Being prepared for a bear market takes many forms. In some cases, it can become an obsession. Some investors always seem to be looking for a market top and forecasting a major decline only days away. While there have been two significant bear markets since 2000, these investors have been mostly wrong for many years. Investors worried about the next bear market should remember that SPDR S&P 500 (NYSE: SPY) has only suffered three drops of 20% or more since it began trading 20 years ago. There have only been five declines of 20% or more since 1982… Read More

Being prepared for a bear market takes many forms. In some cases, it can become an obsession. Some investors always seem to be looking for a market top and forecasting a major decline only days away. While there have been two significant bear markets since 2000, these investors have been mostly wrong for many years. Investors worried about the next bear market should remember that SPDR S&P 500 (NYSE: SPY) has only suffered three drops of 20% or more since it began trading 20 years ago. There have only been five declines of 20% or more since 1982 in the S&P 500. Bear markets are rare, and always preparing for a rare event can be very costly.#-ad_banner-# Rather than making investments right now to prepare for the next decline, you could simply make plans for what you will do to protect wealth when the market starts to fall. There are a number of indicators to define a bear market, but I think the simple 10-month moving average (MA) is an effective tool. (See This Chart Shows Where the Bull Market Will End.) That indicator gave a sell signal less than 7% below the high… 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… 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

Today, I want to show you a chart every investor in America needs to be aware of.  Not only does this simple graph answer one of the biggest questions facing U.S. investors today, but it could also be painting a picture regarding the state of the U.S. stock market right now.  It’s our hope that after seeing this chart, you’ll have a better understanding of what the investing future might look like… and how you can start preparing your portfolio for it.  Take a look…  The chart above shows the yield on Japanese Government 10-Year bonds… Read More

Today, I want to show you a chart every investor in America needs to be aware of.  Not only does this simple graph answer one of the biggest questions facing U.S. investors today, but it could also be painting a picture regarding the state of the U.S. stock market right now.  It’s our hope that after seeing this chart, you’ll have a better understanding of what the investing future might look like… and how you can start preparing your portfolio for it.  Take a look…  The chart above shows the yield on Japanese Government 10-Year bonds since 1986. As you can see, after falling sharply in the 90s, bond yields haven’t topped 3% since 1995 in Japan.  What do Japanese bond yields have to do with the U.S. stock market? Let me explain…  Like the U.S., Japan has seen its share of “asset bubbles.”  #-ad_banner-#In the late 1980s, a bubble in the Japanese housing market caused real estate prices in Tokyo to surge 180%. Stocks also soared, with the Nikkei 225 (Japan’s equivalent to the S&P 500) rising 132% in five years.  But shortly thereafter, the Japanese economy came crashing down. Between 1989 and 1992, Japanese… Read More

Income investors often set a minimum dividend yield as a requirement for their buy decisions. That eliminates a number of stocks from consideration. This requirement could also increase market risk since it tends to limit investments to just a few sectors. A diversified portfolio should hold more than large drug companies and big-name tech stocks that are no longer growing rapidly but are paying large dividends. Covered calls can increase the number of stocks that income investors can select from and help them diversify their portfolio without sacrificing income. A covered-call strategy involves selling… Read More

Income investors often set a minimum dividend yield as a requirement for their buy decisions. That eliminates a number of stocks from consideration. This requirement could also increase market risk since it tends to limit investments to just a few sectors. A diversified portfolio should hold more than large drug companies and big-name tech stocks that are no longer growing rapidly but are paying large dividends. Covered calls can increase the number of stocks that income investors can select from and help them diversify their portfolio without sacrificing income. A covered-call strategy involves selling call options on a stock you own. Selling calls generates instant income known as a premium. A covered call allows you to participate in the upside of the stock, while the income will help offset any downside. This is an excellent strategy for income investors to consider, and I want to use an example of a trade I like right now to illustrate the amount of income that is possible. Arkansas Best (Nasdaq: ABFS) is a trucking company that has been around since 1935. It operates about 3,700 tractors and 20,000 trailers in long-haul and local pickup… Read More

It was another perfect month for Income Trader’s Amber Hestla… A few weeks ago, three more “put” options Amber sold for her Income Trader portfolio expired worthless (when a put expires worthless, the seller keeps the premium they collected from selling the option as a 100% profit). The most recent victories mark Amber’s 26th, 27th and 28th (out of 28) profitable closed trades. If you’re a regular StreetAuthority reader, you’re likely familiar with Amber’s put-selling strategy. If not, you can read our previous issues explaining it in detail here and here.  In short, Amber collects extra investment income… Read More

It was another perfect month for Income Trader’s Amber Hestla… A few weeks ago, three more “put” options Amber sold for her Income Trader portfolio expired worthless (when a put expires worthless, the seller keeps the premium they collected from selling the option as a 100% profit). The most recent victories mark Amber’s 26th, 27th and 28th (out of 28) profitable closed trades. If you’re a regular StreetAuthority reader, you’re likely familiar with Amber’s put-selling strategy. If not, you can read our previous issues explaining it in detail here and here.  In short, Amber collects extra investment income by selling put options on stocks she thinks are undervalued. These “Instant Income” checks, as she calls them, usually range anywhere from $100… to $150 … to even $200. (And this is just for one put option. Many of her readers scale up to collect even more income.)  #-ad_banner-#Most of the time — 93% in Amber’s experience — the option expires worthless and the money she collects is hers to keep as pure profit. But if you read the above paragraphs closely, you’ll notice I said Amber’s current track record implies she’s yet to close an unprofitable trade… So if… Read More

