Stock Trading Blog

Who Will Benefit from Self-Driving Cars?

self-driving car

A new technological revolution is just around the corner. IoT (Internet of Things) is introducing a slew of new developments that will have disruptive impacts across the entire global economy. Self-driving cars look like the most likely to be next in line to be rolled out to the public and there are a lot of questions as to what the total impact will be.

There’s no question that driver-less cars will cut down on accidents. According to the Eno Centre for Transportation, if 90 percent of U.S. vehicles were automated, accidents would drop from 6 million per year to 1.3 million, while deaths would fall from 33,000 annually to 11,300. In the long run, these kinds of changes are good things, but the economic impact will be widespread. For example, fewer accidents means less insurance costs – a good thing for consumers, but bad for the insurance industry.

For investors, sectors that might benefit will be highly sought after. Here’s three sectors that could benefit from the new paradigm.

Auto makers

Unquestioningly, auto makers will reap the benefits of self-driving cars. The surge in new car sales following the technology should boost earnings for all of the major automotive companies in the U.S. However, investors should note that the quick boost could be followed up with a period of slower growth once these systems have been widely implemented.

Tech companies

IoT has been a huge boon for the technology sector and self-driving cars will be no different. Smart technology that will be able to interact with vehicles and vehicle features, like GPS and data gathering devices, and will likely be the first add-on’s with many other technological innovations to follow. If people are no longer responsible for taking the wheel, communications devices that enable passengers to connect with others could be the next evolution in business.

Infrastructure

Self-driving cars and smart technology should have the added benefit of more efficient traffic patterns. Parking lots might be redesigned to cope with the automation, as well, requiring a total revamp of the current infrastructure. Not only will roads need to be redesigned, but in all likelihood, reduced, as well. That means more room for urban projects like parks and gardens. For engineering and construction companies, the benefits could last years.

 

One key takeaway to all changes being brought about by IoT is the increased need for security against malware and hackers. Cybersecurity is already becoming one of the fastest growing industries and self-driving cars could make it even faster. New protective measures will be needed to combat ever-changing threats creating opportunities for investors down the road.

5 Things Successful Investors Do

businessman

It can be hard to cut through the cacophony of Wall Street, considering how much coverage there is from so-called experts on television, internet blogs and various other media outlets. But if you pay close attention, you’ll notice something vitally important: they almost never agree on anything.

One analysts might predict doom in the next quarter, while another says his data shows a continued bull market for years. If you listened to everyone, you’d likely find yourself frozen; unable to invest at all.

Instead, follow these 5 simple investment guidelines and free yourself from doubt.

1. Develop an Investment Philosophy

I’m not talking about philosophers like Kant or Nietzsche – I’m talking about developing your own investment model. You need to figure out what your risk tolerance is, what your investment goals are and how you believe markets operate – i.e. EMH Theory and similar systems. You also need to come up with an ideal portfolio, whether you will hold just stocks or include mutual funds, bonds, index funds, ETFs, and so on.

2. Have a Buy and Sell Price in Mind Before Investing

Before you decide to pull the trigger on a stock, you should already have a buy and sell price in mind. If the stock never drops to your predetermined buy price, then you shouldn’t invest. Conversely, once a stock reaches your sell price, take the profits and sell the stock – unless there are extenuating circumstances which make you increase the sell price, such as a surprise earnings upside.

3. Don’t Panic

Here’s a golden rule all successful investors follow – don’t panic. When markets are down and volatility is up, disciplined investors take advantage of the chaos by buying into fundamentally valuable stocks while their priced below market price. Warren Buffett is well known for his buying sprees when the markets are down.

4. Invest In What You Know

There’s nothing wrong with admitting that you don’t understand particular businesses of industries. It doesn’t matter if everyone’s telling you a company is a buy, if you don’t know what exactly the company does, how it makes money and how it could grow in the future, it’s best to stay away. Stick with business models you understand so you’ll be better prepared to interpret earnings reports and news articles.

5. Know When To Fold

To quote Kenny Rogers, you gotta know when to hold ’em, and know when to fold ’em. It never feels good to sell a stock at a loss, but hanging on to a loser while it continues to decline in the hopes that a miracle will happen in your favor is a bad idea. Know ahead of time at what point you’ll consider an investment un-salvagable so you don’t waste time and resources chasing a loss.

One other essential rule for successful investing is to keep your portfolio diversified. You’ve probably heard it touted over and over again, and for good reason. When you keep your assets spread out over different sectors of the economy and globe, it minimizes the risk of a single event having catastrophic consequences for your whole portfolio. Keep this in mind along with the aforementioned five tips and you’ll be well on your way to higher profits.

