tag:blogger.com,1999:blog-52207269941698257662011-11-27T15:46:47.523-08:00ARE YOU A NOVICE ON INVESTING, DON'T WORRY. LET'S JOIN WITH US. HERE....WE ARE LEARNING INVESTING. GO...GO... GET YOUR FINANCIAL FREEDOM WITH PAYING NOTHING.Ready2investhttp://www.blogger.com/profile/17246852566802238451noreply@blogger.comBlogger231100tag:blogger.com,1999:blog-5220726994169825766.post-20033966038696916382007-12-17T10:06:00.000-08:002008-01-07T10:15:14.447-08:00

Pairs Trading A popular strategy among many hedge funds and institutional traders is one called "pairs trading." The concept of pairs trading is very simple and is, in many ways, a variation of our fair value course during section 3. To implement pairs trading, you find two stocks that move together in predictable fashions. As we

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Spreads Spreads are strategies that involve the buying of one contract and the selling of another one. The term "spread" is used because the trader attempts to profit from a change in the spread -- the price difference between the two contracts -- as opposed to an overall rise or fall in the underlying. For example, if a January

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Creating Your Own Index In the last course, we saw how a long or short futures positions in a single stock or index can be used to make money in rising and falling markets respectively. We can now take it one step further and use futures to actually modify an index to our expectations. For example, what if you were bullish on the Nasdaq

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What's the Best Strategy? We're gearing up for strategies now that we have the basics of futures and options behind us. But before we do that, it's important to understand that strategies are tools just like futures and options. There will be times when one strategy is better than another and other times when it isn't. Likewise,

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Using Options to Exit a Futures Contract You should remember from earlier courses that single-stock futures are not bound by daily price limits. Remember, on most commodities, the futures price is only allowed to fluctuate only so much in a given day. This is done mainly to protect people from accruing unmanageable losses, and this daily accrual

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Synthetic Options One of the most powerful tools an option trader can have is to understand synthetic options. Synthetic options are not a specific type of option such as a call or put. Instead, they provide a method of combining stock, calls, and puts in such ways so that they behave like another asset. For example, if we combine

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Options on Futures We've covered a lot of ground on futures, and hopefully you're starting to see that they're not too difficult to understand. At the very beginning of the course, we mentioned that futures are not options; it's now time to find out what separates the two. This is important information to know so you can use futures

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Basis Risk In the last course, we learned about the basic risks and rewards of futures contracts. We're now going to focus on a specific type of risk that is probably the biggest risk that hedgers face. We say it is the biggest risk because the size of the risk is unknown. With the other risks we presented, we can measure their effects

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Price Trends: Normal, Inverted, Contango, and Backwardated Markets Now that you are familiar with reading futures quotes, you need to learn about some of the patterns they form. This isn't a technical analysis course, but rather a way of understanding what the markets are signaling when the prices steadily rise or fall as the

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Bid-Ask Exercise If you're still confused with bids and offers, don't feel bad. The concept throws many new (and even advanced) investors. Here's a little workshop that walks you through how the quotes get posted and hopefully brings you a new level of understanding. Let's start by assuming I am the market maker for ABC stock. I post

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Using Fair Value to Predict Market Open In the last course, we learned about the concept of fair value and how to calculate it. We're now going to turn our attention to a practical use that can keep you from making erroneous trading decisions. As you invest, you will start to hear the term "fair value" used over and over. In

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How Futures Contracts are Priced Previously, we learned the basics of futures contracts, how to calculate initial margin requirements, and how marking to market works. These calculations are all based on the futures price. Now it's time to turn our attention to how futures contracts get those prices in the first place. While other types

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Commodity Futures Although this course focuses on single-stock futures, we will expand your futures education by using a quick course in commodities. This will aid in your understanding partly because it's easier to understand why someone would want to engage in a futures contract on a commodity rather than a stock.

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Single-Stock Futures Now that you have a basic understanding of futures contracts, you should be able to see their advantages and hopefully have a strong interest in finding out more. As mentioned during the first course section, most investors have had little to no interest in futures since they think they are normally traded on commodities (

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Hedgers, Speculators and Arbitrageurs In the last lesson, we learned that futures could, in fact, be used conservatively if used as a hedge. Remember that a hedge is an asset that is expected to offset the loss of another position and not necessarily used as a means for profit. Why, then, is there so much publicity with risk in the futures

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How Do Futures Provide Price Protection? The last lesson provided insights into the basic idea behind futures contracts. As a quick review, we said that futures contracts are simply agreements to buy and sell at a future date at a predetermined price. We also said that futures contracts could provide price protection to the buyers and

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IntroductionMost investors have heard about futures contracts, but few can tell you what they are. The reason most investors know so little about them is because they’ve most likely only heard the misconception that futures are incredibly risky, that they could lose their entire investment in the blink of an eye, and that futures contracts are really

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Synthetic Short If you read the section on synthetics, you should have a handle on how they work. Now we'll show you how powerful they can be. Shorting stock Before we talk about synthetic short stock, let's go through the basic short sale. A popular strategy among bearish investors is shorting stock. When you short stock, you are selling it first and then buying it back later at

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Backspread The backspread is similar to a ratio spread, except that it has unlimited profitlong ratio spread. instead of unlimited loss on the profit and loss diagram. It is the mirror image of the ratio spread. In fact, the backspread is often called a Call backspread A call backspread involves the sale of a low strike price call and the purchase of a higher number of contracts at a

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Black-Scholes The black-scholes factors According to the Black-Scholes formula for option pricing, there are five main factors that affect an options price. Technically, dividends are a sixth factor but aren't of much concern, as they are generally factored into the price of the option, since all market participants know the amount of the dividend and when it will be paid. However, if it

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Time Value & Intrinsic Value An option's premium, the amount you pay, can be broken down into two component parts: time value and intrinsic value. It is important to know how to break an option's price into these two components as well as understand the interpretation if you want to become better at trading options. In-the-money versus out-of-the-money Before you can break an option's

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What's The Best Option Strategy? You've probably heard many opinions as to which option strategies are the best: Covered calls are best because they reduce the risk but still allow for a profit. Naked puts are the best because you're getting paid to buy stock. Straddles are the best because they allow you to make money whether the market is going up or

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What is the Stock Market? Bulls and bears, Dow and Nasdaq, bubbles and crashes, Greenspan and economic numbers. You've probably heard these terms as well as many others associated with the stock market but do you really know what it is? Why do we have one? This course will answer all your questions on this mysterious system that has

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