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Friday, October 9, 2009

Some Of The Risks Of A Covered Call

By Maclin Vestor

A covered call strategy is great, as it can allow you to get your income back, and put it to work elsewhere quickly. In addition, time value is certain, and covered calls will allow you to collect this value while speculators betting on a stock rising beyond the option price plus what they paid for the option will have to pay this amount to you no matter what. Even if the stock does go beyond this point, you don't incur a loss; instead, you miss out on potential gains. This can cause a covered call strategy to be more stable. You ultimately want the stock to expire at the money as this will allow you to collect the full premium, and still own the stock. Anything above this and your gains of your stock will cover the loss of the call and your gain will ultimately be the same. However, if it goes higher, you will have to repurchase your shares at a higher price, although selling another call against them will result in a higher premium.

Some covered calls will yield a 10% monthly return based on it's time value premium that you collect, meaning that in 10 months you will have your initial investment back if you can successful receive the full time value. The risk is not that the stock goes up in value and that you miss out on potential gains, as the yield will be roughly the same after appreciation, but that the stock goes down dramatically in value. However, you cannot lose more than your initial investment minus the full premium. This is a major point that critics of the covered call strategy often miss, as they say it has "the same risk profile as selling naked puts." This means that if you sell a put you are un-hedged, and if the stock goes to zero, you are also limited to the loss of the strike price minus zero times $100. Where a put owner will gain $100 per share ($10000 per contract) if a $100 stock goes to 0, a put seller will have to pay the put owner this $10,000 per contract. Selling puts is dangerous because people generally do not manage money well. The top 10% of people own the other 90% of wealth generally because the top 10% have learned to manage their money better than the other 90%.Selling puts is dangerous, because if you sell a $100 put for $500 your gain is capped to $500 per contract for a given length of time, and your potential loss is $10,000. Now a covered call owner may be capping his gain to lets say $500, and if the stock goes to zero, he is also going to potentially lose $10,000. So why is a covered call generally less risky? The reason why is that unless the seller of the put has $10,000, then he risks going on margin. In addition to actually having to have put up what the buyer affords to risk, The buyer of the stock not only is required to have that 10,000 before he can buy 100 shares of $100, but even someone with a limited understanding of risk management will do at least something to manage risks, even if it's still investing a high percentage such as 20% of the income that loss is limited to 20% of the portfolio. Technically that buyer should risk only a smaller percentage of his capital. A seller of a put receives $500, but to collect $500 and have to leave $50,000 to the side doesn't seem naturally as rational. People that invest in a covered call buying a stock for $10,000 and collecting a $500 premium and invest the remaining $40,000 will be risking less than someone who sells a naked put, but invests the remaining cash. Of course the reason is, the put seller has to have $10,000 to cash if the stock goes to zero.

However, there's an even greater difference. In the event of a loss when the stock doesn't go to 0, the covered call seller experiences a paper loss; where as a put seller experiences a real loss. The covered call owner might put up $10,000 and that $10,000 suddenly is only good for $8,000 and all he has received is the $500 premium for the covered call. However, if this person has done the research and determined that the stock is undervalued, and is currently in a panic due to margin calls and forced selling, and that the fundamentals are good, the covered call owner still owns the 100 shares of the stock that they determined to be worth $140 at $100. Technically the put seller could choose to buy that same stock at $100 which is now worth $80, and put up the money rather than take the $20 per share loss. However, the covered call owner has likely researched the stock, has determined it to be undervalued and intends on owning this stock anyways. The put seller doesn't want to own this stock, instead expects the stock to remain neutral, and just wants to collect the $500. If the covered call owner was wrong, that means the stock goes lower than he expects, however that doesn't mean that the stock still wouldn't be undervalued even more so. If the put seller is wrong, the put seller will have to buy 100 shares of an $80 stock at $100. It may just seem like semantics, but the covered call owner already has bought the stock where as the put seller may not really believe he has to buy the stock. A put seller gets paid to buy the stock at a set price, where the covered caller gets paid to own the stock. Psychologically, it's a lot easier for a put seller to say "well I'm a good investor I think, my bet is probably right, I don't need to worry about the fact that the stock might drop in value because I don't think it will. I don't need to do more research, and oh, by the way, this extra $10,000 on the side, I can invest it elsewhere because I'm a good investor, and I'm not going to lose. An over confident put seller can lose everything in the account and then some with even a drop from $100 to $80, where as a covered call owner who is over confident will probably only lose a maximum of the amount he owns in that individual stock minus the price of the stock, and that's if the stock goes to all the way to zero.