 

Big Oil: What Investors Should Look Out For

oil industry for investors

The oil industry has been one of the most volatile and hotly-debated global economic sectors of the last few years. It seemed to begin in the summer of 2014 when OPEC nations decided to launch a battle to maintain their market share against foreign oil producers, such as U.S. shale oil. Prices dropped precipitously, while OPEC continued to pump out supply, which far exceeded demand, in hopes their competition wouldn’t be able to hold out.

Fast forward three years and a new plot twist has developed: U.S. oil companies withstood the low oil values and learned to become leaner and more efficient, while OPEC countries eventually realized that they were only hurting their own economies. Now, production cuts aimed at lifting oil prices and allowing the marketplace to determine pricing is replacing the old OPEC oil cartel and the U.S. oil industry is taking advantage of every concession.

But the long term issues concerning fossil fuels, climate change and more affordable alternative energy sources haven’t changed. It’s left investors wondering whether the newly robust domestic oil industry is here to stay, or if it’s only a temporary stop-gap until something else takes over.

The Big Three Fossil Fuels

Oil, coal and natural gas are the three most commonly used fossil fuels. But their use in society in often misunderstood by investors. The oil industry is by far the largest of the three, but oil isn’t actually responsible for powering homes or cities. The oil industry is known for petroleum products for transportation services, including automobiles, aerospace, trucking, shipping and more.

Coal and natural gas, along with technologies like nuclear, are industries that are facing the biggest competition from alternative energy sources like solar and wind. While the oil industry is definitely being challenged with new innovations like electric vehicles, the source of that power still comes from the energy grid, which is powered by traditional means.

As solar and other green energy resources become more and more cost competitive, we’ll see a transition away from fossil fuels. Already the coal industry is facing virtual extinction in the U.S. Despite the political power behind getting the coal industry revitalized, the economic fundamentals for coal power over solar power just aren’t there. In the next decade, coal power could be all but eliminated in the U.S.

But What About Oil?

Technology is constantly improving, creating more fuel efficient and electric vehicles that have begun to inundate the market. But the transition away from oil and gas power is still going to be a slow one. Unless a major technological breakthrough happens, the oil and gas industry will continue to thrive for the next few decades.

In the short term, investors shouldn’t be worried about a fallout in the oil industry from green energy alternatives. With OPEC in disarray, U.S. production climbing and improved global economic growth, the energy industry should continue to grow at a healthy pace.

Still, it doesn’t hurt to diversify your portfolio and add a little green into the mix.

Avoid these 5 Mistakes to Stay Financially Healthy in Retirement

mistakes to avoid for early retirement-min

For most Americans, retirement is the ultimate goal. You work hard to earn income, invest as much as you can and prepare to live off off those savings for the rest of your life. It’s a permanent vacation and reward for a life well earned.

But retirement planning is getting a bit more complicated for a number of reasons, including poor fund management performance, social security shortfalls, longer lifespans and increasing healthcare costs. Considering that it literally takes a lifetime to prepare for retirement, you’ll want to take extra care that you’ve planned it out correctly and avoid making simple mistakes that could end up costing you in the long run.

Retirement calculations usually work as follows. First, you add up the total amount in all your savings and retirement accounts in order to come up with a lump sum figure. Then you calculate how long that amount is designed to last – generally about 20 years. Finally, you need to account for inflation, such as increasing your annual withdraws by 3 percent annually. Once you get a number that works, you are officially ready to retire.

Avoid making these 5 mistakes to get the most out of your hard-earned retirement dollars.

1. Big Spending Too Early

Retirement is no doubt an exciting time. You’ve working your whole life for that moment – that day when you can officially say you’re retired –  and you might be tempted to celebrate in a big way. But, before you buy that corvette and take a month long journey to Italy, consider how much additional cost you’ll be incurring.

Withdrawing too much, too fast seriously impacts the amount left to accrue in an investment account. If you live it up larger than you budget for in the beginning, you could be faced with a shortfall toward the end – the exact time when you need as much money as possible to keep up with increasing healthcare costs.

2. Retiring Too Early

No one wants to work longer than they planned too, but if your investment accounts aren’t where you need them to be, you need to seriously reconsider your options. Retiring early sounds wonderful, but keep in mind that your retirement account needs to have enough built up to last the extra amount of time.

If you have a pension, retiring too early means losing out on potential income permanently, not too mention the lower amount paid out by social security. Considering that you won’t be eligible for Medicare until you’re 62, you’ll also need to be able to afford healthcare coverage on your own until then.

