| |
| |
|
Investing Information |
|
|
|
Options Education : Opinion versus Fact!
The most basic aspect of trading is learning to differentiatebetween what is FACTUAL and what is OPINION. If you stayinterested in the financial markets long enough you willdiscover that there are a lot of sharks out there who havebecome expert at making that task very difficult. Several subscribers of this newsletter have contacted me overthe last few weeks asking for my opinion of certain promoterswho also advocate Options Trading Strategies. I make it a pointto not comment on other services. However, without mentioningany names I feel that it is necessary to inform you of some ofthe most common and deceptive practices used by some promoters. One of the great appeals to Options trading is that there are somany possibilities and trading strategies that can be used tomanage risk. However, most services when promoting options liketo demonstrate the tremendous REWARDS that are achievable.Although tremendous gain is possible, options are consideredspeculative instruments and potentially very risky in untrainedhands. Since an Option gives the owner the right to buy or sellsomething for a specific period of time the OPTION is consideredto be a deteriorating asset. Since all options have an expiration date, if all things are considered equal, the closer you get to that expiration date the less that the option will be worth. There is an abundance of literature available on OPTIONS writtenprimarily for locating and marketing to the GREEDY INVESTOR. Onepromoter who charges over $3,500 for his seminars on OptionsEducation touts that investors in his seminars earn returns inexcess of several thousand percent per year! He provides anddocuments several real time examples and shows how some tradersmade a 12,000% annualized return. (Just in case you thoughtthat was a typo that is twelve thousand percent!) My statistics teacher in college used to say that "The figuresdon't lie, but liars figure." Listen Up....because if you don'tlearn how to read the fine print that these deceitful promotersespouse you too will make those types of returns but probablywon't be able to pay your rent! Most traders enter into the financial markets seeking that ONEhome run trade that will permit them to check out of the ratrace. Knowing this FACT deceitful promoters arm themselves withexamples that will lead you right into their arms. Here is acommon example of their con in action: Let's say that you purchased an OPTION at $1 per share. On thatvery same day the market moved in your direction and you werecapable of selling that option at $1.50 per share. SinceOption contracts are all standardized sizes of 100 shares yournet profit before commissions would be $50. You also would haveestablished a profit of 50%. This is a great return consideringthat most money managers earn 15% a year! To determine your Return on Investment you only need to divideyour net profit by your initial investment. In this instanceyou had a 50 cent profit per share on an initial investment of$1 per share. Now the promoters bait the hook.......Even though your profit was $50, your return on investment was50%. This is indeed factual. Think of how EASY it was to earnthat return, after all you did it in only one day! So sincethere are 365 days in a year, to calculate an annualized return we would multiply 50% times 365. The result is a staggering return of 18,250%. (Now if your stomach is turning by this type of deceit, GOOD!) I offer you the MATH below: Buy Price 1 Sell Price 1.5 Profit $0.5000 Gross Profit $50.00 % Return 50% # of Days 1 # of periods in a year (365 days) 365 Initial $ Investment $100.00 Net Profit $50.00 Annualized Return 18,250% Now what infuriates me about these promoters is how successfulthey are at providing the public with this type of "financialsnake oil!" One promoter in particular has actually written abest-selling book on options that is filled with these types ofmisleading and deceitful computations. Hard to believe but an18,250% return will barely pay for the price of the book! Although this is a technical point. many of you have probablyrealized that the above example is further complicated by thefact that the financial markets are not open 365 days a year.If you take weekends and holidays into account you literally only have 252 days to play with. So the more mathematically oriented con men would offer you the following calculation: Buy 1 Sell 1.5 Profit $0.5000 Gross Profit $50.00 % Return 50% # of Days 1 # of periods in a year (252 days) 252 Net Profit $50.00 Annualized Return 12,600% Hey 12,600% annualized return...sure beats those low yieldingMUTUAL FUNDS! Now, I wish I was making this stuff up, but my mailbox is filledeveryday with variations of these examples. No mention is evermade of the fact that your profit BEFORE commissions was $50bucks which is not bad and might pay for DINNER out on the town. This may seem extremely elementary and basic to many of you.However, I have seen many extremely successful individuals takenin by this type of deceit. I think you'll agree that althoughthe numbers are accurate they are completely unrealistic and the INTENTIONS of the promoters are what is in question. Nonetheless, you'd be surprised how many $3,500 seminars the above example will SELL. The financial markets only require one thing of you if you areto be successful and that is that you manage your risk on eachand every trade. THERE IS NO OTHER SECRET. In my own trading Imust admit that it took me years to learn how to TAKE a LOSS. Once I learned how to lose and accept it as part of doing business my trading dramatically improved. Although I consider this to be among the most profound truths that I have learned regarding trading I readily recognize that it is nowhere near as marketable as promoting 18,250% returns. Or was that 12,600%? After all 50 bucks IS 50 bucks! Sometimes it is difficult to differentiate between FACT andOPINION. In those instances I heed the words of the great YogiBerra, "You can observe a lot by just looking." Nuff said. Next article I'll get back to LOW RISK trading ideas in thesehigh risk markets. Study away.....and remember, let's be careful out there! Dowjonesfully, Harald Anderson is the founder and Chief Analyst of eOptionsTrader.com a leading online resource of Options Trading Information. He writes regularly for financial publications on Risk Management and Trading Strategies. His goal in life is to become the kind of person that his dog already thinks he is. http://www.eOptionsTrader.com.
