Trading strategy that beats buy and hold

Trading strategy that beats buy and holdEffective Friday, February 13, 2015, the BUYandHOLD division of Freedom Investments, Inc. has transferred all of its client accounts to FOLIO Investments, Inc. referred to as Folio Investing below.

Please visit folioinvesting to login and view your account(s). Do not hesitate to contact Folio’s Customer Service Department at 1 (888) 973-7890 regarding any questions you may have pertaining to your brokerage account.

You can still login at buyandhold to review your transaction history, monthly statements and tax forms until October 2016.

Us consumer confidence beats at959

Us consumer confidence beats at959US Consumer Confidence beats at 95.9

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US consumer confidence came out better than expected at 95.9 points in the preliminary read for April, already in Q2, after the dreaded Q1. A second US beat in the same day. Does this change everything, or just a bit?

The US dollar is slightly strong, and still hesitating. EUR/USD is trading at 1.0762, just a few pips lower than before the publication, but this is short-lived.

The current conditions figure stand at 108.2, and expectations at 88, a bit higher than last time. This is a rise of about 2 points all in all.

GBP/USD remains under 1.50, USD/JPY clings to 119, AUD/USD is at 0.7777, NZD/USD around 0.7682 and USD/CAD is back up to 1.2150. The loonie stood out in resisting the dollars recovery following the inflation data, thanks to its own positive data.

The preliminary read of the University of Michigan / Reuters consumer sentiment was expected to hit 93.8 points in April. the final figure for March stood on 93 points. It had already reached 98.1 points in January.

The US dollar was making yet another comeback, riding higher on a tick up in core inflation, after reaching new lows on quite a few disappointing numbers.

Consumer confidence is presumably related to consumer spending or retail sales. After the shortfall in March, that hit the dollar badly, there are hopes for a bigger rise in April. This is the theory of Q2 being a significant rebound from Q1.

This is also the last figure for the week, giving the so called last word.

At the same time, the CB Leading Index was reported and it carried expectations for a rise of 0.3%. The actual number is +0.2%.

About Yohay Elam

Yohay Elam – Founder, Writer and Editor

A simple options trading strategy that beats the s&p500

A simple options trading strategy that beats the s&p500A Simple Options Trading Strategy That Beats the S&P 500

NEW YORK (TheStreet ) -- It can be a winning strategy to sell uncovered or unhedged at-the-money short-term puts, then wait until maturity and repeat the trade. Investors comfortable with the risk of equities can beat the index in the long run by exploiting a flaw in the classical option theory. Note that with the levered strategy below you can theoretically lose more than the capital invested -- think about it carefully.

The strategy is to sell unhedged at-the-money short-term puts on the SP 500 (^GSPC ). wait until maturity, and repeat.

So why tell you this? I can hardly think of anything simpler. That's why I don't feel I'm revealing any substantial trade secret.

This strategy is different from the core strategy of the start-up hedge fund I'm running, and the current market regime might not be ideal to begin implementing this strategy. Or perhaps I'm just telling you this because I don't want too many people to bash front-end option premiums.

What makes this strategy interesting in my opinion is that:

It outperforms the SP 500 in the long run, in terms of return and risk.

It exploits a flaw in classical option pricing theory.

Figures 1 and 2 compare the strategy's evolution since March 1994 vs. the SP 500, rebased at 100 using monthly and weekly maturities. To make our results easy to reproduce, we ignored interest rates and dividends. Over the 20-year period, the SP 500 registered a 0.41 Sharpe ratio. The monthly strategy is slightly better at 0.55, but the weekly strategy is much better at 0.76.