3. Traveling Too Much

Travel is one of the biggest benefits of not having a 9 to 5 job anymore. But remember that in retirement, you’ll be on a fixed income. Too much travel at the cost of extra withdraws means either taking on more risk in your retirement account, or having a shorter retirement timeline.

4. Spoiling the Kids or Grandkids

Taking care of your loved ones is important to most people. But there comes a point in which generosity of spirit becomes unwise. You might want to set up college funds or help finance the purchase of a house for your kids and grandchildren, but the extra expense could come back to haunt you. Make sure you take care of your own needs first before deciding to dole out your money to family.

5. Be Smart about Debt

Once you hit retirement and accustom yourself to having a fixed income, additional debt obligations can be a quick retirement killer. An additional $100 a month on credit card payments might not sound like much, but if the unexpected happens, you could find that it makes all the difference in the world between being able to pay your bills or not.

One thing to keep in mind is that retirement doesn’t have to mean the end of earning income. You might consider taking on a part time job in order to boost your retirement income, or turn a hobby into some extra cash such as writing articles or selling homemade goods.

Remember, retirement is whatever you want it to be, so make sure your savings can help you reach your financial goals now and in the future.

 

 

Everything You Need to Know about Swing Stock Trading

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Swing Stock Trading is a type of momentum trading where the investor attempts to achieve gains from stocks or commodities within a time period of one to four days. A swing trader’s goal is to find the stocks that are likely to have significant potential gain within a short period of time and then trade them in for profit. The trader is not necessarily interested in the value of the stock, rather, they’re more focused on the price and market trends and will carefully study their patterns. Traders use technical analysis to locate the stocks that have a short-term price drive.

Who Are the Swing Traders?

Swing traders are typically individual day traders. Larger institutions can not benefit from swing stock trading because the stocks they deal with are larger, and the quick aspect of swing trading is not feasible for them. An individual trader benefits from this type of trading because there is less competition from bigger companies.

Steps of Successful Swing Trading

The strategies involved in swing trading form from carefully analyzing market trends. Trades are usually only placed in the direction following the main trend. Going against the flow is known as counter trend trading.

Once market trends are recognized, the trader must wait for the pull-back, or when the market drops down to the price that offers the best value before for the trader. Waiting for the pull-back allows the trader to increase the odds of entering a trade that has the best value and proves to be the most profitable.

This makes timing of the essence. Off-the-cuff trades will not work here and, only when the market trend is followed, will swing traders reap their reward. Unless the trader is absolutely sure of a counter trend trading opportunity, it is important to identify and follow the market trends.

Once trends have been identified and the price level is suitable for the trader, entry is made. With the odds in their favor, a swing trader can stay in the market for a longer period of time and make significant money. Learning and understanding the current market trends gives the trader an edge in the market, allowing them to know exactly when entry and exit are optimal.

The process can be difficult, especially when you’re just learning, but swing trading can certainly pay off as time goes on and more strategies and trends are identified.

How to Reconsider Retirement Planning So You Can Earn Big in Your Golden Years

retirement financial planning

Retirement planning used to be a fairly straightforward process. Pension and social security income established a base level of income and then your 401K/403b and IRA investments were used to determine how much you could withdraw over 20 years or so to come up with your final income amount.  Anything above and beyond, such as a brokerage account, was extra and not essential in a retirement plan.

But things aren’t so simple anymore. Many companies have eliminated pension plans and the retirement age required to collect social security keeps ticking up. In fact, there are legitimate concerns that social security payments could be reduced for the next retiring generation. Even standard company-sponsored retirement plans are under-performing in the market – if you even have one with a company match. On top of it all, people are living longer, requiring you to save a greater amount of money in order to provide a long enough retirement plan.

What does all this mean? In a nutshell, retirement planning needs some major overhaul.

The New Paradigm

If you’re one of the lucky ones with a pension and/or a 401k with a company match, then you should do everything you can to take full advantage of it. If your employer matches 5 percent of your salary, then you should be investing up to that limit. Think about it – even if the market is flat, you essentially get a 100 percent return on your investment.

Depending on your income level, you qualify for either a traditional IRA or a Roth IRA account. You should consult with a financial professional to determine which is right for you, but regardless, both are designated retirement plans with unique tax properties aimed at maximizing your investment. What’s nice about these types of plans is the fact that you aren’t limited to a few mutual funds, like a 401k or 403b – most allow you to trade individual stocks, as well.

