An options strategy called Covered Call Writing is a conservative strategy designed to reduce risk and increase income when investing in stocks. Briefly stated, stock options are contracts in which you buy or sell the right to buy or sell. Although there are eight types of options contracts, we're interested here in low-risk "Covered Call Writing."
Here's how it works: Say it's August and you buy 300 shares of XYZ stock at the price of $48 per share. XYZ pays a quarterly dividend of 50 cents per share. Therefore, if the price never moves, you'll earn 4.2% per year.
At the same time, you would participate in Covered Call Writing. To do so, you, you would "write three January 50 Calls." This means you are selling ("writing") the right for someone else to buy the stock from you (they "call" it away) between now and the third Friday of January at the specified price of $50. (All contracts expire the third Friday of the month.)
Each contract represents 100 shares, hence three contracts. The buyers pay you a fee (called a "premium") of $3.5 per share, or $1,050. (The premium is based on the amount of time until expiration and the spread between the current price and the "strike price," in this case $50. Therefore, the premium changes constantly.)
Assuming you don't cancel, only two things can happen next: The contract will get exercised or it will expire worthless in January. Either way, you keep the $1,050. Clearly, this strategy can yield big rewards. Among the advantages are:
1. You are establishing a profitable sell price the day you buy the stock. If exercised, you are guaranteed a profit;
2. You reduce risk because premium in effect reduces the price you paid for the stock;
3. Your annual yield is boosted far above that of the dividend alone.
However, there are other considerations. For one, you are limiting your potential profits. No matter how high the stock rises, you won't sell for more than $50. You can solve this problem by buying your option back, in effect canceling it out. You would do this if you later think the stock will dramatically rise and you don't want to miss the gains to be made.
Also, you have not reduced the risk that your stock may drop in price. The only certainty is, should XYZ drop $25, your option will not be exercised - a small consolation. To protect yourself, you may "buy a January 45 put" giving you the right to sell your stock for $45. This is the opposite of what we've reviewed here, and is designed to minimize losses, rather than protect gains.
Because of the potential for price drops, you should choose a high quality, blue-chip stock that fits your budget, an which offers a stable trading range, solid fundamental, high dividends, and good growth potential.
Covered Call Writing is not a reason to own stocks, but the strategy might be of help if you already own them. Prior to opening an account, you must receive and urged to read "Characteristics and Risk of Standardized Options," which is published by the Options Clearing Corporation in cooperation with NASD and all major U.S. stock exchanges. The booklet is available from any broker or financial advisor.
Showing posts with label Stock market trading. Show all posts
Showing posts with label Stock market trading. Show all posts
Tuesday, August 16, 2011
Know exactly what type of investment are stocks investments
Before shelling out a great part of your retirement savings to buy stocks, it is very important that you know exactly what type of investment are stocks investments. Stock investment is actually buying a small unit of ownership from a company. The stocks you bought from such company will provide you certain benefits like voting rights and then receiving profits every time the company distributes profits to its shareholders. The amount of profit share you are to receive is dependent on the amount of stocks you have bought from such company.
One of the best features of stock ownership is the fact that you as a stockholder of the company are entirely free from any liability however if the company loses a lawsuit and pay a huge amount then you must prepare for the worst since such happenings often lead rendering your stocks worthless.
The good news is you can still prevent such unsightly scenario from happening; all you have to do is to employ the expertise of a stock research provider or a stock broker, whichever you prefer the main objective of your hiring them still remains the same and that is to provide you with effective financial advice on how to lessen the risk of your stock investments and to increase your chances of gaining.
Before implementing any financial strategies, it is important to conduct fundamental analysis. This analysis is accomplished by a stock research provider. The fundamental analysis involves the process of examining the basic of the fundamental financial level of the company or the business which you are eyeing in buying some stocks. The analysis should also include examination of key ratios of a business in order to determine its financial health thus providing you with the idea of the value of its stocks.
Most investors make use of fundamental analysis or a combination with other tools in order to evaluate stocks before finally investing. The objective of evaluating stock investment is to determine the current worth and market value of the stocks.
By making use of key tools for fundamental analysis you will gain in-depth evaluation on stock investment that will guide you in making wise and smart investment decisions. Likewise, understanding the key ratios and terms will also help you in lessening the risks involved in your stock investment.
Probably the most important information any investor would like to know is how much profit they are going to obtain from their stock investment. This is really not surprising since it is just logical that when you invest on something, you of course would like to derive earnings from it.
