In The Money

Unfortunately, these things happen with internet based apps. The Stock Options Course depended on the free and fabulous MSN Deluxe Screen which was recently closed down. On November 4, 2009, the entire MSN Money Investment Toolbox which included the highly-regarded Deluxe Screener was retired.

Other stock screeners have been trialed and nothing has come close to the flexibility of the MSN Screener & Toolbox. In terms of best free replacement, the following are being suggested:

1) www.stockscreen123.com – Free Member Site.

Good aspects: Allows many screening variables similar to MSN and allows users to enter formula to screen; The data source is same as MSN (Reuters); Export screening results into Excel at once instead of only the 200 capped by MSN; Allows saving screens (not exporting).

Bad aspects: Limited to only 25 column stats and many criteria available for screening cannot be displayed as column info.

2) http://screener.finance.yahoo.com/fscr/us/launch.html – A Java App

Good aspects: Allows real time screening; Allows many variables to be used for screening;  Export results into Excel with results capped at 200 like MSN; Allow saving screens (not exporting).

Bad aspects: It does not display any column stats that are not part of screening; It does not allow formula to be entered for screening or displaying results.

Other stock screener websites have been tackling the same problem:

http://www.stockscreening101.com/msn-stock-screener.html

The eBooks will be updated with the new information in the near future. We’ll let you know in a future blog when these are ready for distribution. Past customers can contact us for a free upgrade to the new documents.

Purchasing stocks carry with it risk. Your money could be lost if the company goes out of business. You could lose money if the company is losing sales.

What if you could own a ticket that would allow you to purchase a company if it did well? Would it not be kind of like having insurance policy that you could exercise if the conditions were right?

Film or theatrical producers often buy the right – but not the obligation – to dramatize a specific book or script. That is what a stock option is.

A stock option is the right to buy (call option) or sell (put option) a specific number of shares of a company, at a certain price, by a specified date.

They add a delay effect to the normal direct purchasing and selling of companies. This delay if used wisely, can give you added advantages as an investor. Because of this, Options are very sophisticated financial instruments and should only be done once you have a working understanding of the stock market.

Options Help Limits Losses

Consider this for a moment; two men invest in the same stock. One man invests $10,000 and he hopes the stock will rise. The best outcome could be that the stock doubles and the downside is that it goes bankrupt.  He could make 100% profits or lose 100%.  He either gains $10,000 or loses $10,000 or anything in-between.

The other man invests in the same stock but with proper options. He only risks $1,000 because the options allow him to purchase rights to stocks without having to outright purchase all of them. With these options, if the stock doubles, they will be worth 10 times what he bought it for.  His upside is 1,000% gain or $10,000 while his downside is only $1,000 or anything in-between.

Two men invest in the same stock.  Both have the same upside potential while one of the men has 10 times the risk. Now this was just to illustrate that high profit does not have to mean unacceptable risk, thanks to Options.

Leveraging with Options

Lets say you have the opportunity to purchase an option on IBM. It would be written something like:

APPL Oct 100 Call at $2.00.

This is a call option. The company associated with it is Apple Computers, trading as APPL on the stock exchange. The strike price is $100. If you own this option, you can decide to buy Apple stock at $100 per share, even if it should be trading at $90 or $110 per share.

The cost to buy this option is $2.00 which is multiplied by the number of shares which is in multiples of 100. This means the lowest amount you could spend would be $200 (100 shares x $2.00) plus your broker commissions.

Each option has an expiry date, in our example, it would be the one month away. If you do nothing and your option expires, you lose your $200 (plus commissions). This may seem like a loss, but it would be better to lose $200 instead of being forced to purchase 100 shares of Apple at $100 or $10,000 only to find that it is now trading at $90 per share. This would result in an automatic unrealized loss of $1,000 and you now have tied up $10,000 of you capital into a stock waiting for it to go up.

Options can also be shorted just like stocks can be shorted. If you believe that a stock will go down in price, but don’t want to pony up the total investment, you can buy an option with a strike price being lower than what it is currently trading at.

It gets complicated, and requires a leap of understanding, but as you can see, if understood and used wisely, stock options can help you immensely in your investment strategy.

Whenever you invest, you are taking a risk. The goal is the manage it and not avoid it.

Every good investor knows that he should set aside some of his portfolio for long-term, lower-risk investments.  The other portion can be used for medium to higher-risk investments depending on your financial circumstances and other life factors.

Allocate Wisely

A good rule of thumb to follow is:  Allocate 50% of your portfolio for the long-term, lower risk category no matter how great a speculative short term pick may appear.

This will take discipline, but on more than one occasion it will probably save you in no small way.

Most of the systems and strategies you find on the Internet are high-risk, high-gain where you can be wiped out in a single transaction.

Take a risk! I do, but only with a certain percent of my funds. You should do the same.

So let’s say for example that you choose to invest in long-term, lower-risk stocks with 50% of your portfolio.

Let’s start by defining what a good long-term stock is. Some will call them large-cap stocks, other’s call them Blue Chip stocks.

Blue Chips will be the common stock of a nationally known company that has a long record of profit growth, dividend payments, and a reputation for quality management, products, and services. Some examples would be International Business Machines, General Electric, and DuPont. They are relatively high priced and have moderate dividend yields.

There is no true master list of Blue Chip stocks. That is because the definition of what is and isn’t a blue chip stock varies greatly. Essentially though, its a consistent top performing stock.

Look to such indexes as Dow Jones Industrial Averages and Standard and Poor’s 100 Averages to see such lists.

The problem is that you may invest in long-term, lower-risk stocks that stagnate for years on end.  Yet, even such stocks have their ups and downs and the profit you see (or don’t see) can be exacerbated by current market conditions.

Your entry time could be poor and you may have to wait years to see a break-even point on such a stock.

You still need a proven strategy with so-called “stable” investment stocks.

Buy and Sell Wisely

To get the most gain out of the stocks you buy and help to minimize your risk, you need to employ one of the tools used by professionals, which is Technical Analysis. You will use some Technical analysis to help you determine the price to buy in and the price to sell. Technical analysis is merely putting a stock through a mathematical formula.

When you employ this tool properly, you can get many times the profit you currently get or others get with the old ‘buy and hold’ strategy.

Each technical indicator is made to tell you something slightly different.  Some will tell you the momentum of a stock, its trend strength, volatility limits, how much its diverging from previous price patterns.

Some of these indicators, while good, are for short-term action.  Others are more geared for long-term action.  So just because someone swears by an indicator, it doesn’t mean that its the right indicator for you in a certain application.

The indicator that we have become familiar with is called the Stochastic oscillator. This indicator is a momentum indicator that is based on closing prices of a stock that doesn’t take into account wild daily fluctuations.  It bases the current close against previous closes to indicate buying pressure or selling pressure.

Simple use of this indicator can make you lose money quick should you not understand how to properly use it. If you have ever traded using momentum indicators, you know that many false signals can be created. Whipsaws or false movements that quickly reverse in the indicator create further problems. The more people try to compensate for the weaknesses in the indicator, the worse it seems to get.

That is until development of the K-39 Theory, also called the Last Stochastic Theory. This theory will guide you in how to ignore those false signals and take advantage of the built-in momentum of the stock.

This way you can find ways to trade the best Blue Chip stocks and know when are the better times to buy and sell. You will then have the bluest of the blue chips thanks to this method.