The mutual fund industry has come under criticism lately due to lack of performance. Management fees and poor track records have left a bad taste in the mouths of many investors, who prefer taking on a more active role with individual stocks and ETFs. While performance can indeed be improved by taking the reigns yourself, remember that it takes a bit of investment education and plenty of time in order to be successful. If you don’t have the time resource to dedicate to your portfolio, there’s nothing wrong with letting mutual funds handle the heavy load.

One of the best pieces of advice for retirement planning is to cultivate multiple sources of income. Just like the standard investment rule of diversification, the same principle can be applied to income sources. Set up as many tax-sheltered retirement accounts as you can, but don’t just rely on those. Having a brokerage account might not come with tax-favored benefits, but it still allows you to invest and profit from those earnings. You can even think outside the box by considering a post-retirement source of employment, like a hobby that generates income. Working part-time or operating a small business that you’re passionate about can help fill in the blanks without taking away from your retirement years.

Are We There Yet? What A Market Top Could Mean For Investors

market top for investors

The second longest bull run in history has continued to march forward this year with almost no indications of trouble. Even the single largest single-day drop of the year had little lasting effect, with the markets bouncing right back to positive territory the next day. The seemingly endless bull market has some investors nervous about when it will finally end.

The longest bull market on record lasted nearly 13 years from 1987 to 2000, so the current market still has quite a ways to go to match that since it began in early 2009. With the markets trading at all-time highs, it’s hard to say when the top has officially been reached, but there are some clues we can uncover to help predict how healthy the bull is right now.

Pricing Out the Top

One of the best ways to determine where the market is is to look at the average price-to-earnings multiple of an index like the S&P 500. The historic average P/E is around 15 times earnings – right now it stands at just shy of 25 times earnings. While that may be nearly 66 percent higher than the average, it doesn’t necessarily mean that a correction is immanent based on that information alone. From roughly 1997 to 2004, the average P/E was higher than the historic average, meaning that market stayed bullish at extremely high valuations for at least three years before a correction.

Another way to predict how close we are to a top is to look at volatility. This is done through the colloquially named “fear gauge,” or the VIX volatility index. Anything higher than 20 indicates heightened investor worries, but despite several temporary ticks above that level, the VIX has stayed more or less low for the past five years. Interestingly, many investors believe that continued low volatility means they aren’t pricing in market dangers correctly, so negative events build up over time until a correction becomes inevitable.

Finally, a tried and true method of predicting corrections has to do with the level of margin debt in the markets. As of March, NYSE margin debt levels stood at more than $536 billion – a record high. In 2010, margin debt levels averaged about $250 billion, meaning investors are now taking on more risk over time. The more leverage in the market, the greater the downside swing when a bear market finally reveals itself.

 

While a single anomaly can be explained away, having multiple indicators giving off red flags should cause concern for investors. A bear market might not happen tomorrow, but there seems to be enough evidence to suggest that stocks are overvalued with investors taking on more risk than usual and not pricing in market dangers correctly. The bull market could continue to plunge forward despite the risks, but investors would be cautioned to take some defensive precautions going forward. There’s a good chance that we’re already at a market top.

 

Artificial Intelligence and the Future of the Job Market

artificial intelligence job market

As much progress as technology can enable, there’s often a social downside that might not be so evident at first. The dawn of the industrial age brought automation to the workforce and allowed businesses and the economy to grow to sizes no one ever imagined possible. But the efficiency came with a radical shift in employment as less and less workers were needed. Employees had to adapt their skills in order to adapt to the new paradigm.

There’s a similar change on the horizon today. Technologies like IoT have already begun showing us what the future could look like with smart grids, self-driving cars and a slew of other advances. While these technologies promise to advance economic growth, it’s very likely there will be consequences. Already, there is a concern that self-driving cars could spell the end of the trucking industry, meaning that thousands of truck drivers could be out of a job within the next decade.

But none of that compares to the impact artificial intelligence could bring.

The Economic Impact of A.I.

It might sound like something out of science fiction, but artificial intelligence is not only real, it’s happening all around us. A form of AI exists in a number of things we see on a daily basis – and no, I’m not talking about Siri. Streetlights are being engineered to “learn” traffic patterns based on the time of day and day of the week in order to determine how long a red light or green light should last. Social media sites like Facebook use a type of AI to track our internet habits in order to custom tailor the advertisements we see on our feeds. But this technology is still in its infancy. There are much bigger possibilities.

What happens when AI becomes something that we can’t live without? Machines that are able to operate autonomously and even self-repair or identify problems before they exist are less than a decade away from being implemented in the workplace. Server and cashier jobs could be easily replaced by AI, making unskilled labor a thing of the past. Anyone without a skill won’t be able to find employment at all.

