In his book, “Business Without Economists” author William J. Hudson submits a theory worthy of every traders consideration. (Particularly now with Y2K just around the corner) He states:

1) The demand for answers will always be greater than the supply.

2) Therefore, the price for answers will be high.

3) Therefore, a very large supply of answers will emerge.

4) Therefore, most answers will be false, especially when tested against reality.

I have this STATEMENT posted on my computer as a reminder to myself that markets are very humbling mechanisms. The key question that we as traders must continuously ask ourselves with regards to whatever trading strategy we enter into is, “What if I am right? And What if I am Wrong?”

As I assess the economic landscape and scan the marketplace for trading opportunities there is one fact that I must pay attention to: The NAME of the GAME is Managing RISK!

With this in mind, let’s evaluate some of the important facts:

Many of the Commodity Markets have bounced sharply from their twenty to thirty year lows.

When I cross reference this FACT with the REALITY that INFLATION is back in the economy, it creates some very interesting trading opportunities for the OPTION savvy trader. The key to any trading strategy in my opinion is that it HAS to be low risk because there are so many possible outcomes that may occur.

The purpose of this strategy is to eliminate the need for timing the market by developing a method minimizing my exposure to loss. Before I provide you with the mechanics of this tactic let me illustrate an outlandish possibility so that we can get clear on a traders definition of RISK. Let’s say that you are convinced that on March 1, 2005 that you think that Gold is going to be trading at $3,000 dollars an ounce. (I did say outlandish!) Based upon this scenario even if you wholeheartedly disagree, how could you trade this viewpoint and still take very little risk? Most people think that RISK is defined as BEING RIGHT or WRONG on the outcome of a trade. However, a risk sensitive trader is only concerned with their exposure to chance of LOSS.

If you thought that Gold was going to be trading $3,000 an ounce you could enter into the marketplace and
very inexpensively purchase a couple of Call Options that would give you the right to purchase Gold at $500 an ounce. In this instance, the most that you could lose is the money that you put up to purchase the options and you would have the RIGHT but not the obligation to purchase Gold at $500 between now and March. However, just because you have LIMITED RISK you STILL have a great deal of EXPOSURE to LOSS. Reason being, that if GOLD does not get up to $500 you would lose all of the money that you put up to purchase the options.

The way that a professional would trade this scenario is that he would finance the trade through OPTION SELLING. When you SELL an OPTION you are in effect creating an OBLIGATION that you are forced to abide by contractually. For example if you SELL a $500 December Gold Call and receive money you have in effect agreed to deliver Gold to the option purchaser at a price of $500 between now and December 2004.

As a seller of this option, the most that you can make is the premium that you collected and your upside RISK is theoretically unlimited. If Gold is trading at $800 an ounce come December 2004 and you have not offset this option you are obligated to make delivery of Gold to the Option purchaser at the originally agreed upon price of $500 an ounce. Should this occur you would in effect have a loss of $300 per ounce on each contract that you sold. Not very attractive, especially since each Gold contract is 100 ounces in size. The loss becomes $30,000 per contract. That is a lot of risk!

The way to minimize RISK is to SPREAD it off against other OPPOSITE Options positions.

In the above example, let’s say that a trader purchased 1 March $500 Gold call Option for a premium payment of $6.00 an ounce ($600). Each Gold contract is 100 ounces so this trader would be paying $600 per option . The RISK here is very clearly defined as $600. However, if this same trader now SOLD (1) GOLD December $500 Gold Call Option (NOTE THAT THE DECEMBER OPTION WILL EXPIRE BEFORE the March Option) and collected a premium payment of $300 they have in effect reduced their initial risk to the difference between the $600 that they paid out and the $300 that they collected, or $300.

Let me outline what this trader has done. They have obligated themselves to make delivery of 100 ounces of Gold at a price of $500 an ounce between now and December and simultaneously they have the right but not the obligation to own 100 ounces of Gold at $500 an ounce between now and March. They have established a BULLISH CALENDAR position by SELLING a Call option in a nearby month and using the money that they collected in the sale of that option to finance their purchases of the Call Option in the deferred option expiration month.

What this strategy is in effect saying is that it is the traders opinion that Gold will make its move after December but before March. Although it does not appear very exciting now, should this anticipated disruption occur in that time frame a trader that positioned themselves in this style would be sitting in the drivers seat. Essentially they would be looking at a maximum risk exposure of $300 with the possibility of unlimited upside potential. (YES, I realize that with Gold at $430 at present time that possibility appears extremely remote.) However, it is this kind of trading tactic that makes a great deal of sense in markets that are trading at historical lows.

The key to successful trading is to minimize your risk as you acquire more information. The closer you get to option expiration the more information you will have regarding the feasibility of this tactic. The key however is that you played the game without exposing yourself to a great deal of DOWNSIDE. That my friends is the path to long term success in any highly leveraged transaction. As William J. Hudson stated,
“Most answers will be false, especially when tested against reality!” Worth thinking about.

Just one more way to swing for the fences without taking a great deal of risk.

STUDY AWAY and let’s be careful out there!

Dowjonesfully-

-Harald Anderson
http://www.eOptionsTrader.com.

THE RISK OF TRADING IS SUBSTANTIAL, THEREFORE ONLY “RISK” FUNDS SHOULD BE USED. The valuation of such may fluctuate, and as a result, clients may lose their original investment. In no event should the content of this website be construed as an express or an implied promise, guarantee or implication by anyone that you will profit.

Harald Anderson is the founder and Chief Analyst of eOptionsTrader.com a leading online resource of
Options Trading Information. He writes regularly for financial publications on Risk Management and Trading Strategies. His goal in life is to become the kind of person that his dog already thinks he is. http://www.eOptionsTrader.com.