In many ways they are a similar strategy betting a stock won't go up beyond a certain point, and that it won't go down beyond a certain point. But a person who writes a covered call will be forced to have the money to pay for it and on maximum in a margin account that person can only go on 2:1 margin. If a covered call buyer with $10,000 risked $20,000 they might need to transfer some money from their bank to their stock account and come up with $10,000

If someone sells puts, they are not technically on margin until a major loss occurs, however, if they sell 10 covered calls of a stock at $100 at $500 each, they risk losing $100,000 if it goes to zero. Put sellers most likely think that has a low probability of happening. Covered callers may think the same thing is true, the difference is, covered callers can never bet more than twice what they have even on margin, and most people won't go on margin anyways simply because they don't have the account set up to. Put sellers will usually HAVE to have a margin account to sell puts.

Selling puts requires a more sophisticated understanding as well, and when lost in the technical, I believe it's easier to forget about what you are betting on happening. If you sell an out of the money covered call, you are betting on it going down less than what you received for the option, or going up to the strike price (or higher, but gain is capped). If you already own a stock, it's easier to understand that you are trading upside potential for income, where as put sellers are risking money they don't have committing to buying a stock at a certain price no matter what betting that a stock will do the same thing essentially. But leveraged buyers and sellers are generally not the type that likes to have money on the sideline.

Naked call seller as are collecting income but if the stock goes up, they have unlimited risk since they do not own the stock that will cover them in case the stock goes higher. Selling a naked call could potentially result in unlimited margin. However in order for a stock to go unlimited gains, it has to have an unlimited amount of money put into it. This does not happen, especially to the largest of large cap stocks that are already heavily owned on heavily leveraged companies... However, large amounts of cash reserves still are needed, as large caps still appreciate in value, sometimes significantly. Being un-hedged and selling any sort of shares "naked" is not recommended. In theory there may be an identical hedged strategy, but in practice it just doesn't work out the same way. - 23208

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Stand Out From the Crowd; Follow Through With Stock Trading

By Chad Reynolds

Have you always wanted to learn about stock and finally get some stock education? Well, you're not alone. There are lots of people out there who have always thought it may be too hard, too time consuming or too expensive to learn how to trade their own stocks.

Here are exactly the tools you need to become a real stock trader: hard work, dedication, focus and a great stock trading training program. Believe it or not, your ability to trade stocks on your own and eventually become a professional profit trader rests in your own hands. Many people want to know if "Trading Stock for Dummies" actually exists?

So the focus, hard work and dedication part is on you. Many people don't succeed in stock trading simply because they are too distracted by everyday life events to fully dedicate themselves to learning the material. But another problem is when they don't understand the terms being used, they get frustrated and then they easily give up. Sometimes people subscribe to a trading training program that is over their heads.

You should pick a training program that genuinely cares about your success and will be there for you when you have questions or if you feel frustrated. It is extremely important to choose a profit trading training program that fits your needs and learning curve in order to make you a success story in the long run.

An excellent feature to look for is the option to join a Master Mind Training group. This will give you an opportunity to discuss trading techniques, issues and questions with other traders in your field. The group's goal is to hold everyone else in the group accountable for their stock trading goals, which will help keep you focused and motivated. The lesson here is to look for a training program that can offer extra features besides the basic training courses.

Another great feature to look for is access to the training center's resource library. This is where they keep eBooks, special reports, past recorded seminars and webinars and much more resources that can help you on your way. If the training center of your choice is up-to-date and current with today's stock trading industry, then they can also offer you the option of podcasts, so you can study on the go, in the car, on the train or while you're between meetings or phone calls.

While you're choosing the best training center for you, also keep in mind that it is best to choose a center that offers materials and services for the beginner traders, as well as the experienced trader. If the trading center is beneficial to experienced traders and those traders join the membership, then that gives you an excellent opportunity to converse with professionals who are already in the field. The name of the game is to make contacts and network.

All it takes is hard work, dedication and focus. All of this can be accomplished with a great stock trading training center and you'll be trading stocks before you know it. Once you've done some research, you will see that becoming a profit trader is not out of your reach. - 23208

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Building Maintenance - Keeping Up to Date

By Peter Kerr

When owning or renting a building or other property, building maintenance is an important component in also maintaining a high quality of life for those who live in the building. This can be as simple of a task as daily cleaning to keep the building in shape, such as vacuuming, dusting, and mopping floors. It can also include more involved projects, such as plumbing, working on electrical wiring, installing air conditioning, and other technical tasks that arise around a building.

Property maintenance is generally the responsibility of the person who owns or manages the building. In apartment situations, there is usually a management company that tenants can call if there are any issues with the building, including water leaks or power outages. The management company then assigns these tasks of repair to independent contractors that they have encompassed into their network.

Retail or business buildings may require a higher degree of property maintenance than residential complexes. In order to make the best possible impression on customers or clients, they will want to make sure everything is in the highest working order, and is up to code with the latest improvements in technology and cleaning products. For this reason, many office buildings will keep their own maintenance person on staff, to be there on-site and on-call in case there are any problems, eliminating the need for waiting around for a repairman from a separate company.

Locksmiths are an important part of building maintenance system. Locks have been around for well over 4 millenniums, making them one of the oldest professions in the world, and one that is very unlikely to disappear. Plumbers and electricians are also among the professionals who are usually called. These are just examples of jobs that will always be in need for building maintenance.