But even in skilled positions, we could see AI taking over. Power grids, transportation and even media could all theoretically be run by AI programming. Scientists have already developed a machine that can learn art styles and paint a completely original picture without any human input. The future of the workforce is rapidly changing and the economy will likely undergo extreme volatility once these implementations begin to take root.

What the world might look like post-AI is a matter of debate and speculation, but one thing is certain: these changes are happening. There may come a point in which we’ll need to radically change the workforce paradigm. Concepts like basic universal income are already being discussed. Until these things become a reality, it might be a good idea to brush up those resumes and start adding to your skill set in order to stay competitive.

Beginning Investment Strategies To Help Build Your Portfolio

investment strategies

Whether you’re a new investor just dipping your feet into the stock market or an experienced trader, having the right strategy is essential in keeping your profits up and avoiding unnecessary losses. You might think that just setting up a brokerage account and buying a few stocks is all it take to be successful. You may even watch financial shows and read investment blogs carefully following along the recommendations you hear or read. But without context, you could be making a big mistake.

Investing in the stock market blindly is the fastest way to lose your money. Even following the experts opinions can backfire. For one thing, they’re often wrong. But more importantly, not all stocks are right for all investors. Before you dive in, you need a strategy that compliments your investment goals and caters to your risk tolerance.

Finding the Right Strategy

There are a number of popular investment strategies that you can emulate. But before you decide on one, you’ll want to honestly address what your personal risk tolerance is. While a professional financial adviser can best assess your risk tolerance, you can get a basic idea through several online assessments that are free to use. Once you figure out whether you’re aggressive, conservative, or somewhere in between, you’re ready to develop a strategy.

The oldest and most popular investment strategy is known as Buy and Hold. As the name implies, you build a portfolio made of stocks you intend to hold long term – at least a year, but generally much longer. By avoiding turnover in your portfolio, you take advantage of long term growth trends and keep your tax liability as low as possible.

If you want a more hands-on approach, you can try a value-based or growth-based investment strategy. The value approach is to locate stocks that are undervalued based on their price-to-earnings ratio and often pay a dividend, as well. Growth stocks, on the other hand, typically have a high price-to-earnings ratio, but high future growth expectations to make up for it.

Other strategies, like John Bogle’s approach, is to avoid trying to time the market or pick winning stocks altogether. He advocates buying into an index like the S&P 500 and letting the natural cycle of the market, which tends to go up over time, take charge. However, it can lead to extremely high volatility and shouldn’t be used by more conservative investors.

 

One thing that’s true of all investment strategies is the importance of diversification. Just following an investment strategy isn’t enough – you need to make sure your portfolio is adequately diversified. This is done so that a single bad pick or economic weakness won’t sink your entire portfolio. You may have heard this expressed in the old adage, “don’t put all your eggs in one basket.” Once you figure out the best strategy for you and properly diversify your portfolio, you’ll be well on your way to becoming a successful investor.

 

Why Wall Street Might Not Be Smarter Than The Average Investor

wall street

If you tune into any financial news program, you’ll immediately find yourself inundated with complex predictions based on mathematical algorithms, analytical breakdowns and speculation on what the economy will do next. These experts have decades of experience trading stocks, manage billions in assets and hold degrees from prestigious universities like Harvard and Yale. That’s why it’s easy to not actually manage your own investments and just listen to what these experts advise you to do.

But watch closely and you’ll notice something interesting – they never seem to agree with each other. For all the knowledge and tools at their disposal, no one really knows what’s going to happen next in the market. It’s like the quote form The Wolf of Wall Street, “Nobody, I don’t care if you’re Warren Buffet or Jimmy Buffet, nobody knows if the stock market is going to go up, down, sideways, or in circles, least of all stockbrokers.”

But don’t panic just yet. There’s a way to play right alongside the trading elite without drowning in the Wall Street cacophony.

Learning to Follow Your Own Rules

If you’re trying to invest on your own, you might find the whole experience a bit overwhelming. There’s a lot of information to absorb and, while you might have a plethora of tools at your disposal, understanding how to use them and what they mean takes time and patience.

But some of the most important tools you have available come from within, like maintaining discipline when you trade. There’s a lot of noise out there and you have to be able to filter out the nonsense and focus on the basics. Why are you buying the stock? Why is it at that price? And when will you sell it? If you can answer these questions, you’re already doing better than many institutional traders who trade by computer models and other quantitative measures.

Successful trading boils down to following the fundamentals. When you buy a stock, you’re buying a partial ownership into that company, so understanding how it makes a profit is key to knowing why you’re buying it in the first place.

