Selling puts in your investment account can be a tremendous strategy for generating reliable income while taking on less risk than more traditional income strategies like buying and holding dividend stocks. The trading approach is made possible by selling a put option to speculators who either: 1. Think that the underlying stock or exchange-traded fund (ETF) is headed lower, or 2. Want to hedge their current exposure.#-ad_banner-# From our perspective as option sellers, one of the most important decisions is what types of securities to sell puts against. Specifically, some traders struggle with the… Read More

Selling puts in your investment account can be a tremendous strategy for generating reliable income while taking on less risk than more traditional income strategies like buying and holding dividend stocks. The trading approach is made possible by selling a put option to speculators who either: 1. Think that the underlying stock or exchange-traded fund (ETF) is headed lower, or 2. Want to hedge their current exposure.#-ad_banner-# From our perspective as option sellers, one of the most important decisions is what types of securities to sell puts against. Specifically, some traders struggle with the decision of whether to sell puts against individual stocks (which give them a risk/return profile that is affected by the individual company dynamics), or against broad indexes or ETFs (which offer more diversification). To determine where you should put your capital to work, let’s look at the driving forces for both risk and returns based on both of these approaches. Volatility And Diversification One of the primary benefits of investing in an ETF as opposed to individual stock positions is that the ETF gives you instant diversification. However, keep in mind that not all ETFs are as diversified as… Read More

IPOs — initial public offerings of stock — are the financial world’s Super Bowl. The enthusiasm, anticipation, and chance to make millions out of seemingly nothing are what drive investor’s excitement.#-ad_banner-#​ In this year’s third quarter, the three top-performing IPOs were Sprouts Farmers Market (Nasdaq: SFM), Benefitfocus (Nasdaq: BNFT) and Rocket Fuel (Nasdaq: FUEL), up 123%, 102% and 93%, respectively, in their first day of trading. Even if you hadn’t heard of these three offerings, big-name IPOs such as Twitter (Nasdaq: TWTR) and Facebook (Nasdaq: FB) have been on nearly everyone’s radar due to massive media coverage. Not… Read More

IPOs — initial public offerings of stock — are the financial world’s Super Bowl. The enthusiasm, anticipation, and chance to make millions out of seemingly nothing are what drive investor’s excitement.#-ad_banner-#​ In this year’s third quarter, the three top-performing IPOs were Sprouts Farmers Market (Nasdaq: SFM), Benefitfocus (Nasdaq: BNFT) and Rocket Fuel (Nasdaq: FUEL), up 123%, 102% and 93%, respectively, in their first day of trading. Even if you hadn’t heard of these three offerings, big-name IPOs such as Twitter (Nasdaq: TWTR) and Facebook (Nasdaq: FB) have been on nearly everyone’s radar due to massive media coverage. Not only do many IPOs make the company’s founders and initial investors wealthy, initial offerings usually provide much-needed cash to expand operations (and increase shareholder value). The problem for most investors is that it’s difficult if not impossible to obtain IPO shares before they’re listed. These shares go to insiders and others with special relationships with the investment house issuing the shares. There are some “backdoor” ways in which regular investors can profit from the first day of an IPO: for example, in the case of Twitter’s IPO, investing in a high-tech incubator like Japan’s Digital Garage or a fund like… Read More

It’s tough to watch the market rise sharply if your portfolio has been treading water.#-ad_banner-# That’s the reality facing many investors that stepped to the sidelines earlier this year after seeing their portfolios soar in value since the bottom in March 2009. But it could have been worse. You could have invested in some absolute duds. Morningstar keeps track of the performance of all major exchange-traded funds (ETFs) and calculates a major loss for hundreds of these funds in 2013. The key question for investors: Which of these 2013 duds will morph into 2014 heroes? Let’s take a closer look. Read More

It’s tough to watch the market rise sharply if your portfolio has been treading water.#-ad_banner-# That’s the reality facing many investors that stepped to the sidelines earlier this year after seeing their portfolios soar in value since the bottom in March 2009. But it could have been worse. You could have invested in some absolute duds. Morningstar keeps track of the performance of all major exchange-traded funds (ETFs) and calculates a major loss for hundreds of these funds in 2013. The key question for investors: Which of these 2013 duds will morph into 2014 heroes? Let’s take a closer look. Leveraged Gold? Yikes! It hasn’t paid to be bullish on gold this year, as the yellow metal lost its status as inflation hedge. But it’s proved to be downright foolhardy to buy leveraged ETFs that move at two or three times the rate of change in gold prices. These gold leveraged ETFs lost most of the money tied up in them and are clearly too risky to own. If you are bullish on gold for 2014, you may be better served by buying gold miners or straight-up gold funds that simply move in tandem with gold prices. No need… Read More

