums but high liquidity so it is a good choice of investment.

A gold coin's value depends much on its weight, diameter, thickness and fineness for it to be considered as of great value. The South Africa Gold Krugerrands possess all the winning characteristics for investors to consider as one of the most valuable investments to have ownership on. - 23226

About the Author:

You can find wonderful prices and selection on the gorgeous South Africa Gold Krugerrand Coins at: http://GoldKrugerrand.net

Buy Stock in this Stock Market

By James Q Smith

So you think it might be time for you to give the idea to buy stock a try. That is a noble idea, but bear in mind that buying stock does come with its own risks; but with its own rewards as well

It can be very rewarding as well. Buying stock doesn't have to be such a daunting task. Make sure and become familiar with the stock market before diving in head first.

Start out by figuring out which stock interests you. The most obvious research tool to buy stock is the world wide web. As a second option, make sure you take advantage of magazines geared towards stock buying, as well as television. The more familiar you become at this, the better chance you will have at being successful.

When you start to feel comfortable, and feel like you are at a point where you can buy stock for the first time, you will want to open an account with an online broker. This is becoming the most common way to buy stock, but if you feel like you might need a bit more assistance, you might want to try a full service brokerage instead.

This is the best place to start. You will be assured of experience and confidence, making the purchase of the stock relatively painless.

Make sure and always ask the broker you are working with many questions. Knowledge is power, and questions about the performance of a given stock over the past year or five year period are completely appropriate. You might also ask about the performance of the company in general, and how they compare to other companies in their industry. Always make sure and ask about the fees associated with buying and selling stock.

When you have finally bought stock, make sure and watch how it performs. Stocks can go up and down quite a bit in value, and they can do so rapidly.

The markets are volatile and stocks and rise and fall extremely quickly. You will be able to watch your stock on a daily basis, so make sure you are checking back from time to time to see how things are going. Obviously you will want your stock to perform well, but to use poker terminology, you need to know when to hold 'em, and know when to fold 'em.

Stocks can be a good investment, but it takes planning and due diligence. Take your time to research before you buy stock, decide if you need the assistance of a full brokerage firm, then watch your stock carefully. Like any investment, careful management means greater dividends. - 23226

About the Author:

Looking to buy and sell stocks? Make sure you read James' buy stock fast guide now!

What Is Forex Made Easy?

By Chan Boldene

Forex (also known as Foreign Exchange or 4X) is an international exchange market in which currencies are sold and bought, bought and sold, 24 hours a day six days a week. The Forex market that we now know began in the early 1970s, when exchange rates and floating currencies were introduced.

Forex is unique because there are no external controls. With that comes the good and the bad. On the one hand, our societies all seem to be overregulated. On the other hand, the government regulators and private watchdog groups don't think we have enough regulation.

However, many people in the government and private sectors want to change all of this because they feel that an unregulated market is an extremely dangerous market where people and accounts can be wiped out in minutes by unscrupulous profiteers. More than likely regulation will occur sooner rather than later. But like anything this large, there are hundreds of thousands of players, and change is slow.

It is not easy to manipulate the Forex markets. But investors need to be cautious, however, because the "big boys" can and do manipulate the market when it's convenient for them (and normally according to a fairly obvious schedule). Therefore, it would be wise and prudent to uncover when those times are (holidays or whenever regular Joes and Janes like you and me are able to carve out a little extra time to invest).

$1.5 Trillion US Dollars. That's the amount that gets traded on the 4X markets each and every day. It is obviously the largest liquid market in the world. Think about that figure: $1.5 trillion every day. Because of the volume and breakneck-pace, one investor (or even a small team of investors) could not significantly affect the price of a major currency.

Liquidity in the markets means that traders or investors can open and close positions within a few seconds (yes, a few seconds!) as there are always willing sellers and buyers.

In Forex, there are four major currency pairs: US Dollar-Japanese Yen (USD/JPY), Euro-US Dollar (EUR/USD), US Dollar-Swiss Franc (USD/CHF), British Pound-US Dollar (GBP/USD). The first currency in the pair is known as the "base" currency. The counter currency is the second half of the pair. The Euro-US Dollar is extremely liquid and is the most traded pair on the exchange.

Currency pairs are normally traded as 100,000 base currency units. For instance, if you were buying USD/CHF at 0.98 you would be paying Swiss Francs (CHF) for US Dollars as follows: .98 X 100,000 units = $98,000 Swiss Francs for 100,000 USD, but don't worry because you will not be required to "pony up" $98,000 CHF to learn this game. It is a process called margin trading or trading on margin. That is an entirely different topic and worthy of pages and pages of instruction. Forex Made Easy is here to help and answer those questions. - 23226

About the Author:

Mr. Boldene is a technical writer who enjoys writing about many topics including Forex Made Easy, He also enjoys directing others to his dear friend's Daily Devotions at Devotions ChopChopsite.