In stock investment your concern is more on the ability of your chosen company to generate money today and in the future. Earnings are the profits and although it is sometimes hard to calculate but that’s what buying stocks is all about. An increase in earnings or profits basically leads to a higher stock price and usually results to a regular dividend.
During times when earnings fall short, the market may hammer the stock. Companies report their earnings quarterly. Some analysts that monitor major companies notify their stockholders if ever they notice a significant decrease or fall on the companies’ projected earnings. Although it is true those earnings play an important role in stock investment but they don’t tell anything about how the market values the stock. If you want to determine just how the market values the stock you might need to use some fundamental analysis tools—this is because fundamental analysis tools focus on earnings, growth and value in the market.
One of the best features of stock ownership is the fact that you as a stockholder of the company are entirely free from any liability however if the company loses a lawsuit and pay a huge amount then you must prepare for the worst since such happenings often lead rendering your stocks worthless.
The good news is you can still prevent such unsightly scenario from happening; all you have to do is to employ the expertise of a stock research provider or a stock broker, whichever you prefer the main objective of your hiring them still remains the same and that is to provide you with effective financial advice on how to lessen the risk of your stock investments and to increase your chances of gaining.
Before implementing any financial strategies, it is important to conduct fundamental analysis. This analysis is accomplished by a stock research provider. The fundamental analysis involves the process of examining the basic of the fundamental financial level of the company or the business which you are eyeing in buying some stocks. The analysis should also include examination of key ratios of a business in order to determine its financial health thus providing you with the idea of the value of its stocks.
Most investors make use of fundamental analysis or a combination with other tools in order to evaluate stocks before finally investing. The objective of evaluating stock investment is to determine the current worth and market value of the stocks.
By making use of key tools for fundamental analysis you will gain in-depth evaluation on stock investment that will guide you in making wise and smart investment decisions. Likewise, understanding the key ratios and terms will also help you in lessening the risks involved in your stock investment.
Probably the most important information any investor would like to know is how much profit they are going to obtain from their stock investment. This is really not surprising since it is just logical that when you invest on something, you of course would like to derive earnings from it.
In stock investment your concern is more on the ability of your chosen company to generate money today and in the future. Earnings are the profits and although it is sometimes hard to calculate but that’s what buying stocks is all about. An increase in earnings or profits basically leads to a higher stock price and usually results to a regular dividend.
During times when earnings fall short, the market may hammer the stock. Companies report their earnings quarterly. Some analysts that monitor major companies notify their stockholders if ever they notice a significant decrease or fall on the companies’ projected earnings. Although it is true those earnings play an important role in stock investment but they don’t tell anything about how the market values the stock. If you want to determine just how the market values the stock you might need to use some fundamental analysis tools—this is because fundamental analysis tools focus on earnings, growth and value in the market.
Monday, August 30, 2010
Stock Market Buying Tips to Avoid Losses
Buying stocks is easy. Anybody can do that. The hard part is knowing when to sell. And very few people know how to do that. We’ve all made expensive mistakes-either missing the full upside by selling too soon, or taking a huge loss by holding a falling stock too long.
There are various methods of buying and financing stocks. The most common means is through a stock broker. Whether they are a full service or discount broker, they arrange the transfer of stock from a seller to a buyer. Most trades are actually done through brokers listed with a stock exchange.
There are many different stock brokers from which to choose, such as full service brokers or discount brokers. The full service brokers usually charge more per trade, but give investment advice or more personal service; the discount brokers offer little or no investment advice but charge less for trades. Another type of broker would be a bank or credit union that may have a deal set up with either a full service or discount broker.
There are other ways of buying stock besides through a broker. One way is directly from the company itself. If at least one share is owned, most companies will allow the purchase of shares directly from the company through their investor relations departments. However, the initial share of stock in the company will have to be obtained through a regular stock broker. Another way to buy stock in companies is through Direct Public Offerings which are usually sold by the company itself. A direct public offering is an initial public offering in which the stock is purchased directly from the company, usually without the aid of brokers.
When it comes to financing a purchase of stocks there are two ways: purchasing stock with money that is currently in the buyer's ownership, or by buying stock on margin. Buying stock on margin means buying stock with money borrowed against the stocks in the same account. These stocks, or collateral, guarantee that the buyer can repay the loan; otherwise, the stockbroker has the right to sell the stock (collateral) to repay the borrowed money. He can sell if the share price drops below the margin requirement, at least 50% of the value of the stocks in the account. Buying on margin works the same way as borrowing money to buy a car or a house, using a car or house as collateral. Moreover, borrowing is not free; the broker usually charges 8-10% interest.