Figure 1. Monthly strategy (blue line) vs. SP 500 (red)

How our strategy beats-buy-and-hold

How our strategy beats-buy-and-holdHow Our Strategy Beats Buy-and-Hold

The following checklist outlines important actions necessary to achieving significant annual returns in todays U. S. stock market. Further, it reflects the different responses to those actions by traditional buy-and-hold investors versus Stock Trader Advisory clients:

Buy-and-hold Stock Trader Advisory

Action investor investor

Buy low maybe YES

Buy at start of uptrend maybe YES

Sell high NO YES

Lock in profits NO YES

Sell short at high NO YES

Profit from price declines NO YES

Avoid stocks when trendless NO YES

Avoid choppy stocks unlikely YES

Avoid flat stocks unlikely YES

Re-evaluate stocks weekly NO YES

Exit unsuccessful trades quickly NO YES

Compound returns NO YES

Base trades on objective analysis NO YES

Trade on sentiment of all investors NO YES

Strategy requires minimal time ? YES

Strategy requires minimal effort ? YES

Compare the number of yes responses for each strategy and it becomes clear why Stock Trader Advisory clients are doing better than they have before and better than their peers who still adhere to the outdated buy-and-hold strategy. Its simply a matter of utilizing the strategy that best responds to todays stock market.

Which buy-and-hold shortcoming is the most damaging to results? All of them! Each of these strategic mis-steps contributes to lost earning opportunities:

Not using analytics to objectively identify the most productive stocks to focus on is where problems start leading buy-and-hold investors to waste precious time and capital in a majority of less-productive or unproductive stocks.

Not being careful to time buys so as to buy low and only at the start of uptrends a common mistake among those who dollar cost average, as they buy the same stock no matter where it is in its trend cycle.

Forfeiting gains through passivity rather than taking action to lock them in.

Overlooking the opportunity to profit from downtrends by failing to sell short.

Simply not engaging in consistent, scheduled re-evaluation of all stock positions, so as to recognize a losing trade quickly and limit any damage, as well as reverse course when the stocks do.

Taken together, these oversights can make the difference between a significant double-digit annual investment return and a much smaller return, possibly even a negative return, even in the same stocks over the same time period as a Stock Trader Advisory client.

Our motto sums it up succintly: Better Strategy. Greater Returns.

If you recognize any of the above shortcomings in your current methodology, give our strategy a try for 2013. Most of our clients were buy-and-hold investors previously, and their feedback to us is that they will never go back their greater returns from partnering with us are the compelling reason. Why not join them?

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Sharpe ratio strategy beats risk parity approach returns

Sharpe ratio strategy beats risk parity approach returnsSharpe Ratio Strategy Beats Risk Parity Approach Returns

Stephane Deo and Ramin Nakisa, strategists at UBS, believe that choosing an asset allocation to maximize risk adjusted returns is of paramount importance. They mentioned two separate studies: one by Gary Brinson and another by Ibbotson and Kaplan. Both studies sought to segment return sources. Both Brinson and Ibbotson found that asset allocation policy comprised over 90% of portfolio returns. The rest could be explained by tactical asset allocation and security selection.

Deo and Nakisa postulate that allocating assets solely based on risk (measured by standard deviation) and diversification value works but generates larger drawdowns. This risk parity approach helps manage portfolio volatility but does not consider risk adjusted returns. The portfolio manager may increase funding to a falling asset with a low standard deviation and not fund an asset that is increasing in value and has a higher standard deviation. Also, risk parity tends to over allocate to U. S. and Japanese government bonds and spread products including corporate and high yield bonds. As an alternative, Deo and Nakisa proposed using Sharpe ratios to weight assets.

Maximize risk adjusted returns using Sharpe ratio based weights

A Sharpe ratio weighted allocation considers both returns and volatility. According to UBS, the manager assigns risk premiums based on returns. For example, if asset A has a Sharpe ratio of 1 and asset B has a Sharpe ratio of 2, the weight for asset B will be double the weight for asset A. This strategy does not weigh assets based on exposing portfolio to different asset classes. Also, the Sharpe ratio weighted strategy depends on momentum as it depends on recent asset performance history.

Deo and Nakisa noted that even though the Sharpe ratio weighted strategy does not specifically focus on diversification it can switch swiftly among a broad range of asset classes. There is no constraint as to which asset class can be used to generate high Sharpe ratios. In UBS’ view, the Sharpe ratio weighted strategy has lower risk relative to risk parity due to its broader asset class exposure. On absolute performance terms, the Sharpe ratio weighted strategy outperforms other strategies including risk parity. It generates a 14.8% annualized return from 2003 to present.

