Financial Trend Blog

At the beginning of 1975 the S&P 500 Index was at 68.56. Since that time the S&P 500 Index has experienced an impressive growth rate to its current level around 1500. During that time the S&P 500 Index has had 25 years of positive gains and 7 years of negative returns. The best three years (1975, 1995, and 1997) were all greater than a 30% return, with the best year being 1995 resulting in a 34.11% return. Only four years (1977, 2000, 2001, and 2002) resulted in a double digit loss with the worst year being 2002 which resulted in a 23.37% drop.

One of two things needs to happen in this situation. Either the stock’s current market value needs to rise quickly so that your call premium will be greater than the 5 you paid, or the stock’s market value has to rise enough points by expiration to offset time value (3 points) plus grow beyond the intrinsic value level.

This shows how option buyers need to evaluate risk. In the example, time value represents three-fifths of the total premium. If expiration comes up quickly, the stock will need to increase significantly in a short period of time to produce a profit. In thinking about whether it makes sense to buy such a call, consider these alternatives, especially if you believe that the stock will rise in value:

The market value must remain at a stable enough price so that the option can be purchased below initial sales price, even if it is in the money. The decline in time value still occurs, even when accompanied by consistent levels of intrinsic value.

Example: Setting Limits: You have advised your broker that you intend to write uncovered calls. Your portfolio currently is valued at $20,000 in securities and cash. Your broker restricts your uncovered call writing activity to a level that, in the broker’s estimation, would not potentially exceed $20,000. However, as market conditions change, your portfolio value could fall, in which case your broker has the right to restrict your uncovered call activity to a lower dollar amount, or even to require you to deposit additional funds. When you do not have funds available, the brokerage firm has the right to sell some of your securities to cover the shortfall.

No matter where you are starting from, you can begin to turn your life around or dramatically improve your financial situation using THE BARON SOLUTION 5-Step Action Plan for Building Wealth. It is important to learn disciplined strategies of sound money management, investing, and business administration. The more you learn about these areas, the more confident you will be in selecting advisors, making investments, and handling your business and financial affairs. You can easily move forward on your journey to financial success by taking these five simple actions:

Simply stated, commodity trading is the investing into any commodity. Gold, silver, corn, wheat, soybeans, orange juice, gasoline, etc. are known as commodities. These days, commodity markets have become a common phenomenon. Future trading in commodities is the process of speculating on the future price of a commodity and the activity of “buying” or “selling”, based on your speculation, with or without actually owning these commodities.

Unlike usual trading, futures traders do not actually own anything. Future Trading is investing one’s money on the anticipated price movement, subject to a specified period.

While some historians believe that the roots of the modern stock market go back as far as 11th century Egypt, most focus their study on European markets in the 12th – 14th centuries. From the first debt brokers in France through the commodity and government security traders of Italy, various models of investment trading flourished. It was the Dutch who first started joint stock companies, allowing shareholders to invest in exchange for a share of the profits. This culminated with the first offering of shares on the Amsterdam Stock Exchange in 1602.

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