The “buy-and-holders” just got killed again…

With the market’s plunge last week, many regular shareholders have seen their portfolios awash with more red numbers.

Tough break for them. But savvy investors know that this offers a great chance to value shop and buy back in. And one of the most effective and profitable investment strategies that you can use in a market like this is one that generates income… no matter what happens.

This can be done by selling put options.

So let me show you a little more about this options trading strategy – how it’s done and how easy it can be for the average investor.

Busting The Myths of Selling Put Options

If you’ve gotten this far, you’re on the right track. Many investors hear the words “put options” and “selling” in the same sentence and head for the exit. Too complex. Too confusing. And downright scary. Or so the myth goes.

Let’s bust that myth right away: Selling put options isn’t difficult to execute. In fact, it’s actually easier than most investment methods.

When you place a put-sell trade:

• You don’t have to buy a stock.
• You don’t have to sell a stock.
• It’s got nothing to do with bonds or currencies.
• And there are no complex parameters to the trade.

Here’s the deal: You’re either going to make money, or you’ll end up investing in a company at a ridiculously low, discounted price.

What you try to do is buy stocks for the price you want. And just for trying, you get paid. Think of it like Priceline.com – where customers name the price they want to pay for airfare and hotel rooms – except with stocks. The biggest difference is that you’re getting paid for your time.

It works in rising markets… falling markets… flat markets… any market. It’s a regular stock-buying strategy with a profitable twist upfront. Here’s how you can use it…

Selling Put Options In Four Easy Steps

Have you ever wanted to buy a stock but passed because the price is too high for your liking?

Most ordinary investors would simply sit on the sidelines and wait for the price to fall to a better level. But smart investors know they can still get in the game by selling a put option on it instead.

Here are the four steps you need to take when selling put options:

• Pick your chosen stock.
• Decide on a lower price, where you’d feel comfortable buying the shares.
• Check the put option prices for that level. For example, if the stock is trading at $20 and you want to buy it for $15, you’d select the $15 strike price and an expiration month.
• You then sell those put options. Since each stock option contract is equivalent to 100 shares, you’d sell five put option contracts if you want to buy 500 shares.

When you enter a trade like this, you’re obligated to buy those shares at your stated strike price by expiration. Keep that in mind when selling the contracts, so you don’t overextend yourself. For example, if you sell one $15 put option contract, you’ll need to have $1,500 on hand by expiration day to cover the cost of the shares ($15 x 100 = $1,500).

Note: You don’t need to have all that money on hand while the trade is open. Your broker will only ask you to keep a fraction of that amount available – known as a “margin requirement.” Consider the trade as a “buy now, pay later” type of deal. You’re putting off paying for the stock until a certain scenario occurs (see below).

In exchange, the option buyer will pay you for each contract you sell while you wait. This is known as a “premium” and is deposited into your trading account. (The farther out the expiration date, the more money you’ll receive when selling the option.) Meanwhile, ordinary investors are waiting for the price to drop without collecting any money.

Okay, then what happens?

On options expiration day, you’ll have two scenarios when selling put options:

• If Your Stock Trades Below $15: For every put option contract you sold, you’ll be obligated to buy 100 shares at $15 each. This is what you wanted – a 25% discount from its $20 price when you executed the trade. Plus, you get to keep the money that the option buyer paid you. The shares will appear in your account on the Monday after option expiration. It will now be a regular long position and you must manage it as you would any other stock. That’s why it’s important you pick a price at which you’re comfortable holding the shares.

• If Your Stock Trades Above $15: The put options will expire worthless. You won’t get to buy the shares at your chosen price, but you will get to keep the money for selling the contracts, just for trying.

So regardless of what happens, you keep the money from selling the put options upfront. Now let’s bust another myth…

But Isn’t Selling Put Options Riskier Than Buying Shares?

Selling put options is no riskier than buying shares outright.

• When you buy shares, the risk is that you lose your entire investment.
• When you sell a put option, you’re obligating yourself to buy shares, too… but at a much lower level than the current share price.
• And if you do end up buying the shares, your risk will be the same as a regular shareholder.

The difference is that nobody pays you cash to buy stocks outright – but they do when you sell put options. Selling puts is just another way to invest in the options market.

While some brokers see selling put options as riskier than stocks (and require that you keep more capital reserves on hand), your risk only kicks in if you’re obligated to buy the shares. And even then, you’d simply be long on the stock, with the same risks as with any stock holding.

Perhaps the biggest obstacle for most investors is that you need to be “approved” to sell puts. This means that you must apply through your brokerage. It’s a simple process , similar to filling out forms when you opened the account.

If you have questions, contact their customer service department and they can help.

An Important Note on Selling Put Options

Many folks don’t know about option trading strategies like put-selling, and Investment U will be working hard to bring you more like this in the coming weeks and months. But we wanted to give you an example of what’s working in the market right now.