Importantly, the Sharpe ratio weighted strategy also limits the scale of drawdown and the time taken to recover. From 2003 to present, the Sharpe ratio weighted strategy’s maximum drawdown was 20% and it took 352 days to recover losses. The recovery time was the shortest compared to other strategies.

Commodity trading strategy beats buy and hold for commodities

Commodity trading strategy beats buy and hold for commoditiesCommodity Trading Strategy Beats Buy and Hold for Commodities

By Chuck Kowalski. Commodities Expert

As the term implies, commodity trading is better used to describe the commodities markets than commodities investing. The reasoning is that commodities typically do not increase over time like stocks do. Therefore, most people will take a trading approach with commodities to achieve higher returns.

Historical Commodity Prices

In fact many commodities have stayed in a range since the mid 1970s. Oppositely, the prices of stocks have had a steady rise in prices. Therefore, it would make sense to implement a buy and hold strategy for stocks and implement a commodity trading strategy for commodities.

Commodity Trading Comparison

Commodities do not pay dividends; in fact they actually have a slight decline in price over time due to carrying charges. From 1975 to 2003 the CRB Index ended almost unchanged. An investment in commodities from this period would have netted almost no returns over a 28-year period.

The commodities markets finally had a big move where the commodities index more than doubled from 2002 to 2007.

Many commodity traders and managed futures funds that specialize in commodity trading have made excellent returns for decades. In fact, the Barclays CTA Index has had an average annual return of more than 13 percent from 1980 to 2007.

Commodity Trading Strategies

Two of the most popular trading strategies involve either a trend following approach or a range trading approach.

Continue Reading Below

Trend Following – This is a commodity trading strategy that most professional traders use and recommend. The theory is that prices that are in a trend have a higher probability of continuing in that direction. Therefore, the odds should be in your favor by taking trades in the direction of the trend.

Range Trading – Markets are often not in a trend, so a trend following strategy may not be as profitable under these circumstances. Under a range trading strategy, you would sell the market when it gets to the top of its range and buy the market when it gets to the bottom of its range. This strategy can work very well for a long period of time, but you have to be careful when the market breaks out of its range.

Both of these commodity trading strategies have their benefits and shortfalls. It is also possible to use a combination of both strategies. Trend following strategies are dependent on having a couple of big movers each year. It is imperative that you do not miss one of these big moves.

With range trading, you can be lulled into a sense of security that the market will stay in its range. Eventually, one of the markets will break out of its range and have a big move. This is usually the situation where range traders lose big. They hold onto a position thinking the commodity market will fall back into its range and it just keeps moving against them. Or worse, they add to their positions and really make things bad.

Regardless of which basic strategy you use, discipline and money management are essential. Make sure you trade with stop losses and do not risk too much on any one trade – no matter how good it looks. If you want to make above average returns over the long run, you will need to implement a commodity trading strategy instead of a buy and hold strategy with commodities. However, if you do not have a sound trading plan, do not expect a promising outcome.

Trend-trading slyg beats leveraged etfs

Trend-trading slyg beats leveraged etfsTrend-Trading SLYG Beats Leveraged ETFs

My tests are only preliminary, but clearly suggest that it is probably better to trend-trade an energetic unleveraged ETF such as SLYG than a leveraged ETF.

This study was partly inspired by The Small Cap Stock Index For You , by Ploutos, from February 2013, which suggests small cap investors should consider ETFs based on the SP-600. Coincidentally, I also recently posted my results of 40-year trend-trading simulations in an article, The Best Less of Long-Short Investing . My results suggest that well-chosen trend-trading methods can be highly effective for decreasing downturns while possibly not decreasing long-term gains. However, these results also indicate that trend-traders should compensate for periodic weaknesses with the following measures.

Add some investments in the best long-short mutual funds if they keep up with the SP during normal periods such as 2010.01-2012.12.

Use buy-and-hold on 1/5 to 1/3 of each trend-traded position.

Buy more aggressive ETFs.

