Limit Orders & The Stock Market
January 1, 2001
Also known as a Limit Price. An order placed within your brokerage to buy or sell a specific number of shares/contracts at a set price (limit price). These may cost more than a market order, but are better because they allow investors a specified purchase or sell price when trades go through, they are great to use in low-volume or highly volatile stocks/options.
Our goal here at Smart Profits is to show you how to “invest like a pro” so you can “make more money faster.”But if you want to realize an asset’s full moneymaking potential, there’s one key factor that you need to look at before you consider executing a trade.
It applies to both stocks and options - but with regard to options, it’s a question that attendees at conferences ask us all the time… “Are options liquid?”
The simple answer is: “Some are; some aren’t.” And you need to pay attention, because it makes a big difference to your results. Let’s see why this is the case - and how you can combat this using limit orders…
Limit Order Articles on Smart Profits Report:
Limit Orders: Dodging The Market Maker’s Bullet & Side Stepping The Liquidity Trap
Limit Order Diligence: How to Limit Your “Excitement” for Winning Trades
Limit Orders vs. Naked Put Selling: Getting Paid to Place Them On Your Favorite Stock
Limit Prices: Tip the Odds on Options Trades In Your Favor
Limit Order Discipline: And Two Other Simple Rules For Making Money In Options
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Contrarian Strategy
January 1, 2001
You’re crazy… You don’t know what you’re talking about… Are you serious? You’re going to get slaughtered… These are just some of the things you might hear if you adopt a contrarian investing style.
It’s not easy being contrarian. It’s tough to own a stock or sector that everyone thinks is headed south. It’s even more difficult to sell or short a stock that your friends, family and even the media are trumpeting as the next great thing.
That’s why although many people consider themselves to be contrarian or having a contrarian strategy, the concept of going against the grain actually scares them to death. The bottom line is that you need to have the conviction that you’re right and then discipline to stay in the position as long as it still makes sense.
Nothing compares to getting into a stock before the masses discover it and seeing your returns explode before they finally catch on. And while going against the grain isn’t easy, you can of course still employ other valid investing methods such as value investing, growth investing, or momentum investing (which many consider part of contrarian investing).
Contrarian Strategy Articles on Smart Profits Report:
Contrarian Investing Approach: How To Avoid Market Landmines When High Expectations Crush Stocks
Contrarian Investing: The Best Investment Strategy You Should Use Today
Contrarian Investing Strategy: The Most Profitable Way To Invest In 2007
Smart Money: The Best Way To Blaze Your Own Money Trail
10-Year Treasury Bonds: Bond Yields March Higher As Fed Shoots Itself In The Foot
Sentiment Analysis: Incorporating Contrarian Investing in Your Trading & Financial Endeavors
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Investment Exit Strategies
January 1, 2001
The ultra-rich and famous treat getting married like a business problem. They work out prenuptial agreements to assure clean exit strategies even if the lovebirds turn into combatants later on. These deals always sound more like an arrangement to lease a spouse than a true communion. I’d probably respond with a couple of choice words if I were ever offered one - those words being, "Stuff it, wimp."
But when it comes to stocks and options, my attitude is wholly different. You should imagine the worst and prepare ahead. In short, you should be leasing, not committing, if you know what’s good for you. You need a prenuptial for your stock & options trades.
Ask anyone why they invest and the most obvious response you’re likely to get back is, "Because I want to make money." After all, that’s why you’re in the game, right?
And if you’ve ever experienced the joy of scoring a two, three, or even a ten-bagger win from a constantly unpredictable stock market, you’ll know there’s nothing quite like it. Watching your $4 stock rise to $40 is not only exhilarating, but it also validates your investment thesis and strategy.
But sometimes you just have to know when to take the money and run. After all, what’s the point of investing if you don’t have an investment exit strategy?
Investment Exit Strategies Articles on Smart Profits Report:
Investment Strategy: The Exit Strategy That Nets Big Winners And Reduces Risk
Trailing Stop Strategies: How To Avoid It A $190 Million Portfolio Mistake
Stop Loss: Three Reasons to Get Out of a Trade Before it Hits Your Trailing Stop
Exit Strategies: Prenuptial Agreements for Options 2004144
Trailing Stops: How to Give Your Options Room to Grow
Time Stops Strategy: Your 10-Day Profit Test 041306
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LEAP Options
January 1, 2001
At Smart Profits Report, Investment Director Karim Rahemtulla thinks trading LEAPS options is one of the smartest, most cost-effective ways to buy stock - and anyone who tells you otherwise probably doesn’t know exactly how powerful this method of trading can be.
