Options, Futures & Derivatives

There was an important news story in the latter half of December that seems to have been overlooked by many news sources. Bloomberg’s headline was “Calpers Rings Pension Warning Bell.” The response has been muted, but the truth is this story will affect millions of retirees and taxpayers around the country. Bloomberg explained, “The chief investment officer of the $303 billion California Public Employees’ Retirement System just recommended that it lower its annual assumed rate of return to 7% from 7.5%, which will require workers to contribute more money to the plan.” That’s bad news for most pensions. This news… Read More

There was an important news story in the latter half of December that seems to have been overlooked by many news sources. Bloomberg’s headline was “Calpers Rings Pension Warning Bell.” The response has been muted, but the truth is this story will affect millions of retirees and taxpayers around the country. Bloomberg explained, “The chief investment officer of the $303 billion California Public Employees’ Retirement System just recommended that it lower its annual assumed rate of return to 7% from 7.5%, which will require workers to contribute more money to the plan.” That’s bad news for most pensions. This news presents a problem because many pension funds assume returns of 7.5% or more. Lowering the level of assumed returns means employees and taxpayers need to contribute more or benefits must be cut. The pension problem will obviously affects taxes, public services, schools, and a number of other areas. But I want to focus on a less obvious question, which is what an individual investor should expect to earn from their investments. We all need to ask ourselves if we can really do better than Calpers, which has access to the best investment managers in the world. I believe we can,… Read More

Construct a game plan, and I promise you will become a better investor.  With proper planning and perseverance, Profitable Trading’s Jared Levy became a successful trader at a young age.  After reading today’s essay, I hope you, too, will understand the importance of strategizing in order to maximize gains. By the time Jared was 18, he was making $600,000 a year. He was also one of the youngest-ever members of the Philadelphia Stock Exchange. But without goals and a roadmap with which to achieve them, Jared wouldn’t be where he is today.  Before I get into the details of how… Read More

Construct a game plan, and I promise you will become a better investor.  With proper planning and perseverance, Profitable Trading’s Jared Levy became a successful trader at a young age.  After reading today’s essay, I hope you, too, will understand the importance of strategizing in order to maximize gains. By the time Jared was 18, he was making $600,000 a year. He was also one of the youngest-ever members of the Philadelphia Stock Exchange. But without goals and a roadmap with which to achieve them, Jared wouldn’t be where he is today.  Before I get into the details of how Jared made so much money in the markets, please note that his investing strategy involves options, and options involve leverage.  Don’t let those words scare you. Jared’s approach is perfectly suited for beginners. In fact, I’d venture to say that they’re ideal for someone looking to cut their teeth in the investing world.  I know that sounds like a bold claim. Most investors think of options as an advanced, risky strategy. But this couldn’t be further from the truth.  Whether you want to dabble in options or not, I urge you to continue reading. What I’m about to explain will… Read More

I want to let you in on a secret… Wall Street doesn’t make most of its money from the stock market. While trading equities constitutes a large part of “big banking,” if you were to add the value of all the stocks in the world it would only come out $36.6 trillion. Don’t get me wrong, that’s a big number. It’s also one reason brokerage commissions have been the bread and butter of Wall Street firms since the New York Stock Exchange was founded in 1817. But the truth is there’s a much bigger market out there. This market, which… Read More

I want to let you in on a secret… Wall Street doesn’t make most of its money from the stock market. While trading equities constitutes a large part of “big banking,” if you were to add the value of all the stocks in the world it would only come out $36.6 trillion. Don’t get me wrong, that’s a big number. It’s also one reason brokerage commissions have been the bread and butter of Wall Street firms since the New York Stock Exchange was founded in 1817. But the truth is there’s a much bigger market out there. This market, which is valued at over $790 trillion, has grown exponentially since the Securities and Exchange Commission deregulated it in the 1990s. And the best part about this market is that it’s open to everybody. You don’t have to be a multi-million-dollar hedge fund manager or a Wall Street guru to take advantage of it. All you need is a brokerage account and a few thousand dollars to get started. —Recommended Link— Breaking Story: $4.3 Billion Awarded To Fight New Epidemic In an unprecedented move, the Department of Health and Human Services has just green-lighted $4.3 billion to fight this threat. Read More

Trading stocks involves a combination of paying attention to present factors while also forecasting the future. And the closer we get to the end of the year, the more emphasis people seem to place on what’s to come. We already have forecasts for 2017 from more than a dozen major Wall Street firms, which I’ve collected in the table below. So far, analysts are thinking “inside the box,” with all estimates relatively close to one another. Some firms provide an outlook for earnings per share (EPS) on the S&P 500 while others provide a price target on the index, with… Read More