At any given moment, an equity's price is strictly a result of supply and demand. The supply is the number of shares offered for sale at any one moment. The demand is the number of shares investors wish to buy at exactly that same time. The price of the stock moves in order to achieve and maintain equilibrium. When prospective buyers outnumber sellers, the price rises. Eventually, sellers attracted to the high selling price enter the market and/or buyers leave, achieving equilibrium between buyers and sellers. When sellers outnumber buyers, the price falls. Eventually buyers enter and/or sellers leave, again achieving equilibrium.Thus, the value of a share of a company at any given moment is determined by all investors voting with their money. If more investors want a stock and are willing to pay more, the price will go up. If more investors are selling a stock and there aren't enough buyers, the price will go down. Indian Stock Market Trading Free Tips
There are various methods of buying and financing stocks. The most common means is through a stock broker. Whether they are a full service or discount broker, they arrange the transfer of stock from a seller to a buyer. Most trades are actually done through brokers listed with a stock exchange.
There are many different stock brokers from which to choose, such as full service brokers or discount brokers. The full service brokers usually charge more per trade, but give investment advice or more personal service; the discount brokers offer little or no investment advice but charge less for trades. Another type of broker would be a bank or credit union that may have a deal set up with either a full service or discount broker.
There are other ways of buying stock besides through a broker. One way is directly from the company itself. If at least one share is owned, most companies will allow the purchase of shares directly from the company through their investor relations departments. However, the initial share of stock in the company will have to be obtained through a regular stock broker. Another way to buy stock in companies is through Direct Public Offerings which are usually sold by the company itself. A direct public offering is an initial public offering in which the stock is purchased directly from the company, usually without the aid of brokers.
When it comes to financing a purchase of stocks there are two ways: purchasing stock with money that is currently in the buyer's ownership, or by buying stock on margin. Buying stock on margin means buying stock with money borrowed against the stocks in the same account. These stocks, or collateral, guarantee that the buyer can repay the loan; otherwise, the stockbroker has the right to sell the stock (collateral) to repay the borrowed money. He can sell if the share price drops below the margin requirement, at least 50% of the value of the stocks in the account. Buying on margin works the same way as borrowing money to buy a car or a house, using a car or house as collateral. Moreover, borrowing is not free; the broker usually charges 8-10% interest.
At any given moment, an equity's price is strictly a result of supply and demand. The supply is the number of shares offered for sale at any one moment. The demand is the number of shares investors wish to buy at exactly that same time. The price of the stock moves in order to achieve and maintain equilibrium. When prospective buyers outnumber sellers, the price rises. Eventually, sellers attracted to the high selling price enter the market and/or buyers leave, achieving equilibrium between buyers and sellers. When sellers outnumber buyers, the price falls. Eventually buyers enter and/or sellers leave, again achieving equilibrium.Thus, the value of a share of a company at any given moment is determined by all investors voting with their money. If more investors want a stock and are willing to pay more, the price will go up. If more investors are selling a stock and there aren't enough buyers, the price will go down. Indian Stock Market Trading Free Tips
Sunday, August 29, 2010
Share Market History
Shares of a company may in general be transferred from shareholders to other parties by sale or other mechanisms, unless prohibited. Most jurisdictions have established laws and regulations governing such transfers, particularly if the issuer is a publicly-traded entity.
The desire of stockholders to trade their shares has led to the establishment of stock exchanges. A stock exchange is an organization that provides a marketplace for trading shares and other derivatives and financial products. Today, investors are usually represented by stock brokers who buy and sell shares of a wide range of companies on the exchanges. A company may list its shares on an exchange by meeting and maintaining the listing requirements of a particular stock exchange. For the premier Stock Exchange that pioneered the stock broking activity in India, 128 years of experience seems to be a proud milestone. A lot has changed since 1875 when 318 persons became members of what today is called 'The Stock Exchange, Mumbai' by paying a princely amount of Re.1/-.
Since then, the country's capital markets have passed through both good and bad periods. The journey in the 20th century has not been an easy one. Till the decade of eighties, there was no scale to measure the ups and downs in the Indian stock market. The Stock Exchange, Mumbai (BSE) in 1986 came out with a stock index that subsequently became the barometer of the Indian stock market.