MORE RESOURCES:
Investing - Google News |
|
|
|
RELATED ARTICLES
Is Starting A Business For Me? What To Consider Before Starting A Business Do you have the right temperament?Starting a small business is one of the most serious decisions that a person can take in life. Positively, it often results in higher income levels than one could achieve as an employee together with the unique buzz of being your own boss but conversely it also can be stressful, will demand longer working hours and will probably reduce your ability to take long holidays. How to Calculate the Value of Your U.S. Savings Bonds If you're like many Americans over the age of 55, you've probably had money taken out of your paychecks for years and years in order to purchase U. S. Asset Location - Increase Investing Returns & Reduce Your Taxes Location - Once the holy grail only for real estate investors is fast becoming the mantra for every stock, bond, and mutual fund investor. Experts and studies now recognize managing asset location is second only to asset allocation in determining the success of your investment returns. Emotions: A Traders Worst Enemy; Get Rid of Fear and Greed - Youll be Glad You Did You hear it over and over and over in books, forums, and chatrooms. Fear and greed, fear and greed, fear and greed. Success Trading for New Traders: What Does Bid and Ask Mean? Do you ever wonder exactly what's going on in the trading pits after you've sent an order to purchase stock? You've no doubt seen market quotes either online or even in the newspaper. Have you noticed that there are always two sets of prices given? What exactly do those mean and where will my order get filled? Let's discuss the basics of the two prices you see. Credit Scores = ROI Profits for Real Estate Investors Strong credit saves real estate investors money on mortgage finance costs. A good credit score, along with the other credit and mortgage qualifications, means that investors can pay lower fees for financing, such as points and interest charges. Straddle Strategies in Option Trading The straddle strategy is an option strategy that's based on buying both a call and put of a stock. Note that there are various forms of straddles, but we will only be covering the basic straddle strategy. DXPortfolio: A Great Passive Investment of 25% to $40% per month First, I need to explain about e-currencies or digital currencies. DXPortfolio are based and supported by the supply and demand of e-currency. Gold; What Type of Gold to Buy JewelryThe advantages are:? Gold Jewelry is the easiest of the gold to buy and has the enjoyment of being able to be worn.The disadvantages are:? Retail Jewelry is often marked up by 300% or more in the shops. High Volatility Investments Penny stocks and options are high volatility investments that attract both the trader and the long term investor because of the small amount of capital required to make substantial gains as compared with less volatile higher priced stocks. The long term investor buys a stock believing that a company's value will increase over time and the stock price along with it. 5 Things To Know About The Stock Market 50% Of U.S. Angels, Are They Real? They're real, but few survive. High risk investing is dangerous to your bank balance. Use of a Franchise Business as a Family Tax Planning Strategy Suggesting the use of a franchise business as a vehicle for family estate and tax planning. Specifically using as an example, The Car Wash Guys, a portable car wash franchise, where you will be purchasing a completely designed and outfitted car wash truck and the right to develop a specific city or regional area with out of pocket start-up costs between $25-50,000. Out-Of-State Investors Check List of Questions The following lists of questions are suggested questions to ask before you plan to purchase residential real estate outside of your neighborhood.It's probably best to speak with at least three licensed real estate sales professionals and three property managers in the area. Mutual Fund Selection Made Simple By Indexing! Non-indexed mutual funds try to keep it secret that actively managed mutual very funds rarely do better stock market indexes. The higher fees of the managed funds really make it hard for these funds to out compete indexed funds. Short Term Savings Products When you invest, it simply means that you are putting your funds in products, in this case short-term savings vehicles, which will allow you to reap high financial rewards.Here is a list of the more common short term savings products you should consider investing in. Have Analysts Gotten Honest? It caught my attention when I heard an analyst on a popular financial news program tell investors to sell a stock because too many analysts liked the company, citing the fact that there were no sell ratings.It seemed perfectly logical to me that analysts wouldn't be telling investors to sell 3M (MMM), which has one of the most consistent positive earnings records in the history of the stock markets. Getting Started In Investing Are you ready to open your pathway to financial independence?Well you should be. The sooner the better. Invisible Mutual Fund Fees Erode Your Returns! Many investors think that investing in mutual funds is free. What nonsense! Funds collect more than $50 billion a year in fees from investors. 5 Ways To Protect Your Bond Portfolio From Rising Interest Rates The Federal Reserve recently raised its target federal funds rate for the first time since March 2000. This could be just the tip of the iceberg, though, as many experts believe rising inflation and a strengthening economy will spur continued rate hikes for the foreseeable future.
|