Aside from general upkeep, building maintenance can also entail complete renovations, which is a more complicated project. Say a building is falling apart; professionals need to be called in to refurbish the whole place, adding strength to the building's support and repairing structural wear and tear. This may be a requirement if the building is violating health codes or is considered unsafe for its occupants. This renovation can also be used for aesthetic value. Either way, building maintenance comes with owning or renting any property, and should be considered an important expense when making a budget. - 23208

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Finding Affordable Financial Advice

By Richard Moran

A professional financial advisor may be easier to find than you realize. All the investment firms have them on staff as well as most of the banks. If your finances are large or complicated you may want to consider contracting with an independent financial advisor to guide you through the maze of investments available.

How to go about Looking for Help.

If you needs are no very complicated I would suggest you first start with the phone book. Contact several firms/persons list there and see what they may offer. If you feel a more sophisticated solution is necessary call on your bank, broker, or accountant to recommend firms/people to you. The more complicated your finances become the more likely a real pro will be necessary. Some firms/advisors will charge a flat fee, while others will work on a percentage. First get a quote for the initial conference and see how comfortable you are with the advisor. If you account has a high potential normally there won't be any fee for this initial contact.

Check with friends and business associates.

If you are not able to get the information that you need from the phone call, then you can talk to some of your friends or family that may have already been looking into financial help before you were. They may have had some good experiences with a certain financial adviser and can point you in the right direction. They may even be able to help you get a discount because they helped you find them.

Check Out The Prospects

When you have completed your "short list" sit down at your computer and start your research. Google the person and the firm and check all the results. With the internet today there is no excuse for saying you didn't know.

Most of the financial websites that are independent will have unbiased appraisals of both firms and particular professional advisors. There are many websites by "celebrity" advisors such as Jim Cramer who give advice directly on the internet or through their websites. Chat rooms, blogs, or forums often address peoples experience with particular firms or advisors. Don't expect all good things, everyone has some detractors in the world. With this method you should be able to cull out the better candidates.

Getting financial help doesn't have to be hard if you are able to find the right person and you are willing to really look at what may be going on with the financial area of your life. Taking the time to really look into it will help you to understand what you are going to need to do well before you start investing the money that you make and are trying to save for later in life. - 23208

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Fap TURBO The Prominent Forex Trading Bot - Reviewed

By Thomas Hill

A Summary of Fap TURBO

The product "Fap Turbo" is actually forex trading software. As a fully automated system "Fap Turbo" selects and completes trades. It is ready for use as soon as it has been downloaded and the initial set up run through. "Fap Turbo" will trade when the computer is on or off, and it works with a formula that allows it to find the most profitable trades. It is a very good program that offers very little risk to the consumer. There have been many success stories with "Fap Turbo" and it's rate of success is actually very impressive. We found it lucrative and very easy to use.

Fap Turbo: First Thoughts

I always liked the idea of making cash 'the easy way'. Who wouldn't? The idea of sitting at home while my bank account grows is something that really appeals to me. I'd tried opportunity after opportunity, but nothing panned out. That's when I heard about "Fap Turbo". I decided to give it a try and see if it was the opportunity I'd always hoped for.

Review

Steve Carlettti, an IT programmer, designed and created "Fap Turbo". Carletti and his team created "Fap Turbo" after studying the market and other forex programs. They wanted to create a system that would have a high success rate and be easy to use.

Top Benefits

When I got started with Fap Turbo, I was immediately pleased. The initial investment was small, which was great for me. I didn't have a great deal of capital even though I hoped to make a lot of money. That made the program perfect. Without investing a lot to start with I was able to get started in Forex trading.

Looking at the program I could quickly see it was easy to use. This was really good because I am not particularly computer literate. With Fap Turbo I didn't have to be. The system did the trading for me, which was nice. I was getting the money at the end of the day even though I didn't have to do any of the work.

I had to go on vacation with my family about a week after I started with Fap Turbo. So it seemed like a good chance to see Fap Turbos ability to run on its own in action. When I got home I had cash waiting for me and the system worked perfectly while I was gone.

I was amazed by the amount of money I made while I was on vacation. The trades "Fap Turbo" made while I wasn't made were impressive. It had taken a good deal of time and effort to select each trade. A formula is applied, and that is how the robot picks trades. The formula allows the program to find the trades that have the best chance of being profitable. I have enjoyed a very high rate of profitable returns with "Fap Turbo".

I was nervous to count my eggs before they hatched.

Without "Fap Turbo" there is no way I would have made this kind of money trading. But with "Fap Turbo" I was coming out on top nearly every time.

The Bottom Line

There is no easier way to make money then with "Fap Turbo". This automated system allowed me to live my life while making cash at the same time. "Fap Turbo" was also incredibly easy to use and I'm going to keep using it for many years to come. - 23208

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