It’s certainly not as risky or complicated as some people would have you believe.

And for those of you who know Lee Lowell, you’ll know he’s not a gambler. In fact, he’s one of the most conservative, risk-averse investors I know.

That said, selling puts isn’t necessarily for everyone. You’ll need to check with your broker to make sure you’re approved to trade options – and specifically, selling put options.

Source: Selling Put Options: How It’s Done & How Easy It Can Be

But what is bad for the economy and terrible for the market does not have to wreak havoc on your portfolio. By employing the right strategies, you can multiply your wealth safely in just about ANY market. In fact, there are a number of investment strategies that have never been as safe and profitable as they are today.

Here are several strategies you should strongly consider right now:

• Selling Covered Calls

Selling (also called “writing”) covered calls is one of the safest ways to generate extra income from your portfolio, especially in today’s market. Due to the fear and volatility in the market, option premiums are much higher than their historical averages. As a “seller” of options, that works in your favor. This is a strategy that could easily and safely generate 20% annual income.

Selling covered calls is probably the lowest-risk form of options trading. In fact it is less risky than simply buying stocks. The strategy involves buying a stock and then selling someone else the right to buy it from you in the future. For this privilege, the option buyer pays you cash up front, thus lowering your cost basis for the shares you purchase.

Here’s a hypothetical example of how it works…

Let’s assume stock ABC is trading for $10 and the July call options on this stock, with a strike price of $11 are selling for $1.00. To initiate a covered call, let’s assume you purchase 100 shares of ABC. Then you sell one call option on ABC, representing 100 shares. You would immediately receive $100 in your account, therefore your cost basis on this transaction is $900 ($1,000 – $100).

There are three possible outcomes to this trade:

• If ABC is trading for any amount over $11 at the option expiration date, the buyer would exercise his right to purchase the stock from you for $11. In this case, you would make 22%, based on your cost basis of $9.

• If ABC is trading for less than $11 but greater than $9 at expiration, you would still own the shares at a gain, and you would pocket the cash you received up front. You could then start the process all over, to generate another round of income.

• If ABC is trading for less than $9 at options expiration, you would be holding the shares at a loss. But the income you received up front would offset the loss. And you could repeat the process again to recoup some of the loss and generate additional income.

The key to this strategy is to write covered calls on stocks that you would like to hold for the long term. These could be stocks you already own or new positions. The stocks you select should be those that you believe to be very safe and cheap. And you should employ this strategy at a time when option premiums are large – as they are now. Ideally, you will be selling options that expire within three to five months.

When the strategy works out in your favor (and it will if you employ the rules above), you can generate better than 20% annualized income on a conservative portfolio of stocks. On the occasions when the stocks fall below your cost basis, you would own a stock that you wanted to own anyway… but at a much lower cost than if you had just purchased the shares.

By writing covered calls on high quality dividend-paying stocks you can get an extra bonus. Best case scenario, you will keep the option premiums, you’ll keep the dividends, and you’ll keep the stock too!

• Selling Puts

Selling puts is another strategy that can generate an annualized yield in the neighborhood of 30% – 50%. When executed properly, a put selling strategy can be highly profitable and carry very low risk. This is especially the case in a market like we have today, where fear is high and option prices are elevated.

You can also sell puts with the goal of generating income. In this case, you want the put to expire worthless so you can capture the option premium. To accomplish this goal, you sell puts that are out of the money on stocks you believe to have very little downside risk… and which you would be willing to purchase at a much lower price, if necessary.

Here is an example…

Let’s assume that stock XYZ is selling for $13. We’ll also assume the stock has already fallen a significant amount (not too hard to find in today’s market) and you believe the rock bottom liquidation value of the company is $8.

With the stock trading at $13, the July $10 put option is well out of the money and selling for $1.50. You decide to sell these puts. When the trade closes, $150 will automatically show up in your account for every contract you sold.

The only way you could lose money on this trade is if XYZ trades below $8.50 ($10 – $1.50) on or before the option expiration date in July. That is a 35% drop from the depressed level the shares of XYZ are trading today.

And in the unlikely event that you were obligated to purchase those shares, you should still come out okay. After all, the liquidation value of the company is $8 a share and your cost for those shares is just $8.50. So the downside risk should be very small.

Remember, this strategy should be employed on stocks where you believe the downside risk to be minimal. And you should only employ this strategy on stocks that you would be GLAD to own at a price below where you sell the put.

You should also have a reasonable understanding of the true valuation of the company. For this reason, I would exclude most financial and insurance companies from this category, as very few people (including the insiders) have any idea how much these companies are worth or what is on the books.

In today’s market, you can expect a well executed put selling strategy to generate an annualized yield of 30% to 50% with limited risk. Selling puts in this environment and following the rules above can put big odds in your favor.

