All about investment

by Shaun

Selling Naked puts and naked calls are two strategies that are hardly used in the stock market. And there is a reason for that, they are considered to be the 2 riskiest strategies of all.

What is the difference between the strategies and what makes them so risky? Well when you sell an option you are giving someone else the right to either make you buy or sell a stock at a given price on or before a given date.

For instance when you sell a naked call you have the obligation to sell a stock at a given price on or before expiration. So if you sell the $30 call option the buyer of that option can make you sell the stock at anytime during the lifetime of that option.

So if the stock goes up to $40, $50, or even $100 you will be forced to sell it at $30. Of course this has the potential of giving you a very big loss. Your potential loss is actually unlimited. That is why I never ever even think about entering a naked call.

A Naked Put on the other had can be less risky. If you sell a $30 put you have the obligation to buy the stock at $30, which means that the most you can possibly lose is $30, not unlimited.

If the stock is a very strong company that you would not mind holding onto for a long time then there can actually be less risk in selling a put then there is in buying the stock, because you get paid to buy it.

So while naked calls are too risky to touch (at least for me) naked puts can definitely be a great strategy if you use it right.

For more on selling naked puts visit http://www.stocks-simplified.com/selling_puts.html

For more on stock trading visit http://www.stocks-simplified.com

About the Author

When I was young I wanted to learn how to trade the stock market. So I traveled around the country listening to professional traders talk about how they are making money in the market. Now I understand how easy it is to make money in the stock market and started a site http://www.stocks-simplified.com to help others learn.

by Sam Wilmore

Looking for Historical Stock Data for the Hong Kong Stock Exchange (HKEX)? Well you've come to the right place. You can download free HKEX Historical Stock Data in metastock format from 2000 - 2009. The data is updated every month, and downloadable every month in zipped .CSV (comma separated values). You can import this data into software programs such as Amibroker, and use it to back test your buy and sell strategies.

The historical data can be used for both technical and fundamental analysis, though it is more geared more towards technical analysis. What is Technical Analysis? It is a method for predicting future price movements in stocks based on previous stock movements. The many technical indicators traders use can include RSI (relative strength index), moving averages, regressions, MACD, just to name a few. All these indicators rely on stock prices, price changes, and volume changes. This information is available in the metastock data provided. Metastock data is of the form:
Symbol, Date, Open Price, High Price, Low Price, Closing Price and Volume

Once you've developed your trading model, you can back test it against the HKEX Historical Stock Data

The data can be downloaded in its raw form, or with adjusted closing prices for dividends and stock splits.

About the Author

Sam Wilmore

By: Juli Alee

All in all, share prices aren't just prices moving up and down, up and down. They are a reflection of a company.

If you were interested in buying your local corner shop, you'd look at things such as management, if profits were improving and if there were competitors taking away market share.

Shares are essentially a share in a business and while it may not be your local corner shop, the concepts are very similar.

Underlying drivers of the business are important

Here's what famous investor Peter Lynch has this to say to investors: "Well, they should think about what's happening. I'm talking about economics as forecasting the future. If you own auto stocks you ought to be very interested in used car prices. If you own aluminium companies you ought to be interested in what's happened to inventories of aluminium. If your stocks are hotels, you ought to be interest in how many people are building hotels. These are facts."

The point of the story is that investors should be aware of the underlying drivers which help or hinder a business.

Watch economic events closely

If an economic event shows a business environment that is favourable to companies making profits and growing, you'll usually see a positive reaction from share prices.

But if the economic event shows that company profits may fall, you will generally see share prices come under pressure.

If interest rates are low, employment high, consumer confidence high, then it will be relatively easy for businesses to make money.

But if interest rates are rising, employment is low. People then stop spending money and businesses make less profit. So share prices fall.

Market sentiment is important too

The share market is like any marketplace. If there are more buyers then sellers then prices will rise.

And if there are more sellers than buyers prices will fall.

Buyers drive up the price and sellers drive down the price. A perfect example of this is at the seafood markets. Normally prawns sell for around $25 a kilo. At Christmas time, prawns sell for about double. Why the big difference? At Christmas, the large number of buyers drive up the price of prawns. The seafood market, like the sharemarket, sees buyers drive up the price and sellers drive down the price.

