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Born-to-Sell Helps You Make Money with Covered Calls

September 11, 2010 | Stocks | No Comments

If you own stocks, a strategy to make some money off your stocks besides selling at a profit, is using a technique called “covered calls”.  So what’s a covered call?  A covered call is simply you selling the rights to your stocks.  Someone may purchase on option to purchase your stocks at a certain price on a certain date in the future.  The benefit to you is that you get cash up front for your shares.  The benefit to the option buyer is that they don’t have to use a lot of money to purchase your quantity of stocks.  They simply purchase the right to purchase the shares at a later date which is much cheaper than buying the stocks today.

The disadvantage to selling an option for someone to buy your stocks (covered call) is that if your stock appreciates greatly in value, you will end up selling your stock for a lower price.  However, if the option isn’t executed because the value of the stock hasn’t appreciated enough, you get to keep your stocks.

So where do you start?  Consider using “Born to Sell” covered call investment tools subscription service to help you identify and research trades, track your portfolio and maximize the time premium you receive each month.

Born to Sell offers a free tutorial on how to use covered call strategy to generate recurring monthly income.  They also offer a covered call screener, that helps people select trades, and covered call portfolio management, that helps people maximize the amount of time premium they receive each month. Born to Sell offers a no-obligation 2 week free trial  so you have nothing to lose.

The company is a Silicon Valley based software development company that develops easy to use covered call investment tools.  The company sole focus is in the covered calls niche market.  They are not a broker and you do not place trades with them.  

To find out more about covered calls and how their service works, visit BornToSell.com.

Stock Buy / Sell Order Types Defined

March 18, 2009 | Education | Stocks | No Comments
buy-stocks

If you are new to buying or selling stocks then you should be familiar with the various buy and selling options available to you.  Below is an explanation of the different buy/sell options:

Market Order – order to buy or sell a stock immediately at the best available current price; no price can be specified in this order. This order guarantees execution, but does not guarantee execution price.

Be wary of using market orders on stocks with a low average daily volume: in such market conditions the ask price can be a lot higher than the current market price (resulting in a large spread). In other words, you may end up paying a whole lot more than you originally anticipated. It is much safer to use a market order on high-volume stocks versus low-volume stocks. Buy market orders are executed generally at the ASK price.

Limit Order  – order to buy or sell a stock at a particular price. The purchase or sale will not happen unless you get your price. Limit orders give you control over your entry or exit point by fixing the price, which can be helpful.

Stop Order – order to buy or sell a security when its price surpasses a particular point, limiting the investor’s loss or locking in his or her profit. Once the market price surpasses the predefined entry/exit point, the stop order becomes a market order, and is then handled as defined under the definition of a market order.

This type of order is also referred to as a “stop-loss order”. Stops are not a definite guarantee of getting the desired entry/exit points. For instance, if a stock gaps down then the trader’s stop order will be triggered (or filled) at a price significantly lower than expected.

Stop Limit – order used to open or close a position by buying if the market rises or selling if the market falls, but that turns into a limit order when the stop price is triggered. Stop limit orders have a stop price and a limit price. When the stop price is triggered, the limit order is activated.

The stop price for buy orders is placed above the current market price. The stop price for sell orders is placed below the current market price. The stop price does not need to be the same as the limit price. Just as with a limit order, the stop limit order will be filled at the limit price or better, but may not be filled at all.

Trailing Stop  – order that continually adjusts the stop price based on changes in the market price. A trailing stop to sell raises the stop price as the market price increases, but does not lower the stop price when the market price decreases.

A trailing stop to buy lowers the stop price as the market price decreases, but does not increase the stop price as the market price increases. In both cases, the stop “trails” the market price. When the stop price is reached, the order becomes a market order. The same risk of market orders applies to trailing stops.

Trailing Stop Limit – order type that works the same way as the trailing stop, only instead of a market order being sent to the exchange, a limit order will be sent to the exchange. With this order, you will be able to stipulate the worst price you are willing to accept for a fill. There is no guarantee that you will be filled, though, as the price may gap through your limit price.

Market on Close – order that buys or sells at the market price at the close of trading. You must submit the order by 2:40 pm CT. The same risk of market orders applies to MOC orders.