By selling put options, you could buy super-high quality stocks as much as 50% cheaper than today’s historically low prices. PLUS you’ll get cold, hard cash deposited in your account instantly… adding to your annual income!

Where You Can Learn These Strategies… and a Lot More!

By no means are these the only strategies that can be highly profitable in today’s market. We are also seeing a once-in-a-generation opportunity in high quality corporate bonds. Invest in the right bonds and you can see significant capital gains plus income… without taking stock market risk.

This is also an excellent market for shorting stocks. But you should not go out and just short any stock. The inevitable bear market rallies could put you in the poorhouse. The lowest risk opportunity is to short those stocks that are almost certainly going to zero – companies with an impaired business model and a massive debt load. There are dozens, if not hundreds of these companies out there.

Now for some even better news: you don’t have to do all of this on your own…

In June, at the Turnberry Isle Resort & Club in Miami, Investor’s Daily Edge and Mt. Vernon Research have asked nine top investment experts to share their number one strategy and top recommendations that are making a fortune in today’s market. Of course, all of the above topics will be covered.

To learn more about this conference and the once-in-a-lifetime opportunities we’ll be discussing, click here.

Source: Two Strategies Perfect for Today’s Market

This from Taipan Daily

At market extremes (where fortunes are most often won and lost), the wild outliers get closer to reality. Such is the case with the “mega-mall ghost town” scenario.

In the past two weeks, the financial press has been chock-a-block with headlines like “Commercial Property Loses Shelter” and “Struggling Retailers Press Struggling Landlords on Rent.”

“U.S. retailers are expected to begin a wave of post-holiday bankruptcy filings,” the Wall Street Journal writes, “altering the landscape at malls and on main streets across the country.”

One mall store manager – who requested his name not be mentioned – told the WSJ he expects more returns than sales on some days. “We’ll have $5,000 in sales and $7,000 in returns,” he said.

It should be no real surprise, then, to hear that the Consumer Confidence Index just hit an all-time low of 29.4.

As the Trader’s Narrative blog points out, “That’s lower than the 2002 bear market bottom. Lower than the confidence level in 1991. Lower than the early 1980s. Even slightly lower than darkest days of the 1970s bear market.”

And finally, at risk of beating the point into the ground with a flathead shovel, take a look at this Financial Times chart.

That chart only goes back to 1993. If you were to extend it many decades further, you would find that the latest number for U.S. retail sales was the worst in sixty years.

What to Do?

Some say these numbers are so bad they can only get better. I’m not sure I agree. While certain areas of the market are set for a strong bounceback in the coming months, the U.S. consumer’s wallet probably isn’t one of them.

The dire state of the American retail landscape highlights the importance of being selective, on both the investing and trading side, as we head into the post-apocalyptic landscape of 2009 and beyond.

A key task will be sorting out two kinds of stocks: those that are truly once-in-a-lifetime cheap… and those whose consumer-linked business models are “permanently impaired.”

On the trading side, one go-to idea is shorting RTH:AMEX, the Retail Holders ETF.

This is a trade that could make some money, but I can’t help but think there are better ways to play it.

I’m not crazy about being short Wal-Mart (NYSE:WMT), for one – the single-largest component of the RTH index. True, WMT recently gapped down big on lower-than-expected sales… but the Beast from Bentonville has a price to earnings ratio of less than 15, and is more likely to prove a long-term winner than loser in the great retail shakeout.

Another point in Wal-Mart’s favor: they sell stuff that people need to buy. U.S. consumers aren’t about to stop ponying up for toothpaste and diapers and socks, no matter how gloomy the big picture gets.

Why not instead, then, cast a bearish eye on a company like Amazon.com Inc. (Nasdaq:AMZ), which still supports a price-to-earnings multiple of 34 and sells “discretionary” type items (books, CDs, videos, etc.) that people don’t really need?

Sacred Growth Cows

Shorting is a bit like value investing in reverse. As a value investor, you want to find companies that are cheap relative to assets, cash flow and long-term prospects for growth.

As a short seller, you want to hunt down companies with the opposite profile… valuations that are inflated, prospects that are over-hyped, and multiples that don’t make sense.

Zach and I jokingly refer to these crash-and-burn candidates as “sacred growth cows.” When investors fall in love with a concept stock or a great growth story, they often find it hard to let go of their rosy outlook… even when market action suggests strongly that they do so.

I asked Zach if he had any “sacred growth cows” on his radar screen for Death Cross Trader. As usual, he was happy to share a few names off the top of his mental rolodex. Here’s a sample of what he came back with.

1) Blue Nile Inc. (Nasdaq:NILE). Blue Nile is “an online retailer of diamonds and jewelry” with a roughly $300MM market cap.