So, I was interested in Ploutos' persuasive findings that the SP-600 has been, and seems likely to remain, significantly advantaged. In addition to dodging downturns, an obvious advantage of trend-trading is in telling us when to dive in for the bursts in small-cap growth immediately after downturns. My initial lookups indicated substantially greater 2009-2012 trend-trading potential in the SP-600 Growth Fund SLYG than in IWM for the Russell-2000 or SPY for the SP-500. See the following gain records on 2013.02.27 according to ETFdb .

I include a few specialized ETFs that have done well recently, to indicate the general potential of aggressive unleveraged ETFs, for which well-planned trend-trading can be expected to reduce downside risk. I list closely related ETFs together, while attempting to represent the best returns for each index or strategy, with recently better-performing strategies at the top.

Please note that SLYG has done well for a general fund, not as likely as a sector-specific fund to have intermittent spurts, and having more of a known quantity for determining optimal trend-trading methods. However, there are other good choices. Also, 3-year and 5-year results tend to be similar because they straddle the 2008 slump. A lower 5-year result does not necessarily indicate a less energetic fund.

Meanwhile, I was also eager to test out whether perhaps trend-trading might consistently harvest the often tempting and sustained gains of a 3x leveraged non-inverse ETF. Relative to its long-term disadvantage, the results went surprisingly well for the 3x but not well enough.

Please note that there is no 3x small-cap ETF old enough for significant testing. A performance history was extrapolated by tweaking a 1x and 2x until each of their recent performances matched that of a 3x. Also, please do not consider these 5-year results to be advice. I would do 20-year testing before deciding what SMA to use. This is only a preliminary comparison of trend-trading leveraged ETFs vs. unleveraged ETFs, during a period which is favorable for trend-trading.

+3x Leveraged Small-Cap ETF: trend-trading gains after -0.5% per trade slippage leeway.

This moving average strategy beats buy and hold by nearly3-to-1

This moving average strategy beats buy and hold by nearly3-to-1This Moving Average Strategy Beats Buy and Hold by Nearly 3-to-1

Moving averages (MAs) are one of the most popular trading tools. Their popularity may be due to their simplicity. Before there were calculators or computers, a 10-day simple moving average could be found by adding up the last 10 closing prices and moving the decimal point one space to the left. Ive talked to old floor traders who told me that was the reason the 10-day moving average become popular.

Now, MAs of any length are easy to calculate and widely used. We also have variations of the simple calculation. Rather than just adding up numbers and dividing by the total number, there are at least four other possible ways to find a moving average:

1. Exponential Moving Average: Assigns a greater weight to the more recent market action in an effort to be more responsive to changes in the trend.

2. Weighted Moving Average: Allows users to decide which data should be overweighted and allows for the weighting values to be changed.

3. Triangular Moving Average: Weights the middle of the data more heavily.

4. Adaptive Moving Average: Uses smoothing factors to adjust the number of days used in the calculations to current market conditions.

Each method has its proponents and each of the four methods adds a level of complexity to what was originally a simple indicator. Complexity, at least in my mind, is only OK if it adds value. Visually, it looks like the different moving averages move in the same general direction.

The chart below is a weekly chart of the SPDR SP 500 ETF (NYSE: SPY ) with the prices hidden so all we see are the moving averages. This eliminates the clutter on the chart and makes it possible to see that the moving averages rise and fall at the same time.

The adaptive moving average, the thin red line, stands out as consistently lagging the simple MA, shown as the thick blue line. At the bottom in 2009, the exponential MA, the brown line, was the last to signal a buy. That signal came after SPY had gained more than 35%. The other MAs signaled a buy after a gain of 25%. Large delays at bottoms are one of the most significant drawbacks of trading with a moving average. The other significant drawback is that there are a large number of small trades in a sideways market.

Based on the visual comparison, we can say that the averages are all close to each other. More detailed quantitative testing of the various MAs is required to develop a stronger opinion as to which one is best. The results are summarized in the table below. All results are for a 26-week MA and the system is always in the market, long when the price is above the MA and short when the price is below the MA.

Each MA delivered a low number of winning trades and none beat the market. Digging deeper, we learn that the performance problems are due to large losses on the short side.

