Have you thought about day trading but thought it wasn't for you, or even given it a try and given up because you lost money, thought it took too much time, or felt like you couldn't compete with the sharks when you are just a little fish?
Guess what, you would be wrong, because you CAN make money day trading with relatively little time invested, and starting with as little as $5,000!
That's why I am sending you this invitation to my upcoming live webinar, during which I'll discuss the 5 key reasons why some people lose money day trading.
Learn from me through face-to-face and online workshops, and join me for live trading on the 3rd Friday of the month when the monthly jobs numbers come out.
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Tomorrow, you could begin doubling your account every single month starting with one letter.
The letter will come from a 20-year trading professional named Ian Cooper. He says, “In 2017, following my trades you would be doubling even tripling your account some months. Let me show you how.”
He will show you exactly what to do... and he’ll give you the blueprint for just $1.
There are benefits and risks in all types of equity ownership. Prices of common stocks change; and, whether individually or institutionally managed, shares of stock or portfolios are subject to the risks of adverse price moves. The risks of changes in portfolio values are classified in two general categories: diversifiable risk and market risk.
Diversified vs. Market Risk
Events and factors unique to that firm influence the stock price of an individual firm, such as an unexpectedly poor earnings report or a union walkout, for instance.
In a diversified portfolio, unexpected increases in the price of some stocks are likely to offset unexpected decreases in the prices of others; the portfolio value as a whole may remain fairly constant. Diversifiable risk declines rapidly as the portfolio increases in the number of issues from one to 18 or so, but it is never eliminated completely.
There's a limit to the risk-reduction potential of portfolio diversification. Some events have impact on the economic well being of the entire market – for example, a change in U.S. monetary policy. This type of price variability is called market risk or systematic risk, and it is the major risk facing holders of diversified portfolios of stock.
Stock index option contracts are a way to adjust the impact of market risk on the portfolio. By holding an appropriate number of options, you can insulate your portfolio value from market risk. Gains in options positions can offset losses suffered by the stock portfolio.
This approach to risk management is called hedging. The practice of hedging simply involves the use of options (or futures) with pre-existing or planned stock market investment to offset the change in value of the equity position by the performance of the options positions.
Protecting Stock Investments
If you own a stock portfolio, you may be worried about a market decline, but may not be ready to sell stocks – for a variety of reasons. The tax consequences of a sale might be significant, or there may be an opportunity for substantial dividends. The commission cost of selling a variety of stocks may be high, and you may expect the decline to be only temporary. And, not the least, you may have selected the stocks in your portfolio carefully, in order to meet long-term objectives, and believe the reasons for continuing to own the stocks are sound even in the face of a general market decline.
Calculating Your Portfolio's Hedge
To establish exact hedge coverage, you must first determine the portfolio's beta – a statistic that describes the portfolio's tendency to rise or fall in value along with the market. It is a product of the statistical comparison of the portfolio's changing value over time to the changes in the relevant index value. Most mutual funds can give you their approximate beta, while a broker can research the beta for a group of individual stocks.
A portfolio beta of 1.0 indicates that the portfolio value has moved over time in the same proportion as the index; a beta of .7 indicates that the portfolio value has moved with the index, but only traveled 70% as far as the average for each index price change. An example here might help. Your portfolio is worth $1,000.000 and the S&P has a current value of $250,000 (1000 times 250). Assuming your portfolio's beta was 1.0 you would need 4 S&P put options to hedge your portfolio ($1,000.000 divided by $250,000).
Locking in Bull Market Gains
To lock in profits after a strong upside move, many traders choose to purchase puts in their portfolios. An example of this is buying a December S&P 1060 put with the market trading at 1124. As the chart below shows, the December 1040 put is just above a strong support line and represents about a 3% gain from the beginning level in the S&P of 1010. That gives the investor unlimited upside in his stock portfolio while locking in a 3% gain if the market corrects or worsens. The cost of this hedge, or insurance, will be whatever the put option cost to purchase. In other words, if the market rallies or does not drop below 1040 by the time the December option expires, the put will expire worthless and the put buyer will have lost all of his premium paid. It may help to think of buying a put as if you were buying term life insurance for your stock portfolio. If the market doesn’t die you don’t collect, but if it does you may be saved from financial ruin.
PLEASE READ: Auto-trading, or any broker or advisor-directed type of trading, is not supported or endorsed by TradeWins. For additional information on auto-trading, you may visit the SEC’s website: All About Auto-Trading, TradeWins does not recommend or refer subscribers to broker-dealers. You should perform your own due diligence with respect to satisfactory broker-dealers and whether to open a brokerage account. You should always consult with your own professional advisers regarding equities and options on equities trading.
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