Stock Option Trading (Basic Information) by Jorge Malo

It is no secret that 2008 was a terrible year for most stock investors, and most probably things are going to get worst in the future. The US and the World economy are in a recession that will probably last at least for the rest of 2009. The recession translates into less demand for products sold by companies, which means less profits from companies and then lower stock prices. In very simple terms this is the summary of why the stock market is going lower.

If you are an investor that is loosing money on your stock portfolio, maybe you should take a look at another market that can help, the Option Market. Most investors don't know anything about stock option trading, or stock option strategies, or what is a Call or a Put option. The truth is the Option Market is a sophisticated market mostly used by professional investors. But this does not mean individual investors should stay away from it. There are many firms that will offer you advise on this market (for example www.teofutures.com), others will offer you newsletters and education so you can familiarize with this market.

It is not my intention to explain in full detail about the option market, but these are some of the most important characteristics about stock option trading:

1.- You don't need a lot of money to trade this market. In general terms you should open an account with minimum $10,000 in order to be able to diversify that money into different stock option strategies. Some firms allow you to open with less than that, but based on experience accounts that start with small amounts of money generally loose 100% of their investments.

2.- When trading stock options you can bet that the price of a stock will go higher or lower in the future. This means you still can make money even though the markets are down.

3.- Stock option investing is a fast investment. You don't buy and hold when trading options. You buy and sell, sometimes even in the same day. When purchasing options, usually the more time you keep a position the higher your chances of loosing money.

4.- Trading options is considered risky because you can loose 100% of your investment capital and with some stock option strategies you can even loose more money than your original investment.

5.- Be very careful whom you open an account with. Preferably follow strategies where you only buy Options (Calls or Puts) or spreads. Stay away from firms that will offer you guarantee returns or spectacular profits. As a rule of thumb anything between 0% and 120% return a year is an actual real return to obtain from Option trading. Returns of 500% a year, or turning $15,000 into $200,000 in 18 months, or 100% returns in the first 6 months, it is better to stay away from those offers. Maybe you can obtain those returns but the risks are very high so chances are you most probably loose all your money trying to obtain that type of results.

As mentioned before, stock option trading could be a very good alternative to help investors during these difficult times. Don't invest all your capital in this market and be very careful whom you work with. Specially stay away from guarantee returns.

About the Author

Mr. Jorge Malo is President of TeoFutures, an investment firm in Florida, which specializes in small retail investors interested in trading the option markets. More information can be found at http://www.teofutures.com.

Why Spreads, Why Now? by Shaun Rosenberg

Option spreads allow you to make money as a stock does not move into a certain area. For example if you made a bull put spread by buying the $40 put and selling the $45 put you would be profitable as long as the stock stayed above $45.

They give you a great way to profit in the stock market. So why is now a great time to be trading spread strategies?

1. Volatility.

The VIX measures volatility which helps determine the price of options. As volatility goes up options become more and more overpriced. Well in 2007 the vix was trading between $10 and $30, and it has been doing that since 1990.

Well now the VIX is at $45, translation a lot of overpriced options are out there. By trading option spreads you can benefit from these overvalued options by selling them and walking away with the premium.

2. Stocks are range bound.

Stocks are going back and forth, up huge then down huge. But in reality not much is actually happening. This means we can take advantage of this range bound market by selling options outside of those ranges.

3. Directional Trading can be hard, especially now.

I don't know about you, but trying to catch every swing in the market right now gives me a headache. I would much rather just sell some credit spreads or even do an iron condor for this market.

4. Selling options adds up.

Most people will not sell options because that is nothing compared to how much you can make if you get a good move buying options. Well selling options can add up. It's about consistency, not homeruns.

5. Selling Option spreads can limit your risk.

Unlike selling naked options your risk is limited by spreads. You can use them to profit if you are right and manage risk if you are wrong. And those are the two things you need to make money.
For more on spreads visit http://www.stocks-simplified.com/Option_Spreads.html
For more about the stock market visit http://www.stocks-simplified.com

About the Author

When I was young I wanted to learn how to trade the stock market. So I traveled around the country listening to professional traders talk about how they are making money in the market. Now I understand how easy it is to make money in the stock market and started a site http://www.stocks-simplified.com to help others learn.

Mutual Funds: Good Choice For New Investors by Bernz Jayma P.

If you have been thinking about starting an investment portfolio, but feel overwhelmed by the amount of information you would need to make good decisions, there's still hope for you. Mutual funds are a good way for a beginner with very little experience or limited funds to get started with investing in the stock market. Here are some of the advantages inherent in mutual funds. Whether you are a novice or an expert in mutual fund investing these tips should be able to help you.

One big advantage is that they can be a low cost way to manage risk, because there is at least minimal diversification present due to the variety of stocks included in the fund. However, you still may need to purchase shares in more than one fund to thoroughly diversify your investments. Some mutual funds only hold stocks in one industry (for instance, pharmaceuticals or energy). Even though the fund would allow you to diversify across that sector by owning shares in several different companies within it, you would not be truly diversified across the market. In that case, a good strategy might be to invest in another mutual fund that is expressly designed to diversify its holdings across several business sectors. It is really all up to you to and your mutual fund manager to decide which of this type of investment is best for you all things considered.

The reason for doing this, of course, is so that you don't lose all of your money if one sector takes a downward turn. For instance, look at recent occurrences in the residential real estate industry. The downturn in residential mortgage lending affected new home construction as well. So if you owned shares in a mutual fund that was heavily invested in the residential real estate sector, you would be hard hit by the downturn.

If you have limited funds for investing, mutual fund shares can usually be purchased in relatively small dollar amounts, and in even increments. That means you may be able to buy as little as $100 worth of shares. With stocks, you would have to buy in increments of whatever the market price is. That means if the shares were currently trading at $171 per share, you would have to buy them in $171 increments. So if you had $200 available to invest, you could only buy one share.

If you have limited knowledge of the stock market and little or no experience, mutual funds offer the advantage of being professionally managed. That means the manager researches each stock that comprises the fund, so that you don't have to. However, you still need to do your own research of the mutual fund. You also need to research the track record and experience of the fund manager. But that is substantially less research on your part than it would be if you had to research several dozens of stocks. In summary, investing in mutual funds can be quite profitable especially if homework is done on both your fund manager and the mutual fund itself. But, nothing is a sure winner nowadays.

About the Author
Author and entrepreneur Bernz Jayma P. is the owner of a financial blog dedicated to helping people expand their knowledge on personal finance. You may visit his blog at http://www.Invesmint.com