There’s a long-standing argument between finance academics and investors. #-ad_banner-# Most academics assert that the market is efficient and there is very little edge available for traders and short-term investors. When challenged with long-term success stories of traders who consistently beat the market, the academics say those individuals are presently the statistical outliers. In other words, they are simply lucky — just like the folks who win the lottery several times or consistently succeed at any game of “chance.” I am fortunate to be married to a woman who holds a doctorate in finance and is a great resource when… Read More

There’s a long-standing argument between finance academics and investors. #-ad_banner-# Most academics assert that the market is efficient and there is very little edge available for traders and short-term investors. When challenged with long-term success stories of traders who consistently beat the market, the academics say those individuals are presently the statistical outliers. In other words, they are simply lucky — just like the folks who win the lottery several times or consistently succeed at any game of “chance.” I am fortunate to be married to a woman who holds a doctorate in finance and is a great resource when it comes to programming trading strategies and understanding market microstructure. However, we are often at odds when it comes to the viability of active trading. I love to prove her ideas wrong by showing her papers by respected academics who take my side. I am certain she gets the same vicarious thrill when my market ideas are proven inaccurate. The one thing my wife and I agree upon is the wisdom of long-term dividend investing. (In that respect, we’re also in agreement with regular readers of Amy Calistri’s Daily Paycheck advisory, which emphasizes the portfolio-growing power of dividends.) My wife… Read More

I grew up in and still live in the South. During the dog days of summer in July and August, when folks say, “It’s not the heat, it’s the humidity,” believe me, it’s the heat AND the humidity. Everything wilts. People move more slowly. Business slows down a little, too. There’s a real and noticeable effect. The fixed-income markets — represented by Treasurys, corporate and municipal bonds, and other income-oriented investments — experienced the dog days firsthand this summer as investors fretted over the prospect of the Federal Reserve scaling back its bond purchases, also known as tapering. Look what… Read More

I grew up in and still live in the South. During the dog days of summer in July and August, when folks say, “It’s not the heat, it’s the humidity,” believe me, it’s the heat AND the humidity. Everything wilts. People move more slowly. Business slows down a little, too. There’s a real and noticeable effect. The fixed-income markets — represented by Treasurys, corporate and municipal bonds, and other income-oriented investments — experienced the dog days firsthand this summer as investors fretted over the prospect of the Federal Reserve scaling back its bond purchases, also known as tapering. Look what happened to the 10-year Treasury: #-ad_banner-#Over the summer, yields nearly doubled, shooting from 1.6% to almost 3%. Naturally, this caused plenty of chaos in the bond market. However, chaos always brings opportunity. When it comes to adding a fixed-income component to an investor’s asset allocation and providing an above-average income stream, preferred stocks are one of the most useful tools available. Preferred stocks are typically classified as part of the issuing company’s debt structure. However, unlike bonds, preferreds are issued in face values smaller than $1,000 and are junior to bank loans and bonds. Preferreds are, however, senior… Read More

It goes without saying that the stock market is an extremely competitive arena. Money management firms spend millions to find profitable niches, strategies and tactics. Where short-term trading is concerned, the advent of high-frequency trading has made speed more important than ever. This niche has become so competitive that some firms have relocated their operations to their stock exchange’s facilities to get their orders to the exchange before the competition’s.#-ad_banner-# Fortunately, long-term investors don’t have to concern themselves with the arms race in high-frequency trading. While large firms fight it out for microsecond advantages, long-term investors can exploit time-tested niches. Read More

It goes without saying that the stock market is an extremely competitive arena. Money management firms spend millions to find profitable niches, strategies and tactics. Where short-term trading is concerned, the advent of high-frequency trading has made speed more important than ever. This niche has become so competitive that some firms have relocated their operations to their stock exchange’s facilities to get their orders to the exchange before the competition’s.#-ad_banner-# Fortunately, long-term investors don’t have to concern themselves with the arms race in high-frequency trading. While large firms fight it out for microsecond advantages, long-term investors can exploit time-tested niches. One such niche outperformed the S&P 500 Index by an average of 13% from January 1995 to July 2012, including a period of 45% outperformance between 2000 and 2005. However, the success of this strategy hasn’t captured investors’ interest. One reason, to be frank, is that it’s a little boring in comparison to other investing strategies. Another is that after the catalyst for this strategy occurs, shares often trade lower for the first month or so. A third is that this strategy was decimated during the 2008 financial crisis. These factors appear to work in unison to spook many investors… Read More

During bull markets, often the best way to trade is to go with the momentum. That’s usually the route I like to take, but there’s another way to trade that can also net you big results. That is to identify sectors that have come under fire that have the potential to move much higher — that is, value trades. The multi-national industrial mining sector fits this bill. One great way to invest in this sector is with iShares MSCI Global Metals & Mining Producers (NYSE: PICK). This exchange-traded fund (ETF) holds the biggest industrial mining companies, including BHP Billiton (NYSE:… Read More