Finally, Wall Street’s weakness is that they control other people’s money, making them more reckless and more likely to rely on software rather than their own analysis. When you manage your own money, it tends to make you a bit more cautious and sober-minded. Think back to the sub-prime mortgage crisis in 2008. If anyone had thought to stop and question how values were being determined, they might have been able to avoid a crash.

The stock market is a dynamic organism that ebbs and flows over time. Even the professionals make wrong calls – more often than you might realize. When you know what you own and why, you’re already one step ahead of them. The trading tools for charting patterns and following buy/sell signals are helpful, but they’re secondary to having trade discipline.

As you become a veteran trader, you’ll understand how to use more sophisticated analytical software. In time, you’ll be able to do your own analysis just like the institutional investors. The only difference between you and Wall Street will be the amount of money you control. Even then, you might find yourself beating the pros by doing it yourself.

What You Need to Know About Call and Put Options

financial banker at work

Becoming an experienced investor usually follows a certain path. You might have started by investing in mutual funds and progressed into opening up a brokerage account that lets you trade individual stocks. You’ve learned the basics of stock diversification and have no hesitation when it comes to placing stop and limit orders on stocks you’re trading. Now, you’re ready to take the next step.

Adding options trading to your investment strategy can help you boost returns, mitigate risk and hedge your positions. A stock option lets you leverage your money by controlling 100 shares of stock per contract. That means your potential gains or losses can be much higher than just trading stocks; you’ll need to be aware of the potentially increased volatility in your account. Unlike stocks, options have an expiration date, so timing your strategies well is extremely important. Used correctly, options can help you round out a portfolio and even reduce your exposure to risk.

Buying and Selling Call Options

A call option gives you the right, but not the obligation, to buy a stock at a specified price for a limited period of time. If the stock increases in value, you can exercise the option and make a profit. If the stock doesn’t increase in value, or even loses value, then you don’t have to do anything with the option. You can let it expire worthless and limit your loss to the cost of purchasing the call option.

Let’ take a look at how call options work.

Say you think XYZ stock will go higher in the next few months, but you don’t want to purchase 100 shares of stock. XYZ is currently trading at $50 per share and you decide to purchase a call option at $52.50 that expires in three months for $35. That means if the stock hits $52.85 or higher, you’ll make a profit. If the stock doesn’t hit this price within three months, you’ll lose the $35 it cost to buy the call.

You can also sell call options. Instead of having the option of buying a stock, you’re under the obligation to sell it. Selling a call without owning the stock is considered extremely high risk because there’s no limit to what kind of losses you might incur.

Let’s say you thought XYZ was going to go down instead of up, so you sell a call option and immediately make $35. As long as the stock doesn’t go higher than $52.85, you will end up with a $35 profit. However, if the stock rises higher than that, it will reduce your profit until you owe whatever the difference is. If the stock ended at $60, you would owe $750 minus the $35 you received when you sold the call.

Buying and Selling Put Options

A put option gives you the right, but not the obligation, to sell a stock at a specified price for a limited period of time. Buying a put means you believe a stock will decrease in value within a specified amount of time.

Let’s try buying a put instead of a call option.

XYZ stock is trading at $50 per share and you think it will go lower in the next three months. You purchase a put option at $48.50 that expires in three months for $35. If the stock drops below $48.15, you’ll make a profit. Otherwise, you’ll be limited to the loss of the put option – $35.

Selling a put option means you think the price of a stock could increase. You’ll be under the obligation to purchase 100 shares of stock at a specified price. Unlike selling call options, selling a put does limit how much risk you’ll be subject to, since a stock can only go down so far.

If you thought XYZ might go up, you might consider selling a put. Let’s say you sold a put at $50 on XYZ for $35. Like selling a call, you would immediately pocket the $35 gain. If XYZ then increases in value or holds at $50, the put would expire and you would keep the $35 gain. If the stock drops, though, you would be obligated to purchase 100 shares at $50 per share, regardless of what price the stock actually fell to.

By combining buying and selling both call and put options, you can set up unique strategies with their own risk/reward potential.

One of the most common strategies is known as a covered call, where you buy 100 shares of stock and then sell a call option at a higher price. That way you hedge against downside risk at the cost of limiting your total upside potential, since you would be obligated to sell the stock once it hit a specific price.

Once you get used to basic options strategies, you can begin utilizing more complex scenarios that can take your investment trading to the next level.

5 Smart Tips for Trading Stocks Part-Time

interest rate graph on tablet

There’s a misguided view that when it comes to trading stocks, you need be all in to really make it financially worthwhile. That’s simply not true. It’s important to build a solid portfolio over time at a rate that makes the most sense for you.