Looking at the results for a long-only MA system, moving to cash when the price falls below the MA, we see much better performance.

Although the number of winning trades is still low, the adaptive MA beats buy and hold by a significant amount, nearly 3-to-1. This indicator will not call the top of the market. In fact, because it is calculated with historical data, it is impossible for any MA to signal at the exact top or bottom.

At the time of this writing, SPY is well above its adaptive MA, and based on this indicator alone, a bull market would be intact as long as SPY remains above $141.36. Of course, the precise value of the MA changes daily, and will likely be higher when the next bear market does begin.

There is no way to fully eliminate the problems associated with moving averages. But in my experience, the best way to use them is to apply an adaptive MA as a long-only signal. No matter what type of MA is used, when the prices are below the MA, the chances of profitable buys are low. Personally, Id consider selling any stock or ETF when the price moves below the 26-week moving average.

Free options trading videos by!

Free options trading videos by!Free Options Trading Videos by Optiontradingpedia!

Yes, reading about options trading isn't enough to fully educate you in options trading even though we made sure there are plenty of examples and pictures in our tutorials. Nothing beats watching our Founder Mr. OppiE do the actual execution and explanation through video! Yes, videos like these would cost you thousands of dollars to purchase elsewhere and they are all here for you, FOR FREE. Make sure you bookmark this page and check back often as we will add more videos over time. (All videos are made using Optionsxpress Virtual Trading Platform )

Forex trading using cooltraderpro best binary option signals service

Forex trading using cooltraderpro best binary option signals serviceForex trading using cooltraderpro Best Binary Option Signals Service winfleet. fr

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Betfair football trading-the highs and lows!

Betfair football trading-the highs and lows!Betfair Football Trading - the highs and lows!

Tuesday, 9 December 2014

If it isn't broken, don't f**k about fixing it!

Some might have noticed that I don't write much these days, but this latest brainwave from Betfair caused me to bash the keyboard once again.

I'm talking about 'Correct Score New' - they're in the process of doing away with my beloved Any Unquoted! They are replacing that one scoreline with, wait for it, three alternatives - 'Any other - Home', 'Any other - Away' and 'Any other draw'. Wow!

Apparently, we, the betting / trading public have been asking for these 'improvements' and it is justified by saying that AU is likely to be the favourite score at the outset of, say, Barca v Elche, and that therefore a back for AU is effectively a bet that Barca will win and score a hatful of goals in doing so. No shit, Sherlock!

I personally use AU in all kinds of ways, both backing and laying it as I see fit. the appeal of that as a trading move will be severely limited now. My activity around that scoreline is far from limited to the kind of game they use in their justification - it's an essential part of the CS trader's armoury in my opinion.

As a result, my little bit of liquidity will be missing from that market. Times me by a few hundred / thousand others and how does that help either customers or Betfair themselves? Beats me!

If anyone can enlighten me, help me see the light or otherwise put any remotely positive slant on this appalling decision please do.

Betfair Football Trading - the highs and lows!

Tuesday, 9 December 2014

If it isn't broken, don't f**k about fixing it!

Some might have noticed that I don't write much these days, but this latest brainwave from Betfair caused me to bash the keyboard once again.

I'm talking about 'Correct Score New' - they're in the process of doing away with my beloved Any Unquoted! They are replacing that one scoreline with, wait for it, three alternatives - 'Any other - Home', 'Any other - Away' and 'Any other draw'. Wow!

Apparently, we, the betting / trading public have been asking for these 'improvements' and it is justified by saying that AU is likely to be the favourite score at the outset of, say, Barca v Elche, and that therefore a back for AU is effectively a bet that Barca will win and score a hatful of goals in doing so. No shit, Sherlock!

I personally use AU in all kinds of ways, both backing and laying it as I see fit. the appeal of that as a trading move will be severely limited now. My activity around that scoreline is far from limited to the kind of game they use in their justification - it's an essential part of the CS trader's armoury in my opinion.

As a result, my little bit of liquidity will be missing from that market. Times me by a few hundred / thousand others and how does that help either customers or Betfair themselves? Beats me!