During bull markets, often the best way to trade is to go with the momentum. That’s usually the route I like to take, but there’s another way to trade that can also net you big results. That is to identify sectors that have come under fire that have the potential to move much higher — that is, value trades. The multi-national industrial mining sector fits this bill. One great way to invest in this sector is with iShares MSCI Global Metals & Mining Producers (NYSE: PICK). This exchange-traded fund (ETF) holds the biggest industrial mining companies, including BHP Billiton (NYSE: BHP), Freeport-McMoRan Copper & Gold (NYSE: FCX) and Rio Tinto (NYSE: RIO). Although PICK is down 12% year to date, the fund has seen some strong buying during the past four months, rising 27% since its July 5 low. The reason for the buying in the industrial metals sector of late is partly due to the general rebound in global stocks, but it is also partly due to the global economic recovery thesis centered around China. Solid GDP data and good manufacturing numbers out of that country, one of the biggest consumers of industrial metals such as iron… Read More

Carl Icahn, Henry Kravitz, Sumner Redstone and a host of other financial pros make their money by using complex strategies that reduce risk while maximizing potential gains. However, there is one strategy that towers above all others when it comes to minting members of the billionaires’ club.#-ad_banner-# The best part is that today, every investor can participate in this strategy — without the need for hundreds of millions of dollars, inside information, or a seat at the corporate roundtable. This strategy, which was very popular in the 1980s, has enjoyed a dramatic resurgence during the bull market of the past… Read More

Carl Icahn, Henry Kravitz, Sumner Redstone and a host of other financial pros make their money by using complex strategies that reduce risk while maximizing potential gains. However, there is one strategy that towers above all others when it comes to minting members of the billionaires’ club.#-ad_banner-# The best part is that today, every investor can participate in this strategy — without the need for hundreds of millions of dollars, inside information, or a seat at the corporate roundtable. This strategy, which was very popular in the 1980s, has enjoyed a dramatic resurgence during the bull market of the past several years, thanks to huge corporate cash reserves, low interest rates and volatility, and the increasing importance of cutting costs and boosting growth to keep shareholders happy. That’s the funny thing about bull markets: No matter how high the market climbs or the returns earned, it’s never enough to gratify investors. That’s why this strategy has become so popular that more than $650 billion of transactions have taken place this year alone, with the biggest deals creating headlines around the world. The strategy I’m talking about is mergers and acquisitions, or M&A. You may have heard of the Warren Buffett-led… Read More

Derivatives are simply investments that trade based on the price of something else. In other words, the price of a derivative is “derived” from something else. #-ad_banner-# Often that something else is an index, a stock or an exchange-traded fund (ETF). While derivatives can be customized and complex, there are also “plain vanilla” derivatives, and this variety includes ordinary call options and put options on stocks and ETFs. An option is a derivative because the price of the option is based on the price of the underlying stock or ETF. Options give… Read More

Derivatives are simply investments that trade based on the price of something else. In other words, the price of a derivative is “derived” from something else. #-ad_banner-# Often that something else is an index, a stock or an exchange-traded fund (ETF). While derivatives can be customized and complex, there are also “plain vanilla” derivatives, and this variety includes ordinary call options and put options on stocks and ETFs. An option is a derivative because the price of the option is based on the price of the underlying stock or ETF. Options give buyers the right to buy (in the case of a call option) or sell (with puts) a stock or ETF at a predetermined price (the strike price) before the option expires. Options are typically used to leverage a move in an underlying stock or ETF, and they can potentially be used to provide portfolio insurance for individual investors. In order to understand the costs and potential benefits of portfolio insurance, we will use an example. Imagine an investor with an account worth $10,000 invested entirely in the stock market. If the investor believes that stocks are… Read More

If you were to cross a Bugatti Veyron with a McLaren F1 — two cars capable of reaching 60 mph in less than 3.2 seconds — you’d get a super machine able to leap tall buildings in a single bound. #-ad_banner-# You get the same power when you take two high-flying sectors of the market and combine them into a single exchange-traded fund (ETF). That is the true beauty behind ETFs: the ability to invest in very precise niches of the market that, when multiplied, result in head-turning returns. Today, let’s look at a combination of small caps with health… Read More

If you were to cross a Bugatti Veyron with a McLaren F1 — two cars capable of reaching 60 mph in less than 3.2 seconds — you’d get a super machine able to leap tall buildings in a single bound. #-ad_banner-# You get the same power when you take two high-flying sectors of the market and combine them into a single exchange-traded fund (ETF). That is the true beauty behind ETFs: the ability to invest in very precise niches of the market that, when multiplied, result in head-turning returns. Today, let’s look at a combination of small caps with health care and technology. Small-caps stocks have been on a tear and are poised to continue their streak for some time longer. The iShares S&P Small-Cap 600 ETF (NYSE: IJR) hit an all-time high Oct. 29 and is up about 28% year to date. In fact, this index of core small caps is up 36% over the past 12 months, 50% over the past two years and 130% over the past five, outpacing the Dow Jones Industrial Average on all fronts. As Bloomberg reports, in three out of the past four periods in which small-caps trounced the Dow so dramatically, equities… Read More