It forms an integral part of his investment strategy because it provides Karim and subscribers to his trading services with low-cost diversification that people might not ordinarily be able to afford. After all, how many stocks can you own if you have limited investment funds?
LEAPS (Long-Term AnticiPation Securities) are options that have longer-term expiration dates - up to one, two, or three years in advance. One key benefit of using LEAPS is that because they’re long-term options, you have more time on your side for the underlying asset to increase/decrease in value (depending on what you want it to do). You don’t have to be right in days or weeks like short-term traders - you just need to get the direction right, and you’ll be in the money.
LEAPS Options Articles on Smart Profits Report:
LEAP Options: The Pro Strategy That Provides Protection And 177% Profits
Using LEAPS: These Options Are Set to Run Full Tilt
Trading LEAPS Options: The Most Profitable Five-Letter Word In Options
LEAPS Option Strategies: A Gold Strategy That Beats Stocks, Bullion or Coins
LEAP Option Investing: The Best Options Play on eBay
LEAPS Call Options: How to “Swap” LEAPS Call Options
LEAP Spread Trading: Gold’s Hot And It’s Time To “Spread” Out Your Fortune
LEAP Options: The Intel Bargain & A Potential 566% Return
Trading LEAPS: How to Get 1,100% Returns from Your IRA
LEAPS Options: Making 30% While Others Make 3% On the SAME Stock
Inverted Yield Curve: Now’s the Perfect Time For LEAPS Options
Stock Option LEAPS: Buying LEAPS Or Stocks… What Should You Do?
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Financial Leverage
January 1, 2001
There’s more than one way to skin a cat on Wall Street. But it’s remarkable just how many investors choose to tread down a very narrow path, faithfully sticking to just one, standard mode of investing: Buying stocks.
That’s why at investment conferences and seminars, we often talk at length about the power of financial leverage investments. But based on the number of questions from audience members that follow, it’s clear that many are either unaware of this concept completely, or don’t understand how to incorporate it into their investment strategy.
Slowly but surely, however, this is changing, as investors figure out that options don’t have to be confusing, but instead are a really easy and powerful way to control shares of your favorite investments - and more importantly, something that can produce excellent returns.
Simply put, options offer this financial leverage investment. After all, if you can control 1,000 shares of a stock for a stock for a dollar a share, why pay $50 a share? The problem is trying to figure out which strategy is right for you.
Financial Leverage Articles on Smart Profits Report:
Investing Strategies: Enjoy The Pleasure Of Option Investing Without The Pain Of Speculating
Leverage Investments: How To Use Options Delta To Vanquish Volatility
Understanding Options Leverage: The Power of Leverage Is Bigger than You Think
How Derivatives Work: Use the Options Boom to Beef Up Your Leverage
Options Leverage: How to Use Delta to Maximize Your Leverage
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Naked & Uncovered Options
January 1, 2001
One of the great benefits of selling naked put options is that you collect the premium from selling the options to the buyer. You get this money up front and it’s deposited into your trading account. Once the trade is executed, all you have to do is wait to see if the stock falls below the strike price by option expiration. If it does, you will be assigned on your trade, meaning you will have to purchase 100 shares of stock at the stated strike price.
If the stock does not fall below your strike price by option expiration, the trade is dead, but you get to keep the premium you were paid up front. So, at least you’re compensated for your time to see if you ever get assigned the shares.
Be warned, this is not a strategy for everybody, and not everyone can be approved to sell naked options. The reason for the warning is because someone might get caught up in the frenzy of selling options just to take in the premium. Don’t do this! Only sell naked puts on stocks that you definitely have a desire to keep in your portfolio. And don’t sell more put option contracts than you’re comfortable owning.
Selling Naked Options Articles on Smart Profits Report:
The Uptick Rule: The Biggest Regulatory Change In A Decade & What It Means For You
Naked Options: Words of Caution for a Lucrative Options Strategy
Selling Naked Puts: Get Paid Now To Bargain Buy Your Favorite Stocks Later
Limit Orders vs. Naked Put Selling: Getting Paid to Place Them On Your Favorite Stock
Short Selling: Beating the Government By Going Short
Uncovered Options: A Win-Win Trade that "Puts" You In the "Bookie’s" Seat
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Options Trading Short Term
January 1, 2001
We use short-term options for event-specific investing. Short-term options, as opposed to LEAPS, lose value very quickly because they’re close to expiration. They are a far riskier bet on the movement of the underlying share price.