Trading stocks involves a combination of paying attention to present factors while also forecasting the future. And the closer we get to the end of the year, the more emphasis people seem to place on what’s to come. We already have forecasts for 2017 from more than a dozen major Wall Street firms, which I’ve collected in the table below. So far, analysts are thinking “inside the box,” with all estimates relatively close to one another. Some firms provide an outlook for earnings per share (EPS) on the S&P 500 while others provide a price target on the index, with many firms providing both. For comparison, EPS is expected to be about $110 for 2016.   2017 Projected EPS 2017 Index Target   Upside Potential Bank of America $129.00 2,300   4.9% Barclay’s $127.00       Canaccord $130.00 2,340   6.8% Citi $129.00 2,325   6.1% Credit Suisse   2,300   4.9% Deutsche Bank $130.00 2,350   7.2 Goldman Sachs $123.00 2,300   4.9% Jeffries $131.90 2,325   6.1% JP Morgan   2,300   4.9% Morgan Stanley $128.70 2,300   4.9% RBC $127.00 2,350   7.2 SocGen   2,400   9.5% UBS $127.00 2,300   4.9%… Read More

Many investors are familiar with Buffett’s famous holding of Coca-Cola (NYSE: KO). He began buying shares in 1988. At the time, Buffett said he expected to hang on to this “outstanding business” for “a long time.” And over the ensuing years, he continued to build his position in the iconic company. Today, Coca-Cola is one of Buffett’s largest holdings. As of February 19, Berkshire Hathaway owned 400 million shares of Coca-Cola, valued at roughly $17.2 billion. That’s nearly a fifth of the company’s equity portfolio. But what many investors don’t know is the story about when Buffett used options on… Read More

Many investors are familiar with Buffett’s famous holding of Coca-Cola (NYSE: KO). He began buying shares in 1988. At the time, Buffett said he expected to hang on to this “outstanding business” for “a long time.” And over the ensuing years, he continued to build his position in the iconic company. Today, Coca-Cola is one of Buffett’s largest holdings. As of February 19, Berkshire Hathaway owned 400 million shares of Coca-Cola, valued at roughly $17.2 billion. That’s nearly a fifth of the company’s equity portfolio. But what many investors don’t know is the story about when Buffett used options on Coca-Cola. —-Recommended Link-— The Single Best Group Of Stocks To Buy NOW Since 1926, one collection of stocks has accounted for HALF of the S&P’s return — through every market environment imaginable. If you don’t have this group in your own portfolio, you could be missing out on the single best place to put your money this year and next. Learn which stocks can… That’s right. The king of buy-and-hold uses options. More importantly, it’s the way Buffett used options in the case of Coca-Cola — which happens to be a safe, conservative way — that too many investors… Read More

While there are no sure things in the stock market, there is one thing that’s almost certain: After stocks go up, bears start calling for a correction. You might remember the bears warning in April 2009 (shortly after the market bottomed) that the rise in stocks was a bear market rally and new lows were inevitable. The S&P 500 had jumped more than 15% in three weeks at that time and was overbought… according to the bears. Yet, stocks continued higher from there, embarking on a seven-year bull run. Fast-forward to present day, and after the S&P 500 shot up… Read More

While there are no sure things in the stock market, there is one thing that’s almost certain: After stocks go up, bears start calling for a correction. You might remember the bears warning in April 2009 (shortly after the market bottomed) that the rise in stocks was a bear market rally and new lows were inevitable. The S&P 500 had jumped more than 15% in three weeks at that time and was overbought… according to the bears. Yet, stocks continued higher from there, embarking on a seven-year bull run. Fast-forward to present day, and after the S&P 500 shot up 5.5% in less than a month’s time, the bears are once again calling the market overbought. Stocks being overbought means prices have gone up too far, too fast. There’s no precise definition of “too far, too fast,” but many analysts use indicators like the stochastics oscillator shown at the bottom of the SPDR S&P 500 ETF (NYSE: SPY) chart. When the market becomes overbought, a pullback is expected. That’s the theory anyway, but the chart shows why it doesn’t really matter if the market is “overbought.” Beginning in 2012, stochastics showed SPY was overbought for 42 consecutive months. Read More

While most polls got the outcome of the presidential election wrong, one prominent analyst called it exactly right.  On Oct. 31, Sam Stovall, chief investment strategist at CFRA, told CNBC that the S&P 500’s 2.2% decline from the end of July through the end of October indicated that Trump should win. Historically, a decline in stock prices over those three months has forecast a win for the candidate from the party that is not in the White House. Stovall noted this indicator was correct in seven of the eight past instances, a win rate of more than 87%. Statistically, you… Read More