Limit on Close – order that buys or sells at a limit price at the close of trading. You must submit the order by 2:40 pm CT. The order can be filled at the limit price or better, but is not guaranteed a fill.

Good Till Canceled – order instructs your broker to keep the order active until you cancel it. Obviously, you use this order with other order types to specify a time frame for the order.  Some brokers have limits on how long they will hold a GTC order.

Day Order – any order that is not a good till canceled order. If your broker does not fill your order that day, you will have to re-enter it the next day.

All or None – order states you want the entire order filled or none of the order filled. You would use this type of order for thinly traded stocks.

5 Reasons Why I Lost Over $300,000 in the Stock Market

March 6, 2009 | Financial Tips | My Ramblings | Stocks | 5 Comments
moneyfire

In the late 1990s to early 2000’s when Internet stocks were blowing up, I went along for the ride and was exhilarated like most other investors.  Those were the good old days when everyone was making money.  

You didn’t have to know anything about investing in the stock market – just purchase some Internet stocks and you were almost guaranteed to make money.  Never mind if a company had no earnings, just buy it and watch your money double within days or weeks!  It was that simple.  

In the 3 years I spent investing in Internet stocks I invested about $40,000 and watched my portfolio (taxable and IRA) balloon to about $365,000 when the NASDAQ hit 5,000.   With my margin account, I had over $477,000 in stocks and felt my portfolio could hit $1 million in a matter of months.  Looking back, when the NASDAQ hit 5,000 (in March 2000) I should have sold everything because that was the beginning of the end of the ride! 

See screenshots of my stock statements before the downturn

waterhouse-account-1  waterhouse-account-2

Unfortunately, I ended up losing most of that money for 5 main reasons listed below:  

Reason one – I got greedy and started borrowing money to invest, using a margin account.  When the market started tanking, the value of my portfolio dropped faster with the margin account and I ended up having to sell fearing a margin call.  A margin call is when the value of your portfolio drops to a certain point to where the brokerage house wants their money back ASAP.  If you don’t sell your stocks to pay back the money or deposit extra funds in your account, the brokerage house will liquidate your stocks for you.

Reason two – I listened to the so-called experts and company executives in the news and on CNBC telling investors to hold on and to ride it out.   They all ended up being wrong. Looking back, many of the company executives pretty much lied so you wouldn’t sell their company stock.  They would paint a rosy picture of their company’s future, but many of them ended up bankrupt or were sold off.

Reason three – I got emotionally attached to my stocks.  There were many times I looked at my portfolio and thought about dumping all my stocks, but just couldn’t.  I liked my companies and I rationalized that it was just a market correction and soon the good old days would come back.  

Reason four – I didn’t want to send Uncle Sam a big tax check.  If I sold about $326,000 in profit, I would get killed with taxes.  I didn’t want to pay at least 40% (or $130,000) to Uncle Sam.  That would have been one hard check to write.  Looking back, I should have happily paid the money.

Reason five – Nothing goes up in a straight line forever.  A good friend of mine kept warning me that the Internet bubble would eventually burst and I should take some money out the market.   I wish I had taken his advice.

To this day, I’m still amazed that I rode the market all the way up and rode it all the way down, losing most of the money.  For a few years when I think about it, I would get this warm tingly feeling all over my body of anger at myself.  But today I’m over it. I’ve learned from my mistakes and hopefully I will not repeat them in the future.

The lessons I’ve learned about investing in the stock market are:

It’s never a profit until you sell – If you invest in the stock market, whether it’s in individual stocks or mutual funds, it’s never a profit until you sell.  Looking at your portfolio and feeling happy that it’s worth a certain amount is great, but remember until it becomes cash by you selling, the money can vaporize almost overnight.

Have an entrance and an exit strategy – It’s easy to buy a stock, but for many people it’s hard to sell.  If a stock goes up and makes you money, you may hold on hoping it goes up further.  If a stock goes down, you may not want to sell at a loss and you might want to wait for a recovery that may never come.  

Set Stop Orders – In your brokerage account it’s a good idea to set Stop Orders to automatically sell a stock if it falls below a certain point.  This will protect your money from substantial losses.