Need a little help? Here are some tips for trading stocks part-time that can help you build your portfolio and earn a little dough.

1. Swing trade your way to profits.

Swing traders hold stocks anywhere from a few days to a few months, depending on trading strategies and market conditions. While there are many different trading strategies, most seek to identify and capture a trending stock’s “sweet spot,” or the bulk of the trend. This type of trading is conducive to the part-time trader, since precise entry and exit is not the goal and you don’t have to watch the ticker around the clock.

2. Develop bread and butter trading strategies.

Every successful athlete needs a go-to move and traders are no different. Successful traders rely on bread and butter strategies to maximize their profit potential. A toolbox of strategies include break out-pullback, trend pullback, post earnings trades, and more. Becoming an expert in these strategies mans you’ll know them better than the back of your hand.

3. Build a strong watchlist.

Watchlist development is the key to successfully trading part-time. Every evening, I identify 10-20 Primary Watchlist Stocks that will receive most of my attention the coming trading day. These stocks are culled from my master Focus List, which is developed over time using my bread and butter strategies.

4. Identify entry and exit points for primary watchlist stocks.

When picking stocks for your Primary Watchlist, write down the price that would get you to enter the stock, your expected target and your stop-out prices. Base these prices on your bread and butter strategies. For example, if a breakout strategy identifies $25 as the level that will propel the stock higher, mark this level as your entry point. If $30 is the level at which you would take profits, mark this as your target. Most important, figure out how much you’re willing to lose and mark this as your stop-out level. Most traders want their stop out to at the least match their target level, while risking no more than 1-5 percent of their portfolio. In this case, your stop-loss would be no lower than $25.

5. Let your target and stop levels do the work.

Once you have entered a trade, there is an overwhelming temptation to continually eyeball your positions. This can lead to over trading, which can be detrimental. Instead, turn off the quote feed once your trade is made. You’ve already researched your positions and set target and stop levels. It’s now time to let your analysis work itself out. With risk analysis and a stop-loss order in place, the probability of a disastrous loss to your portfolio is minimal. So sit back and relax. Or better yet, focus on your day job!

Following these 5 smart trading tips will do wonders for your portfolio, help you evolve as a trader and help you better manage time and stress levels.

Will United’s Passenger Debacle Be a Boon for Other Airlines?

united airlines

If you’ve been on social media or watched the news at any point in the past couple of weeks, you’re probably already aware of the United passenger scandal. Regardless of where you stand on the issue – support of the passenger, or support of the airline – the real world implications are more far-reaching than you might think.

Just after a video of the incident went viral, United’s stock fell several points from just north of $70 per share to a low of $67.75 in one week. The company’s mismanagement of the issue prompted a flurry of negative press with some even suggesting that the CEO should resign or be dismissed. The whole airline industry’s practice of overbooking flights came under fire and many investors began to speculate as to what the fallout for other airline companies might be.

A Closer Look at the Airline Industry

At first, it seemed like United might be in trouble with a drop in the stock value leaving room for other airlines to step in, but the stock has quickly corrected back to the upside as investors took advantage of the brief discount.

Ultimately, the airline industry is an oligarchy with a high barrier to entry. The limited number of airlines and heavy government regulation means that prices and policies are not as competitive as other types of industries. Despite United’s PR disaster, there aren’t really any other options for consumers who need to travel. While there are some small regional airlines, the vast majority of travelers use only four: United, Delta, American Airlines, and Southwest.

Coming into 2017, airlines were largely viewed as a bullish industry with plenty of consolidation and low oil prices. The aerospace sector has been experiencing a large lift in light of Donald Trump’s election and airline companies have been taking advantage by investing in new planes and rebuilding infrastructure. Deregulation is on the table for the industry, while also creating a case for further gains across all airlines.

Despite the continued PR nightmare with United, the stock is still climbing higher. If anything, the situation might actually end up being a positive thing for the stock price as investors buy into the weakness.

Ironically, the passenger fallout might actually turn out to be best for United itself. The drop in the stock price looks like it served only to put it on sale, which investors quickly took advantage of. Oil prices will be a key concern moving forward – more so than United’s policies.

There is some good news for consumers though. The incident sparked an industry-wide debate with Southwest being the first airline to announce that they will no longer overbook flights. Whether or not that translates into additional gains or losses is yet to be determined.

 

Rates Are Going Up: Here’s How To Play It

financial earnings

It’s been quite a while since investors had to worry about inflation, but since the election of Donald Trump, inflation is back on the radar.