While most polls got the outcome of the presidential election wrong, one prominent analyst called it exactly right.  On Oct. 31, Sam Stovall, chief investment strategist at CFRA, told CNBC that the S&P 500’s 2.2% decline from the end of July through the end of October indicated that Trump should win. Historically, a decline in stock prices over those three months has forecast a win for the candidate from the party that is not in the White House. Stovall noted this indicator was correct in seven of the eight past instances, a win rate of more than 87%. Statistically, you could argue the sample size is too small to be meaningful, but the logic behind the indicator is simple.  A rising stock market reflects a public that is most likely happy with the economy. Because they are generally satisfied with the way things are, they vote for more of the same. On the other hand, a declining stock market reflects pessimism. People are either selling or not buying stocks because they’re worried about the future. When they vote, they want a change. ‚ÄčThis indicator proved to be right once again, and even though we now know Donald Trump will be… Read More

Democrats, Republicans and independents woke up to some good news on Wednesday: The election is over. Of course, about half of country sees the outcome as bad news while the other half views it as good news. But most people are glad the campaign has ended.  From my perspective, at least the ads are done and now we can plan for the future without the uncertainty of an election looming over us. #-ad_banner-#Now that we know who will be in the White House next year, planning a strategy for the market might be fairly easy. The presidential cycle is a… Read More

Democrats, Republicans and independents woke up to some good news on Wednesday: The election is over. Of course, about half of country sees the outcome as bad news while the other half views it as good news. But most people are glad the campaign has ended.  From my perspective, at least the ads are done and now we can plan for the future without the uncertainty of an election looming over us. #-ad_banner-#Now that we know who will be in the White House next year, planning a strategy for the market might be fairly easy. The presidential cycle is a four-year pattern in the stock market that many analysts have identified.  There are variations of this pattern, with some analysts starting the cycle in January when the president assumes office while others believe it starts in November with the election. Despite these differences, there is a general consensus that the first two years of a president’s term are the most difficult for the market. Once in office, a new president must make a variety of tough decisions. There are almost always problems the previous president was unable to resolve. Then there are new problems that develop. The essence of the… Read More

In June 2014, I made a very successful bearish bet that Olive Garden’s parent company (a restaurant conglomerate) would falter under the weight of its aging brands and mounting competition.  While the initial trade worked well, things are much different 27 months later.  My idea for returning to this trade (albeit on the other side) came to me when a commercial pilot friend of mine (and fantastic chef) asked me to join him at Olive Garden a few weeks back.  I thought, “OK, this guy flies a Boeing 777, dines around the world weekly and wants to eat at Olive… Read More

In June 2014, I made a very successful bearish bet that Olive Garden’s parent company (a restaurant conglomerate) would falter under the weight of its aging brands and mounting competition.  While the initial trade worked well, things are much different 27 months later.  My idea for returning to this trade (albeit on the other side) came to me when a commercial pilot friend of mine (and fantastic chef) asked me to join him at Olive Garden a few weeks back.  I thought, “OK, this guy flies a Boeing 777, dines around the world weekly and wants to eat at Olive Garden?” I’m no restaurant snob, but the last time I frequented Olive Garden was the early ’90s when I was in school and could only afford the never-ending pasta bowl. But I humored him. —Sponsored Link— 32 Central Banks Scrambling To Prepare For December Announcement A new global law in effect this December could deliver an unexpected shock to the markets. No less than 32 major central banks are scrambling to prepare for the inevitable fallout. They’re shifting their money into one single asset that could explode in value, even as everything else plummets. $3… Read More

 Knowing that you timed a trade perfectly is one of the best feelings an investor can experience. Even if you’ve had scores of winning trades over the course of your trading career, the rush of making a great call never goes away. Today, I want to talk about a recent victory of mine — not to brag, but because there is something more I want to share with you. If you’re ready to take your trading to the next level, this could be a game changer. #-ad_banner-#Earlier this month, I warned traders to stay away from former market darling Chipotle Mexican Grill… Read More

 Knowing that you timed a trade perfectly is one of the best feelings an investor can experience. Even if you’ve had scores of winning trades over the course of your trading career, the rush of making a great call never goes away. Today, I want to talk about a recent victory of mine — not to brag, but because there is something more I want to share with you. If you’re ready to take your trading to the next level, this could be a game changer. #-ad_banner-#Earlier this month, I warned traders to stay away from former market darling Chipotle Mexican Grill (NYSE: CMG). The company has been desperately spending to restore its reputation and sales after outbreaks of E. coli and other food-borne illnesses at several locations sickened hundreds of people across the country. But a look at the company’s fundamentals (and its empty restaurants) made it clear that a turnaround had so far eluded the company. Despite this, shares were trading at an astronomical 115 times estimated earnings, the highest in the stock’s history. And with the company scheduled to report Q3 earnings on Oct. 25, my models were showing a high likelihood of an earnings miss. Sure enough, when… Read More