Over the long term, value stocks tend to be winners. There are a number of ways to define value.  My preferred approach is to use the PEG ratio, which compares the price-to-earnings (P/E) ratio with the earnings growth rate. A PEG ratio of 1 indicates the P/E ratio is equal to the earnings growth rate and the stock is fairly valued. Value stocks have PEG ratios less than 1. Value investors generally need patience to succeed. It can take time for the stock to deliver gains for a variety of reasons, but within a few years, value investing usually delivers… Read More

Over the long term, value stocks tend to be winners. There are a number of ways to define value.  My preferred approach is to use the PEG ratio, which compares the price-to-earnings (P/E) ratio with the earnings growth rate. A PEG ratio of 1 indicates the P/E ratio is equal to the earnings growth rate and the stock is fairly valued. Value stocks have PEG ratios less than 1. Value investors generally need patience to succeed. It can take time for the stock to deliver gains for a variety of reasons, but within a few years, value investing usually delivers results. Options are usually thought of as short-term trading tools, but there are some options that expire in years rather than weeks or months. These options are called LEAPS, which stands for Long-Term Equity Anticipation Securities. Currently, there are now LEAPS available that will expire in January 2015 and January 2016. Although they are long-term investments, LEAPS are the same as traditional options in every other way. Buying LEAPS allows you to participate in market gains with limited risk. A call option gives the buyer the right to buy 100 shares of stock at a predetermined… Read More

Don’t get me wrong, I closely follow what Warren Buffett says and does with his money. And yes, he’s one of the most successful investors in history — his returns over more than 60 years have made him the fourth-wealthiest person on the planet. He is rarely wrong, but Buffett is not perfect, and a recent comment he made is, in fact, incorrect. Let me explain… The Wall Street Journal found that Buffett made $10 billion on the investments he made at the height of the financial crisis. With characteristic humility, Buffett said, “In terms of simple profitability, an average… Read More

Don’t get me wrong, I closely follow what Warren Buffett says and does with his money. And yes, he’s one of the most successful investors in history — his returns over more than 60 years have made him the fourth-wealthiest person on the planet. He is rarely wrong, but Buffett is not perfect, and a recent comment he made is, in fact, incorrect. Let me explain… The Wall Street Journal found that Buffett made $10 billion on the investments he made at the height of the financial crisis. With characteristic humility, Buffett said, “In terms of simple profitability, an average investor could have done just as well investing in the stock market if they bought during the panic period.” Actually, an individual investor could have done significantly better than Buffett. To earn $10 billion, Buffett invested $26 billion. His return on investment was about 38%, or 6.7% a year over the past five years. The Journal article says Buffett made his first crisis investment in April 2008 and added to his investments throughout the crisis. He made a number of deals late in 2008 and one as late as April 2009, after the stock market had bottomed. Assuming an individual… Read More

“Always be in a position to trade another day.” Those were some words of advice John Bollinger gave Income Trader’s Amber Hestla as they sat at a dinner table at Ted’s Montana Grill in Denver two weeks ago.#-ad_banner-# “John, like Amber, has made a career out of trading options. It was his initial work with options back in the ’80s that led him to develop the Bollinger Bands®, a technical indicator used by analysts the world over to identify when an asset may be overbought or oversold.” Given his contributions to the profession and his accomplishments as a… Read More

“Always be in a position to trade another day.” Those were some words of advice John Bollinger gave Income Trader’s Amber Hestla as they sat at a dinner table at Ted’s Montana Grill in Denver two weeks ago.#-ad_banner-# “John, like Amber, has made a career out of trading options. It was his initial work with options back in the ’80s that led him to develop the Bollinger Bands®, a technical indicator used by analysts the world over to identify when an asset may be overbought or oversold.” Given his contributions to the profession and his accomplishments as a trader, it’s safe to say John has had considerable success navigating the options market. So when Amber asked him what the key to that success has been, she wasn’t surprised to hear his answer: “Always be in a position to trade another day.” As any good trader or investor knows, you should always have capital preservation in mind when taking a position — especially when it comes to options. According to our research, nearly 80% of people who buy options lose money in the process. With those kinds of statistics, it’s not hard to see how some options traders can… Read More

Investors are getting nervous about the events going on in Washington…  As the United States shutdown continues to drag on, Congress is no closer to reaching a resolution than they were when the debate began. #-ad_banner-#While we think that the shutdown is nothing more than “political theater” and should have… Read More

Each week, my readers and I are generating an average return of 7.8% on margin. Here’s how you can do it too. For the seventh month in a row, the options trades I’ve recommended to my Income Trader readers have been profitable. How am I doing it? #-ad_banner-#You see, every time I make a trade, I get “Instant Income.” And when the options I use to make the trade expire worthless, that income is pure profit. My September contracts posted an annualized gain ranging from 25% to 98%. And, as I’ll explain in a moment, I think the future holds… Read More

Each week, my readers and I are generating an average return of 7.8% on margin. Here’s how you can do it too. For the seventh month in a row, the options trades I’ve recommended to my Income Trader readers have been profitable. How am I doing it? #-ad_banner-#You see, every time I make a trade, I get “Instant Income.” And when the options I use to make the trade expire worthless, that income is pure profit. My September contracts posted an annualized gain ranging from 25% to 98%. And, as I’ll explain in a moment, I think the future holds even higher returns for option traders. So, in case you aren’t familiar, how does my “Instant Income” strategy work? It involves one of the most misunderstood corners of the investing world. Many investors steer clear of options because they have a reputation for being risky, but that’s not always the case… While it is a fact that 80% to 90% of options buyers lose money, there’s a flip side… It means that 80% to 90% of options sellers (like me) make money. We have closed 25 options trades in Income Trader, and each one has been profitable. No trade has… Read More