Less than a year ago in July, inflation stood at a mild 0.8 percent and the Fed’s yearly rate hike still seemed almost too fast. As of March though, inflation has been at 2.4 percent and the Fed has shifted gears with two more more rates hikes and more planned before the end of the year.

But rate hikes aren’t the only problem coming from rising rates. Inflation creates a number of issues that investors will need to navigate to stay profitable.

Inflation and the Markets

The sudden emergence of inflation means that investors will need a new strategy. Historically, the effect of high inflation over the long term is still somewhat fuzzy – stocks seem to be able to eventually absorb the impact of higher rates and adjust to the new business environment. But the short term impact to the market is more obvious.

In general, rising rates means trouble for stock values. This happens because higher interest rates mean more money payed out in interest expense, making it more expensive to take out loans in order to do business. The extra expense translates to lower earnings, which means one of two things needs to happen. Either stock values fall to adjust for the reduction in earnings, or valuation multiples rise as investors essentially pay more for fewer future earnings. With the latter, it can mean a sudden bearish correction with drops of 10 percent or more in just a few weeks.

The first reaction to a possible correction might be to buy defensive dividend paying stocks, but those are likely to be the ones to under-perform first. Higher interest rates means that a dividend yield on a stock is diluted. In order to maintain the same relative payout level, the company would need to boost dividends. The same problem happens with bonds – as rates go up, bond values drop.

But there are asset classes that are perfect for a rising rate environment. Financials like insurance companies and banks tend to do well when rates start rising. For banks, higher rates translates to bigger gains on loans. Investors might think that higher rates would effectively be a wash for banks, since that means higher rates on savings accounts and CD’s, but because long term debt assets are impacted more strongly by rising rates than short term ones, banks end up profiting more.

Insurance companies, on the other hand, are required by law to keep large amounts of money in highly liquid assets in order to meet insurance payouts. Higher interest rates means higher yields on these types of accounts and boosts earnings.

 

Many investors flee to traditional safe haven assets like gold and silver, but there’s a major flaw to this thinking that could end up costing them in the long run. As an inflation hedge, gold’s true value is only realized when real rates are negative. If inflation is higher than the risk-free rate, usually based off of the yield on the 10-year treasury, then gold becomes the most valuable asset because it preserves wealth. If not, then investors would be better off in an asset with growth instead.

 

Why You Should Invest in the Market No One Is Paying Attention To

real estate investment

Oil hasn’t been popular with investors for quite a while. Since oil collapsed following an OPEC-led attack to bankrupt foreign oil producers and take back market share from new oil sources like U.S. shale, oil stocks have been looked at warily. But even though oil has been the most recent asset class to fall on hard times, it’s still fared better than the most distrusted asset right now – real estate.

Since the sub-prime mortgage crisis in 2008 that struck down financial markets across the globe, real estate has been one of the most quiet asset classes with very little coverage and seemingly little attention from investors. But it’s been nine years since then – real estate might be getting an unfair deal right now.

Unpopular Doesn’t Mean Worthless

Following the disastrous 2008 financial crisis, investors stayed as far away from real estate investments as they possibly could. Words like “collateralize mortgage obligation” sent shivers down the spines of whoever heard them and the real estate market was virtually left abandoned.

Fast forward nine years and investors still aren’t talking about real estate investments. It’s still considered a taboo area to be invested in, but this lack of attention could translate into opportunities for value seekers. An ignored sector of the economy could be one that’s being unfairly priced.

But real estates often gets lumped together under one big umbrella, when it should be separated into categories: residential, commercial, and industrial. And while many investors might still be wary of residential investments, there’s no reason commercial and industrial investments should also be avoided.

Real estate investment trusts (REITs) look relatively undervalued right now and trading well under the S&P 500 multiple of 26 times earnings. REITs that specialize in commercial applications look particularly attractive due to their stable long term cash flows. Despite the rise in interest rates, businesses will continue needing to pay rent, creating a predicable business model that investors can take advantage of.

The current environment of rising interest rates brings up an interesting conundrum for investors. Rising rates generally mean trouble for dividend yielding stocks like REITs, but they also mean a red-hot environment for real estate. In fact, 2017 is shaping up to be a huge rebound year for home prices. Sales jumped 9 percent for March this year compared to last year as buyers try to get the best rate possible and lock it in before interest rates go higher. The median price of a home sold in March was up 7.5 percent year-over-year to $273,000.

The lack of supply of old homes available for sale means good news for home-builders who are seeing a pick-up in new orders. As summer approaches, real estate values should continue to rise, although the long term impact to the real estate market is still uncertain.