You don’t necessarily have to know which way a stock is going on one particular day to make a lot of money. One type of trading focuses on short-term events, and it’s a way to beat the market at its own game. It allows for the short-term trade, such as using puts and calls, and it allows for explosive profits whether the shares move up or down.
Short Term Option Trading Articles on Smart Profits Report:
Trading Short-Term Options: A System for Reading the "Market Weather"
How to Use Puts and Calls: For Systematic Short-Term Profits
Short-Term Options: Two Ways to Make Them Work
Event Driven Markets: The ONE Case for Using Short-Term Options
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In The Money
January 1, 2001
There are six determinants to an option’s price:
- Current price of the underlying security
- Strike price of the option
- Volatility
- Days to option expiration
- Interest Rates
- Dividends (stock options only)
The option’s price can then be broken down into two parts: Intrinsic Value and Extrinsic Value.
- Intrinsic value: This describes the relationship between the stock or commodity’s current price and the strike price of the option, and encompassesthe first and second items from the list above.
- Extrinsic value: This describes the part of the option that encompasses the first through the fourth items in the list above.
These "moneyness" relationships are described in familiar terms: Out-of-the-money (OTM), at-the-money (ATM) and in-the-money (ITM).
Moneyness Articles on Smart Profits Report:
Out-of-the-Money Options: Buyer Beware, Seller… Take The Money
In the Money Options: Make Mondays Your Discount Stock-Buying Day
A Lesson On Time Decay: How To Go In the Money For Top Buys
Trading Deep-In-The-Money Covered Calls: Dividend Paying Stocks That Can Boost Income
Buying In-the-Money Options: A Profitable Exit Strategy for Expiration Week
Deep-In-The-Money Covered Calls: How to Beat Stocks with Less Risk
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Position Sizing & Money Management
January 1, 2001
"That’s the way we’ve always done it."
This one phrase has killed more useful projects and progressive ideas than perhaps any other.
The same logic applies to the trading world. But when done properly, diversification can offer good protection and risk management.
However, you need to know that the classic way of diversifying a portfolio by investing equal amounts of cash in different stocks is not always the best. In fact, it can be dangerous, as it unintentionally adds extra risk to your portfolio. Let’s see how that can happen - and show you how position sizing, the right way, helps you to get the most out of your investments.
Position Sizing Articles on Smart Profits Report:
Better Investing: Steer Clear Of Embellished Earnings With A Position Sizing Strategy
Position Sizing Stocks: Are You Losing Money On This Popular Investment Strategy?
Portfolio Position Sizing: The "10% Rule" for Safe Option Profits
Risk Management and Position Sizing: Three Ways To Give Your Trades A Tune-Up
Position Sizing Safeguards: Prevent Corporate Lies From "Cooking" Your Portfolio
Option Position Sizing: How Much to Invest In Each Option Trade
Position Sizing: The Most Powerful Investment Concept
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Learn To Spread Trade
January 1, 2001
Hang onto your hats, because we’re going to dive headlong into the low-risk, profitable world of option spread trading - both bear spreads, bull spreads and credit spreads.
The mere mention of terms like these can intimidate some investors and dissuade them from making the trades. Don’t be one of them. You’d be missing out on a great, low-risk way to grab profits.
To see how to add these lucrative techniques to your trading arsenal check out our articles below…
Spread Trading Articles on Smart Profits Report:
The Bull Calendar Spread: How To Use This Trading Strategy To Bag 133% Now Or 4,900% Later
Spread Trading: Lower Your Cost And Hedge Your Risk In One Profitable Bull Spread Trade
Option Spread Trading: How a Bear Spread Can Make You More Than One Put Options Trade
Spread Trades: Bull vs. Bear: How To Turn A $50 Bill Into $2,450
LEAP Spread Trading: Gold’s Hot And It’s Time To "Spread" Out Your Fortune
Understanding Bull Spreads: Make 1,000% or More by "Spreading" the Wealth
Bull Spreads: Bagging a 66% Return on Lexar
Spread Trades & The Market Maker: Two Valuable Options Lessons From Boston
Bear Spreads: Truly Risk-Free Profits Shorting Crude Oil
Option Credit Spreads: Sell First, Buy Second for 50% Better Odds
Credit Spreads With Options: How Option Credit Spreads Give You a Better Chance to Win
Credit Spread Trading: How To Be Wrong… And Still Win On Your Trades
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Just wish that I would have put more $$$ on it oh well.
Thanks"
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