For numerous years companies did not have to in any way consider the cost of giving out greenhouse gases. But this is changing. Today, the cost of being green is legitimate costs that need to be considered by investors. Green is being considered critically as an investment factor by more and more institutions.

Consumer choices and market demand will dictate most of what companies offer us. SNK Capital Trust has found that each time a product like a hybrid car or low-energy light bulb gains a large market, it sends a message to CEOs, stock analysts, institutional investors and venture capital funds.

Some companies, like SNK Capital Trustwill be leading the charge (whether for image or substance) even doing things aren’t immediately profitable in the short term; others will be happy to wait on the sidelines until they are forced to change, either through taxation or regulation. When the future inevitably becomes the here and now, companies who arrive late to the game not only risk higher than anticipated costs, they also risk falling behind their competition in knowledge and shareholder image.

If you have determined that you need to step into the forex trading market, then there are a few matters you will definitely wish to consider first. If you are earnest about your decision and you really want to get forex training, then you want to take some steps.

As a child, my father had this saying, “You know, there’s many ways to skin a cat.” What he meant would take me a while to figure out. But now I understand; especially since I make the better part of my living doing forex online. So what is this forex you speak of? Well, in short, automated forex is the method of maneuvering your foreign exchange currency, or forex, account on automatic pilot.

There are many other ways that you can school yourself about automated forex. One of the best ways you can educate yourself on the topic is to have a tutor of sorts. If you happen to know someone who is knowledgeable in online forex, then you may want to ask them if they would be inclined to assist you in learning forex trading. If having a tutor is not an option for you, then you will want to either buy or download a tutorial, or open a practice account and begin practicing trading in a simulated forex trading market.

Starting off with the most uncomplicated of definitions an exchange rate is the current price at one nations currency may be converted into another’s. So for example the rate would be the amount of Afghanistan Afghanis you are entitled to buy in exchange for every Malaysia Ringgit.

Fixed exchange rates are of course recognised by the term ‘pegged exchange rates’; they are put to good use to stabilize the value of a currency; particularly during times when that currency is fluctuating in value heavily; this helps to aid overseas business and investment.

Floating exchange rates – this is when a currencies value is dictated by market powers. This is a much more hazardous way to conduct business but don’t forget this is the situation where you might often enjoy the chance to earn a tidy profit,

You might often furthermore hear talk of animals in currency; a bull is an individual that predicts that market prices will go up conversely a bear is an individual who foresees that market prices will go down. A bull market is a marketplace where values are currently going upwards conversely a bear market is the exact opposite – a market where prices are actually going down.

A currency broker is an individual who acts as a middle person between you and the marketplace – brokers are actually generally in a position to get you the very best price during periods when you are looking to acquire or sell.

The dollar rate is the exchage rate that one unit of any currency has when put against a single measure of the US Dollar; this is a very useful indicator for a national currencies value.

This is by no means an exhaustive list – it is merely a good starting point; but with a tiny little bit more research you could be very much on your way to now becoming a financial expert in no time at all.

You can invest in a tax-free savings plan for any child with a Scottish Friendly Child Bond. It’s tax-free because it’s a friendly society savings plan, which means that under current fiscal law it grows free of income or capital gains tax. It certainly is a wonderful way for parents, grandparents, family members and friends to make a big financial difference when the little ones are older.

Put succinctly the Child Bond is a with-profits investment plan: It invests for long-term growth as well as a degree of security, in stocks and shares, fixed interest funds and cash.

Money accrues by means of the addition of potential yearly bonuses and at the specified time the bond matures there’s a tax-free payout. The value of bonuses will be based on on how much profit we make and how we distribute it.
It is important to bear in mind that bonuses are not guaranteed.

The Child Bond can last for a minimum of a decade, but you can invest for longer if you choose to – perhaps to coincide with an 18th or 21st birthday. You can save either monthly, annually or with a lump sum payment.It is completely up to you. It should be borne in mind that if the plan is cashed in at a point prior to the end of the term, the amount the child will get back may be less than the amount paid in.

If you want the monthly option, you can make a start by saving from as little as £10 a month – up to a maximum of £25 per month. Or you can make once a year payments of up to £270 a year.

You can also take care of all of the premiums in one go through our lump sum funding plan. If you invest the maximum permitted sum of £2,340 for ten years, this actually invests £270 a year into the Child Bond – making twenty seven hundred pounds in total. The minimum lump sum of £1,040 will yield £120 a year for 10 years – a total of £1,200. This provides a means for you to make payment of all your premiums in one go and is extremely popular with grandparents who like the reassurance of knowing all premiums for the whole term of the plan are taken care of.

As an added bonus, so you should consider if this is appropriate for your financial needs.

Right use of a forex trading system can help automate the process and cut down on the time you need to invest, significantly. If you are determined to make every moment a win-win situation for you then you need to go with the trend. Don’t try to break rules and be unconventional. This will not give you any positive result. For the first few years you need to play safe and by the rules. You can also use three day rolling pivots as a powerful strategy to draw profits from the swinging yet yielding trading market.

That’s not the end of the story though. Like any other trader, you would like to cut short the risk factors and multiply the profits from a forex trading system. There is one strategy that really works in such cases. Scalping doesn’t allow you to earn greater profit margins initially, but then it aims at wealth building over a period of time. So go slow and steady with this strategy to make the most of forex trading. However, it goes without saying that the correct application of strategies is crucial to the success of your forex trading. Enjoy the whirlpool of money with forex.