In the end, the sharemarket is simply a market full of businesses. In the long-term, share prices are a reflection of the value of the underlying business. You'll find that businesses that increase their profits increase their business value and share prices should eventually follow suit.

Happy investing!

Julia Lee is an Equities Analyst for online share trading platform Bell Direct. Julia provides information on share trading and stock market research for frequent traders and investors.

Article Source: http://www.ArticleBiz.com

By Peter McGahan

You may have read about an investment called the ARM assured income plan that produces an income return of 10% and is not subject to the vagaries of the stock market - you may have thought that surely after ten years you would get your money back? Here are my thoughts.

I will use the ARM assured income plan to present the difference between marketing and research! For those of you who are not technically orientated you can switch off now as it's a full on no entry sign for me and any investor we would advise.

Anyhow onto the technical data. With the ARM assured income plan you are effectively buying an investment into a range of life insurance policies by U.S. policyholders who no longer want them.

These policyholders are aged over 65 and have a life expectancy of less than 12 years. The customer no longer wants the plan and rather than encash it they sell it to a manager for slightly more than the surrender value the insurance company is offering.

Your money is invested into the ARM assured income plan which buys these plans and then continues to pay the premiums until death and the death benefit goes to the fund. A large part of the gain will come if the life expectancy is shorter than the assumed twelve years life expectancy of the people they are purchasing the life policies from.

Excellent you might think. Where could it go wrong!? From here onwards is the answer.

Firstly and most importantly the investment falls outside the scope of the financial services and markets act. If ARM is unable to meet its liabilities you will have no claim to the financial services compensation scheme. i.e. you will receive nothing back.

Further risks to consider: What if people live way beyond those 12 years? If they do the investment fund has to maintain premiums for much longer, and as such profits could disappear completely, and the 'income' you are referring to could go with it.

Whilst the marketing part of the brochure talks up the investment, the risk element does the reverse. In fact the disclaimer on the internet for the ARM assured income plan states clearly that this investment is only suitable for "investors who have the knowledge and experience in financial and business matters necessary to enable them to evaluate the risks, tax implications and merits of such an investment" (1)

The risks are further highlighted by the fact that the product you are effectively investing into is highly illiquid. I.e. in a difficult market if you have no buyers the price plummets, and worse still you may not have immediate access to cash.

The return of the ARM assured income plan is also down to each party involved meeting its obligations. There are lots of parties involved thereby catapulting the risk.

There is the chance that the insurance company who is providing the death benefit could be insolvent when the policyholder dies and cant pay the death benefit which would be an enormous challenge to the fund. Does a risk averse cash investor want this complexity?

The investment is also made in Dollars. If the dollar depreciates against the pound, most of your gain could be wiped out. Some investment provider's hedge against this but this plan does not.

Any borrowing or extra 'gearing' like this could substantially increase the risk an investor has and furthermore increases in interest rates will have a serious impact on the ARM assured income plan. If you consider the current interest rate environment and in turn the impact of quantitative easing, to consider anything other than increasing interest rates in the coming years is, well, a little mad.

Now you might see that the marketing brochure has a fine looking lady snorkelling, but if you are in anyway interested in time management just cut out the pictures.

Source:
(1) catalyst investment

About Peter McGahan and Worldwide Financial Planning:

Peter McGahan is the Managing Director of Worldwide Financial Planning - FT Award winning Independent Financial Advisers. Peter writes for many national and local press publications and is widely respected as an expert in personal finance.

Worldwide Financial Planning specialise in the provision of expert one-to-one advice in the areas of Mortgage, Business Finance, Investment, Pension and Retirement Planning and Inheritance Tax.

Peter McGahan is an Independent Financial Adviser and the Managing Director of Worldwide Financial Planning Ltd who are authorised and regulated by the Financial Services Authority. 'The FSA does not regulate Credit Cards, Will Writing and some forms of mortgage and Inheritance Tax Planning.'

Information given is for general guidance only, and specific advice should be taken before acting on any suggestions made.

The above represents the personal opinions of Peter McGahan.

All information is based on our understanding of current tax practices, which are subject to change.

The value of shares and investments can go down as well as up.

Article Source: http://EzineArticles.com/?expert=Peter_McGahan