The Greatest Career

The call for good paying home based careers is greater now than ever, and that call is increasing all the time. 

With economic uncertainty; layoffs, changing technologies or life circumstances, having a second or even third stream of income makes more sense than ever.  Gone forever the days when a worker was hired on to a company and expect to remain at the company or even industry for their career. 

Since the 1990's staying in the same industry at all is a luxury that fewer and fewer ever know. There are many opportunities being advertised, from stuffing envelopes to selling cars.

Certainly most of these jobs are not right for everyone, or even profitable!
 
During the recovery period following an accident that caused me to put my former career behind me, I started a wish list.  This list was made up of all the benefits my new business would have and the drawbacks it would not have.

1.     Unlimited profit potential

2.     Fast start-up

3.     No employees

4.     No insurance costs

5.     No selling to friends, family, or anybody

6.     No billing or accounts receivable

7.     No shipping or handling of products

8.     No advertising

9.     No office to maintain

10.  The ability to work anywhere

11.  The ability to take time off as desired

12.  Little time required

13.  Small start up cost

14.  FREEDOM!

As I mentioned last time, trading the stock market was the only choice for me.  It may be for you as well...

Leveraging your Money

One of the bullet points on my list was 'Small start-up cost."  At the time I transitioned into becoming a professional trader, money was tight.  With all the medical bills, living expenses, and cost of getting out from under my former business, there wasn't much left.  Yet, I still needed enough income to support my family of eight - and quick!
The answer was in a little-known market instrument called OPTIONS. 

Small but Mighty

Options are contracts that give the holder certain "rights". These rights have the primary effect of controlling a block of associated stock. For a small amount of money you can control stock that is worth many times your cost. When the cost of the associated stock moves, the value of the option also moved but in a magnified way. Here is an example.

XYZ Stock
Cost per share: $100
1000 shares = $100,000.00

XYZ Call Option
Cost per share: $5.00
10 Contracts control 1000 shares of stock = $5,000.00

To purchase 1000 shares of XYZ stock at $100 per share would cost $100,000.00.  That's a big number.  One that few individual investors could handle.  But you could harness the power of $100,000.00 worth of stock with a small fraction of that price by getting 10 option contracts.  The cost would be just $5,000.00.  And by the way, you can buy one single contract if you choose.  The cost would then be just $500. 

How Leveraging Works for You

Here is where it gets exciting. If XYZ stock goes up $1, the person who invested $100,000.00 for 1,000 shares has made $1,000. Not bad, but it took a whole lot of money to pull it off.
Now, if at the same time someone bought those 1,000 shares of XYZ, you bought 10 contracts of an associated option you could have also made $1,000.
Let's put that in perspective...

XYZ Shares at $100.00 increase by $1
Profit = $1000, or 1%

XYZ Option Contracts increase by $1
Profit = $1000, or 20%

What if the options we were looking at only went up by $0.50 instead of $1?  You would still have made $500, or 10% on your money at the same time the stock buyer only made 1%!  That's the leveraging power of options!

Fear and Greed

One of the most important aspects of successful trading is the Psychology of Trading.  

Without a plan, investing in the stock market is haphazard. 

Without a plan of action, traders must "wing it" as the market makes its moves. Wouldn't it be great if you had a play book that told you how to find stocks, how to place them on a watch list, how to apply chart indicators, when to get into a trade, and when to get out of a trade?  

You bet it would. 

Fear and Greed

These are the two emotions to watch out for!  

When someone gains good profits in a trade, the tendency is to allow these two emotions to run wild. That trader may feel greedy and stay in the trade too long, always hoping for a little more. Or greed's cousin, fear, might take over instead, telling the winning trader to "Hurry and get out before we lose any money."

How can you fight off these two saboteurs? You may have guessed by now... with a plan.  Here is how we approach this.

• First, I have developed a simple way to screen the Stock Market for the kind of stocks that have the best chance to make us money.

• Then according to two simple rules, we place certain of the screen stocks on a watch list.

• We now apply technical analysis of the charts to these stocks to time our entry.

• According to money management rules, we then decide how much money to put in each trade.

• Again, with technical analysis rules, we exit the trade.

As the Roman Legions went about the world conquering, engineers followed and, among other things, placed marker stones along the roads at one mile intervals. These were referred to as "Milestones."

There are milestone events in each of our lives. 

Concerning trading, there are several that are burned in my mind. Years ago when I made my first option trade, one of these milestones was created. The company being traded was Eli Lilly, the pharmaceutical firm. 

I purchased 10 call options (you'll learn more about these later) to open the position. Within 12 days, the price of the options had tripled! 

That means for every $1,000 invested I then had $3,000. What could be wrong with that? Here is what happened...and it was a shock.