Don’t be greedy – If you purchase a stock looking for a 30% return and you get it, sell it and be happy.  Why risk losing your nice profit?

Don’t become emotional, it’s all about business – Money is very emotional.  If you lose it, you will be unhappy, if you gain it, you will be happy.  Develop an investing strategy and stick to it no matter what.  If your strategy is to sell a stock that falls 15% below the purchase price, then stick to that strategy no matter what.  If you strategy is to sell if you earn a 30% return, then stick to it no matter what.  Don’t get emotional and deviate from your strategies.

Buy the best stocks – Many amateur investors look for cheap stocks or stocks that have been beaten up (i.e., the current auto stocks).  They figure they can get a lot of shares for cheap.  This is backwards thinking.  The fact is, you should look for stocks that are going up with great financial performance and don’t worry about share price or number of shares you can purchase.  Worry about the return on your investment.  (See Related Article: Find the Best Stocks Using Investors.com Screening Tools)

Never put all your eggs in one basket
– Diversify your portfolio.  Never put all your money in one thing.  I’ve heard countless stories of people putting all their 401K money in their employer stock (Lucent comes to mind) and for years enjoyed watching their portfolio balloon, and then all of a sudden it’s wiped out, leaving them penniless. (i.e., the current Bernard Madoff story also comes to mind).

No Risk Stock Market Investing with Absolute Return Notes

March 2, 2009 | Credit Reporting | Financial Tips | Stocks | 2 Comments

Do you know you can invest in the stock market with no risk of losing the money you initially invest?  There’s a fairly new type of security called Absolute Return Notes which offers investors a chance to earn investment returns tied to the stock market’s performance, without risking any of the money invested.  Your principal investment is 100% guaranteed.

Absolute Return Notes started in Europe and have recently become popular in the U.S. as investors struggle to cope with the depressing stock market.

During a set time period, the notes pay the absolute value of the performance of a stock market index, within a specified range.  As an example, if the S&P 500 goes up or down 8%, the note will pay 8%.  However, if the market goes out of that range, for example 20%, you will make no money but will get back 100% of your principal.  Now if the index gains 25%, you still get no money but it may hurt thinking you could have made a nice return.

Issuers of Absolute Return Notes include UBS, Barclays and Merrill Lynch.  Fees for the notes are typically included into the formula that determines the payout.  If you pay $10K for a note that offers 100% principal protection, you will get at least $10K at maturity.

Absolute Return Notes is a good short-term investment strategy if you believe the stock market will trade flat or sideways and you want to capitalize on its volatility in either direction with very little risk of losing your money.

Practice Trading Stocks at UMOO.com

February 27, 2009 | Stocks | 2 Comments
umoo-sm

Recently a co-worker told me that he was considering investing about $2,000 in the stock market.  He had never purchased individual stocks in his lifetime.  One thing that I highly suggested to him, among others, was to practice trading stocks for a few months with fake money so he could learn the basics and determine how he would perform.

One service that I told him to consider was UMOO.com to practice trading stocks.  UMOO.com is a virtual trading platform offering users a chance to participate in real time fantasy stock-trading tournaments for fun or using actual money. You can practice for free or join real money games to win real money.  

If you want to trade with real money, you pay a fee (buy-in) in order to enter a tournament of your choice, where you receive virtual money to build and cultivate virtual portfolios based on real-time stock market quotes in competitive trading tournaments.

The objective of the players is to earn the highest returns on their portfolios. Throughout the tournament, players are benchmarked against others in real time; at the end of the tournament the winners are those with the highest returns relative to the other traders in the tournament.

The winners receive cash prizes according to the payout structure of the tournament.  Real-time market data and a variety of information and research/reference tools are offered on the UMOO platform to help traders make informed dynamic decisions while trading, as well as all the trading tools of the real markets, including limit and stop loss orders and the ability to sell short.

Below are some screenshots of UMOO.com of how to build a portfolio.

 (Click to View)

ummo-portfolio-tools1   ummo-choose-way-to-build-portfolio1   ummo-search-and-pick-stocks1  

ummo-buy-stocks1   ummo-buy-stocks-screen1  ummo-my-portfolio1

Visit Umoo.com for a free trial or join real money games.