If anyone can enlighten me, help me see the light or otherwise put any remotely positive slant on this appalling decision please do.

Scalping the dax and now scalping the euro

Scalping the dax and now scalping the euroScalping the Euro lo and behold

This is a very short post, just to let you know that I have extended my DAX scalping to the Euro now. Why? There are many fundamental changes in Europe now, with Greece issues and other members under the financial cosh. Also, my broker has reduced the spread to only 1 pip that means that it's cheap enough to get in.

The scalping method is identical to my DAX system see it here =DAX Scalping

The beauty about scalping the Euro is that if you take it from one of the pivots (See here =Pivot point system ) a cheap scalp with a stop of no more that 6 pips can turn into a 30-50 pip runner.

Remember though, when scalping you need to remain focused and ruthless, you may scalp 10-20 times for 2-10 pips at a time, so never let it run against you. If you have problems getting into the zone try using some meditation (get some binaural beats to use, check my meditation blog) or re read Mark Douglas's book "Trading in the Zone "

Today has been a awsome day for scalping, both the Dax and the Euro, check out below and notice how breach of the Pivot point brought on an avalanche (OK, ECB statements didn't help much eithr :)), also see how the hit on S1 area brought a nice tradeable bounce:

Scalping the Euro


Sports contact

Sports contactRussell: Mustangs take LSC title from Lions

A Texas A&M-Commerce Twitter post earlier this week showed a picture of the Lions getting the Lone Star Conference trophy for winning the regular season title and the caption, "Come and take it." | Yesterday 10:19 p. m.

Chafin scores three times, but OU beats Baylor

WACO — Sterling Shepard had 14 catches for 177 yards and two touchdowns and No. 12 Oklahoma beat No. 4 Baylor 44-34 on Saturday night to end the Bears' 20-game home winning streak — and likely their playoff chances. | Yesterday 12:07 a. m.

Newberry: Trojanettes take I-2A final for the ages

SNYDER — I think the kids these days want to "keep it 100." | Yesterday 8:08 p. m.

Mustangs claim LCS Playoff Championship

Wildcats can’t keep up with Topeka

Area Football Pairings

Barrett returns, OSU runs away for win

Mustangs open season Sunday vs. OKC

Raiders dominate Dunbar, 61-20

An options strategy that beats dividends

An options strategy that beats dividendsAn Options Strategy That Beats Dividends

Learn a better way to generate income than buying dividend stocks

Aug 24, 2010, 2:38 pm EST | By Ron Ianieri

Heres some options trading information you can use. For the longest time, the prevailing thought for making money in the stock market was to buy and hold. Over the last several years, this “strategy” has not only come under scrutiny, it has pretty much been debunked. The buy-and-hold strategy has shown to not work … period.

Now, as is always true in the market, there are no absolutes. There are examples of stocks that have improved over time and have had a decent return. But there are not a lot of them. Looking at stocks like General Electric Company (NYSE: GE ), Intel Corporation (NASDAQ: INTC ) and Microsoft Corporation (NASDAQ: MSFT ), we find that over the last 10 years, most stocks have lost value not even taking inflation into account.

The ones that have bucked this trend have been stocks like The Procter Gamble Company (NYSE: PG ) and Johnson Johnson (NYSE: JNJ ). These are larger, highly stabilized stocks that, most importantly, pay a dividend. Actually, it has been argued by some and supported by some empirical data that the only growth in the Dow and other indexes is due to dividend growth. If this is true, than dividend growth should be examined further.

For the record, dividend growth is a form of income generation that can be found in the stock market. Investors would be best advised to look to incorporate income generation strategies like dividend growth into their portfolios .

But even with the dividend growth strategy, there is not a lot of profit to go around. It seems that most that have done well in the market have done it by picking individual stocks to buy and sell back and forth relying on market timing for when to get in and out. But these people have the time and willingness to be in front of the computer all day, every day. This can really only be done by someone who considers themselves a full-time trader. This definition does not fit the vast majority of investors. So, true investors must find another way to succeed in the market on a consistent basis.