After realizing how much money that little trade had made already, it was hard to sleep. 

I was preoccupied and anxious. Why? Because my mind started playing tricks on me. 

One voice would say, "Hey don't get out of this trade, you could make even more tomorrow." That was greed talking. 

Another voice would reply, "If you don't get out right now, you will lose what you have." That emotional voice was, of course, fear. 

This went back and forth for three days and nights. Finally I just got out of the trade because I couldn't stand the noise of these two annoying voices arguing in my head anymore.

After that experience, I realized that if I had had a rule to tell me how much profit is enough, then that winning trade would have been so much easier and fun. 

What is your trading philosophy?

A member asks; what is your trading philosophy?  

Here is Stephen Cooper's response:

I believe that the first step after deciding that you want to be financially independent is to divide your current assets into long and short term categories. 

A full 80-90% of your money should be in the long term group! 

For most people this will be mutual funds. Next is to set up a plan to regularly and consistently add to this area. I look for 20%+ out of long term investments. 

After that has been accomplished, the 10-20% that remains can be considered. Here I look for the big returns. 

I prefer to position trade options on stocks. Much of the site is designed to support option traders with trading ideas and ongoing education. 

To be successful one must have a way to find great stocks, know what option to buy, when to buy it and when to sell. 

Finally a clear system of money and risk management must be in place.

How often do you trade?

The average position is open 2-6 weeks. I prefer to make a few very good trades rather than a lot of O.K. trades. This not only cuts down on commissions but requires far less time than frequent day or swing trading.

Can I Set up Watchlists in BigCharts?

When you are viewing a chart that you would like to keep as reference for later comparison simply click the "add to favorites" link near the top right of the view area. 

It is framed in powder blue.

A grey box headed "Add Favorite will pop up. There is no need to enter the stock symbol again but you may ad some personalization. Click OK.

A second grey box pops up to inform you that your favorite stock has been saved. Click OK again.

If you are later viewing another chart that you want to place on your watch list, simply follow steps 1-3 again. You may save up to 20 charts.

To view your favorites click the "view favorites" button. On the next page you may see an individual chart by clicking on it's green button. Or, to click "chart favorites".

You then will see a small graph of each stock. Click on this small chart to bring up a full size chart of your chosen stock.

New member asks what to do with profits?

Question: 

I am a very new member. The question occurred to me as to whether one should remit 80% of each profit made (and I'm sure there'll be many) to one's other longer-term investment portfolio, or what? 

Jackie 

REPLY: 

Excellent question!  If you do not need the profits made in trading for day to day living, then I

suggest that you put 1/2 of the profits into your long term account.  Then, just leave the remaining 1/2 of profits in your trading account.  This way you will be doing three very important things.

1. Building the amount in your trading account for greater future trading power. 
2. Preserving money for taxes. 
3. Supercharging the increase of principle into your long term account.

What is CBOE?

CBOE stands for the Chicago Board Option Exchange.  

This organization operates a website known as CBOE.com.  According to their site, "CBOE is the world's largest options exchange."

To get to this site, log onto OnlineOption com. Go to Members Area; Resources; Option Chains.

If you attempt to go to CBOE from another route you will be on the wrong page for our purposes. Here we will obtain quotes of various options on stocks that we will be studying and trading. 

 One can subscribe to a real time version of CBOE but it is not necessary. Once you have a brokerage (trading) account you will get real time option quotes there prior to opening or closing positions.

Can you give me a real life scenerio from your own trading?

*Written by Stephen Cooper on 3/23/00.

An excellent real life example of the power of leveraging the stock market through the use of options on stocks was made clear to me today. About a year ago I bought some LEAPS on Cisco Systems. LEAPS are simple options with a longer time frame to expiration, up to two years. 

At the time I brought two contracts. Since that time Cisco has made two 2 for splits. My previous two contracts have now grown to eight contracts due to these splits. For an explanation of stock splits, take a look at Investopedia's definition HERE. 

In conjunction with this, the underlying Cisco stock has appreciated nicely. My options are now well "In-The-Money". That means that their strike price is below the current price of the underlying stock. This adds value to such an option. 

Currently when Cisco shares raise $1, my option premium also increases by $1. Think what this means. It is staggering!  

Every time Cisco goes up $1, I make $800! Why? Because each single contract controls 100 shares of the underlying stock. 

Today Cisco stock went up $5 1/2. So I made $4,400 today alone on this one position. 

Yesterday Cisco went up about $6, so I made $4,800 yesterday! 

 Consider then, the awesome power of prudent use of options on stocks! And that my friend is what I am here to teach you.

To learn more about the leveraging power of options, visit www.OnlineOption.com!