Crafting and Perfecting Your Trading and Investing Approach Our stock trading and investing strategy shall rely to a large measure on technical analysis with the use of fundamental analysis to pick undeniably sound stocks to invest in. Options: They are trading devices which provide you with the privilege but not the obligation to purchase or sell a stock. Hedge Strategy To Consider: 1) Whenever you purchase a stock, you purchase a Put Option. If your stock goes up, you make money on the stock and lose on the put option. 2) You buy a stock position and sell a covered call. You have to have 100 shares for every covered call you intend to sell. You only intend to do this with volatile and heavily traded stocks. 3) Diversification - While this is not a lesson concerning Options, just remember than they're counted among the tools that aggressive traders and investors use in their approaches for trading. Ok, Lets Continue To The Good Stuff, The Real McCoy The following are the actual procedures you will take in developing your trading and investment strategy. This is the process you'll use in designing your plan. The Measures you'll take in developing your Trading And Investing Plan are the following: Step 1: State Your Meaning of Success What do you want? Is it to Shelter, Preserve and/or Grow Your Capital? You will really make greater than 6% per year because of compounding. Compounding is a robust concept in investing that gets more powerful with the passage of time as you will learn later. 6% each year shouldn't be hard and you really ought to place it higher even if you are conservative. A suggested place to start to locate companies that meet your specification would be to explore high-quality companies which are paying high dividends of 6% or more per annum. Buy the stock and sell covered calls. For each 100 shares, you can sell 1 Covered Call. You not only get paid the dividends, you get to benefit from the covered call and there may even be some price appreciation in the stock. If you are a more aggressive trader, more aggressive strategies are needed. In case you are a conservative investor and you utilize Options as an investing strategy, the Options you should mainly use are Covered Calls. At least in the beginning. Options are known as "wasting assets" because a large chunk of their worth is attributed to volatility and time duration to expiration. The more time the time to expiration, the more time value that is built in. Additionally, the more volatile the stock is, the more volatility value that is built in. In other words volatile stocks with longer duration would have higher premiums than non volatile ones with shorter durations. Volatility value and Time Value go to zero at expiration. The buyer loses those values. The seller gains on those values. To check volatility of a stock, check out its Beta. The Beta is a coefficient that measures volatility in comparison to the S& P 500. A Beta of 1 signifies that the stock has similar volatility as the S&P 500. A Beta of lower than 1, e.g.,.90, or.80 means than the stock isn't as volatile as the S&P 500. A Beta of more than 1, e.g., 2, 3, means that the stock is more volatile than the S&P 500. The higher the number, the more volatile the stock is. Also, if you intend to play with options, ensure that there is plenty of liquidity within the underlying stock in addition to the Option. Liquidity ensures the ability to get in and out at reasonable prices. Additionally, keep away from Options which have wide spreads between bid and ask. Wide spreads mean that you lose both ways. You lose going in and you lose coming out. By the way, you don't have to use options. In fact, if you are just starting out, avoid them altogether until you gain some experience and confidence in what you are doing or unless you are a really aggressive trader or investor. Sufficient said on options here, lets move on.
About the Author: You should track your performance quarterly, whether or not you're a conservative or aggressive investor, to ensure that you are sticking to and meeting you goals. [http://www.stock-trading-guru.com/trading-rules.html]GO HERE FOR MORE INFORMATION Winston Duke is the creator and author of several web sites including [http://www.tobagosite.com]Tobagosite.com /. Winston has extensive knowledge and proficiency in the Financial Markets. He started trading in the Commodities Market since the mid 1990's and has since become very active in the Stock Market. He has many interests and has indulged himself in a multiplicity of sectors but his true and enduring love is in dealing in the Financial Markets. |
|---|
Custom Search
|
This site contains a variety of articles on investments. |
|---|