This takes us back to the supposed success of the dividend strategy via income generation. The problem is that the dividend strategy is just not powerful enough or consistent enough. Not all stocks pay dividends and of the ones that do, most barely outperform inflation. So maybe the dividend strategy is not the answer but a hint to the answer. Maybe its not the dividend strategy, but the idea of income generation that is the secret.

Following on this lead, there is another way to generate income in the financial markets that is far more powerful and consistent than dividends, and can easily outperform inflation. It is located in the options market and called premium collection.

Premium collection is the art of capturing the decaying extrinsic value in an option over the passage of time. There are several option strategies that allow one to collect premium on a monthly basis that are safe, cost efficient AND provide very good monthly returns!

Nowadays, with income generation more important than ever, and for more reasons than ever, investors desperately need to learn how to master the technique of income generation through premium collection in the options market. By mastering this technique, you can not only increase your portfolio but can also generate income to be used in other areas, for other things. Of other interest, premium collection strategies are high-probability, low-cost, low-adjustment trades. In other words, great for those who are not professional traders.

Income generation is it really fits the greatest number of investors — those who do not have a lot of time to spend watching the market all day every day, those who do not have big accounts, and those who cant afford to take big risk. If you as an investor fit into one or more of these scenarios, then you should definitely spend the time, effort and energy to learn about premium collection.

There is great potential that as our economic situation becomes clearer over time we may see a market that stagnates dramatically for a pretty substantial amount of time. If the scenario plays out that way, we may find ourselves in a situation similar to that of Japan. If it happens, the only way to make money in a consistent, high probability way will be premium collection.

How Premium Collection Works

An options price consists of two different values. There is intrinsic value, which represents the amount by which the option is in the money. This value is tied directly to the stock price and does not decay over time. Not all options have intrinsic value (because not all options are in the money).

The other value, the amount over intrinsic value, is known as extrinsic value. It consists of time and volatility, and will decay over time. The amount of extrinsic value in an option differs from option to option with the at-the-money options having the most extrinsic value.

Added to this is the rate of decay of the extrinsic value known as theta. Extrinsic value decay is not a linear function. Option price decay (theta) increases as expiration draws closer. Thus, the highest rate of decay exists in the front (current) month options.

In order to capture this decaying extrinsic value, an investor must sell an option. This can be a risky thing as selling options brings the investor an unlimited potential risk.

However, there are some option strategies that are specifically designed to allow an investor to capture a high percentage of the decaying option safely by purchasing another option with a much lower rate of decay to hedge the sold option with the greater amount of decay. In essence, we are giving up some of the income we are generating in order to neutralize the unlimited loss scenario.

Strategies like the time spread, butterfly, condor. and even the vertical spread are ideal for this situation. Constructed properly, they allow for premium collection in a safe, fully hedged manner. All of these strategies are cost efficient, and the vertical spread will actually allow for directional gain as well.

Right or wrong, successful or not, buy and hold is a strategy of the past. Income generation through premium collection IS the wave of the future, and I for one am willing to bet that it will prove to be much more successful than its predecessor!

If you are interested in more information on premium collection or premium collection services from Ron Ianieri, click here .

Article printed from InvestorPlace Media, investorplace/2010/08/premium-collection-selling-options-to-generate-income/.

Binary options trading strategies in flat

Binary options trading strategies in flatBinary options trading strategies in flat

If you want to know how to trade with binary options, make sure you use the best strategies! In this video you can see how our experts earn more than 80%. Different trading strategies for binary option. Binary options trading can present several risks. If there is a flat trend line and a prediction that. Binary Option Strategy is the leading website for binary options trading with trading strategies and a guide with expert news.

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And what makes binary options intriguing. Trading Strategies; Brokers; Software;. As long as the market remains flat, the binary is already in the. If you’ve studied and understood my previous posts about the fundamentals of binary option FX trading and binary options indicators, you are now ready to trade for. Learn about Simple and effective binary options trading strategies to help you get the most from your trading. Binary Bully Reviews Binary Options Bully Trading.

In finance, a binary option is a type of option in which the payoff can take only two possible outcomes, either some fixed monetary amount or a precise predefined.