Renting and letting out your first property

By Andrew Histon

Introduction The recession though has forced many unlucky people into rental accommodation. So if you have the money to invest now may be the time. A lot of people consider buying a house to let , there are many reasons in the UK, especially before the recent recession. This article though is about some of considerations you should be thinking about before making those first steps.

Finding the right house. It is possible to hand over all the 'buy to let' process to property management company, but some of the fun is finding one for yourself. Finding the right house though really is down to you, depends how much you want to be involved.

Some obvious advice would include: Does the house need renovation before you could start renting it out, is it ready to go ? People renting are not looking for a place forever, it is properly a stop gap for while. Location are there people looking there, or is it up and coming ? Is the house right for renting ? meaning does it have expensive fittings that would cost a lot to replace if broken. Is the area a common place for renting , i.e students ? If you did need to sell the house quickly, could you ?

Should I engage a property management company ? My advice would be unless you really comfortable with the idea or have experience of handling the public then consider a property management company. The property management company can deal with all the awkward side of tenants and you collect the money. Now you maybe thinking how hard can it be ? Surely renting out a house is just a case of keeping one eye on the property and make sure the rent gets paid. Depends on what deal you strike but think carefully before proceeding.

A good company should offer the services shown here, amongst others: Initial rental valuation Arrange safety checks Accompany viewings Check References Estimates for repairs and refurbishment Collection of rent each month Inspections (reports on request) Regular Contact and Updates Service of Notices Insurance claims dealt with Receipt of Damage Deposit in cleared funds Final Inspection at the end Tenancy Agreement

The 'No hassle' factor does come into play and it only means a little lose in fees. It's like the old story 'if you have time and no how, if you don't then leave it to the experts'.

Things you have to do, some are lawful requirements and some aren't ? As of October 2008 all buildings, whenever they are built, sold or rented out, will require one. Improving the energy performance of buildings - Energy Performance Certificates. The EPC provides 'A' to 'G' ratings for buildings, with 'A' being the most energy efficient and 'G' being the least, with the average to date being 'D'. The EPC is designed to bring about a series of measures being introduced across Europe to reflect legislation which will help cut buildings carbon emissions and tackle climate change.

Property Maintenance When such a repair is reported by the tenant, you or the property management company will assess the repair. Based upon the inspection, you will need to repair or get someone to repair. Maintenance problems may occur at any time, day or night and to any property. It may be necessary to carry out general repairs on your property from time to time.

Please remember that it is in the interest of your property, your investment, to ensure that these repairs are carried out quickly and efficiently, but hopefully repairs won't occur very often.

Buildings and Contents Insurance The policies available may cover a full replacement value for possessions buildings, (Subject to terms and conditions of selected policy). Are you aware that you might have inadequate Buildings and/or Contents Insurance?As you are letting your property you current insurance may be void if there were ever to be a claim. You will need an insurance which is designed for tenanted properties housing professional, working, DSS or students.

Gas Appliances Under the Gas Safety (Installation and Use) Regulations Act 1994, any person (Landlord) who is letting (Renting) properties must maintain all Gas Appliances and have them checked for safety by a CORGI Registered engineer or company at least once every twelve months. The records of these checks including any repairs are to be kept by the landlord or the landlords agents (which ever is carrying out the letting) for the tenants to see upon request. You are therefore legally obliged to have all the Gas Appliances in the property or properties you are letting out checked for safety and bought up to standard by a qualified engineer or company.

It should be noted: These requirements are by current British Law. You are therefore allowed to use any company or engineer of your choice to carry out the safety checks provided that they are CORGI registered and can provide certificates. It is in your own interest that you ask to see copies of this certificate beforehand to ensure that they are properly qualified to carry out the checks.

Summary Make sure you get good advice from the right people, all people will have a point of view on renting, but the right advice for you is what you need. Hopefully this article hasn't put you, if it hasn't, then you could make good money from renting out property.

Andrew Histon compiles articles for Investment opportunities , and other money website. He has many articles published on the internet. What interests Andrew about Lettings in peterborough is that so few websites offer good impartial information. - 23226

About the Author:

Andrew Cambridge compiles articles for money website , and other sectors. He has many articles published on the internet. Peterborough Lettings are is just one tiny part of.