SENSEX is not only scientifically designed but also based on globally accepted construction and review methodology. First compiled in 1986, SENSEX is a basket of 30 constituent stocks representing a sample of large, liquid and representative companies. The base year of SENSEX is 1978-79 and the base value is 100. Theindex is widely reported in both domestic and international markets through print as well as electronic media.
The Index was initially calculated based on the 'Full Market Capitalization' methodology but was shifted to the free-float methodology with effect from September 1, 2003. The 'Free-float Market Capitalization' methodology of index construction is regarded as an industry best practice globally. All major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the Free-float methodology.
Due to is wide acceptance amongst the Indian investors; SENSEX is regarded to be the pulse of the Indian stock market. As the oldestindex in the country, it provides the time series data over a fairly long period of time (From 1979 onwards). Small wonder, the SENSEX has over the years become one of the most prominent brands in the country.
The growth of equity markets in India has been phenomenal in the decade gone by. Right from early nineties the stock market witnessed heightened activity in terms of various bull and bear runs. The SENSEX captured all these events in the most judicial manner. One can identify the booms and busts of the Indian stock market through SENSEX.
The desire of stockholders to trade their shares has led to the establishment of stock exchanges. A stock exchange is an organization that provides a marketplace for trading shares and other derivatives and financial products. Today, investors are usually represented by stock brokers who buy and sell shares of a wide range of companies on the exchanges. A company may list its shares on an exchange by meeting and maintaining the listing requirements of a particular stock exchange. For the premier Stock Exchange that pioneered the stock broking activity in India, 128 years of experience seems to be a proud milestone. A lot has changed since 1875 when 318 persons became members of what today is called 'The Stock Exchange, Mumbai' by paying a princely amount of Re.1/-.
Since then, the country's capital markets have passed through both good and bad periods. The journey in the 20th century has not been an easy one. Till the decade of eighties, there was no scale to measure the ups and downs in the Indian stock market. The Stock Exchange, Mumbai (BSE) in 1986 came out with a stock index that subsequently became the barometer of the Indian stock market.
SENSEX is not only scientifically designed but also based on globally accepted construction and review methodology. First compiled in 1986, SENSEX is a basket of 30 constituent stocks representing a sample of large, liquid and representative companies. The base year of SENSEX is 1978-79 and the base value is 100. Theindex is widely reported in both domestic and international markets through print as well as electronic media.
The Index was initially calculated based on the 'Full Market Capitalization' methodology but was shifted to the free-float methodology with effect from September 1, 2003. The 'Free-float Market Capitalization' methodology of index construction is regarded as an industry best practice globally. All major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the Free-float methodology.
Due to is wide acceptance amongst the Indian investors; SENSEX is regarded to be the pulse of the Indian stock market. As the oldestindex in the country, it provides the time series data over a fairly long period of time (From 1979 onwards). Small wonder, the SENSEX has over the years become one of the most prominent brands in the country.
The growth of equity markets in India has been phenomenal in the decade gone by. Right from early nineties the stock market witnessed heightened activity in terms of various bull and bear runs. The SENSEX captured all these events in the most judicial manner. One can identify the booms and busts of the Indian stock market through SENSEX.
Stock Market Trading
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Investment Basics – Beginner's Guide to the Stock Market - with a foucs on Indian Stock market,Learn Stock Trading, what is a share?, Company, Shares,get free stock quotes, up to date news, portfolio management resources, international market data,
Stock market trading, stock market news and newsletters offered for the stock market today to give our members the best stock market alerts today. StockMarketVideo provides traders today Stock Picks, Technical Analysis, Market Analysis, Stock Tips, Stock Charts, Market Timing, Stock Trend,Get free stock quotes, financial news and analysis from stock market pros,Investing Tools. Stock Alerts, News Alerts.
Mutual Fund: The Complete Guide to Mutual Funds, Latest NAVs, information, and news on the net asset value (NAV), performance, holdings of its schemes. Online Share Trading Portal in India, Stock Brokers Company in India. Online Stock Brokers Company offering Online Share Trading Portal for BSE, Share Dealing and Trading Overview.
Learn about share dealing and compare dozens of share dealing accounts and brokers.Learn more about share trading the stock market. Free information about stockmarket and forex trading. Research about trading techniques and psychology.Live stock price of stock/share in Indian stock market.
Investment Basics – Beginner's Guide to the Stock Market - with a foucs on Indian Stock market,Learn Stock Trading, what is a share?, Company, Shares,get free stock quotes, up to date news, portfolio management resources, international market data,
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