The idea of buying your sweetie a piece of bling via the World Wide Web never made much sense to me. Per Zach, the NILE business model makes even less sense in this harsh climate.

“The stock still trades in the 20 to 24 times earnings range,” Zach notes, “because investors believe the rich will still buy diamonds.”

Leaving aside whether that’s true, Zach points out that it isn’t even relevant to NILE’s true business model. “These guys actually cater to the Joe Sixpacks of the world… the guys looking to spend $5,000 or less on an engagement ring. Ticket prices are falling and lower sales figures are coming in, yet NILE is still priced like a growth stock.”

2) Under Armor Inc. (NYSE:UA). Under Armor is a wannabe Nike, selling “branded performance products for men, women and youth.” It currently sports an approximate $1 billion market cap.

“Under Armor’s growth areas,” Zach notes, “are supposedly in running shoes, basketball gear, and other categories that could all be seriously hampered by consumer spending cutbacks. Under Armor made its name in football gear, but football season is now over. The company should have seen its best quarter in Q408, but they’re reporting weakness instead.”

Another big problem for Under Armor is the bruising nature of the competition. As times get tougher, the real Nike – sporting a P/E of less than 13 and a market cap of $23 billion – could put the big hurt on its tiny rival.

“It’s pretty scary to see analysts ratchet down earnings expectations by 20% overnight,” Zach says. It might not be the last time for UA.

3) Mystery Coffee Producer.

Zach didn’t want me to reveal the third name because he is working it up for a Death Cross Trader short.

This high flyer, soon to crash and burn, has a market cap of $840MM and an eye-watering P/E of 39 times earnings… pretty hard to justify in a consumer armageddon environment. The company makes its beans (bad pun intended) in the “specialty coffee industry,” selling more than 100 varieties of “whole bean and ground coffee selections.”

I don’t know about you, but it seems intuitive to me that with consumers retrenching, fancy-dancy coffee could well be one of the first items to go.

“To get a roadmap of how I expect this one to trade,” Zach says, “simply pull up a weekly chart of Starbucks (Nasdaq:SBUX). Consumers are fickle, and these hoity-toity coffee guys are a fad.”

“Fad stocks are fun to be long in bull markets… and they’re even more fun to be SHORT in bear markets when they drop like rocks.”

Source: A Heaping Helping of Retail Fail

This from Today’s Financial News:

If you want to make money in today’s market with its super-efficient flow of information, you need advanced insight. Remember, this is not your father’s buy-and-hold stock market.

Sure, crunching a few ratios and digging into a company’s balance sheet and income statement will give you a strong head start, but if you want to truly excel, you have to understand the psychological side of Wall Street.

For a perfect example, check out the headlines surrounding Pfizer (NYSE:PFE). The company went out of its way to tell reporters this morning that it is open to acquisitions of its rivals, big and small, if they will lead to revenue growth.

Well, duh. What company is not open to acquisitions if it will increase shareholder value?

There is much more to this story. The headlines are only an invitation to dig deeper.

No need for a crystal ball

Fortunately, you do not need an ultra-secret Wall Street decoder ring to figure out what is happening. All you need is an understanding of signaling theory.

The notion behind the influential theory is the idea of asymmetric information. There are unequal flows of knowledge in the investing world. In other words, a company’s executives and insiders know more about the company than even the most well-connected investor.

Signaling is a very important variable for dividend investors. A company’s willingness to expand or continues its dividend “signals” that the top brass has confidence in its future earnings potential.

But what is going on when a company’s CEO picks up the phone and tells the world it is willing to buy its rivals? Unfortunately, it is not a positive signal.

Pfizer’s performance over the past five years has been less than stellar. An investor that put $100,000 into the company in January of 2004 would have a position worth just $50,000 today (excluding dividends).

The company, and its Big Pharma kin, have had more than their share of troubles recently. Research and development costs are soaring, insurance companies are tightening the healthcare noose and generic competition is heating up. That means revenue growth is stagnant and margins are decreasing. It is not a recipe for shareholder profits.

Read between the lines

By telling the world his company needs a large acquisition, Pfizer’s CEO, Jeff Kindler, is signaling that 2009 will not look any different. The only way the mature company will grow is by purchasing the growth.

That means shareholders are going to take a hit and possibly a sizeable one, at least in the short-term. Smart investors will heed the warning of today’s signal and take appropriate action.

As I write, shares of Pfizer are closing in on the $19 mark, nearly 20% off their 10-year low reached in late November. The recent surge could be setting investors up for a drastic near-term reversal, especially if more merger news hits the press.

Basic investors should do their best to avoid a position in Pfizer. Investors with a bit more tolerance to speculation should take a look at a short position on the equity or some mid-term put options. As this story develops, Pfizer’s woes will only increase.

Keep an eye out for more news on the situation. Pfizer may be a bad choice, but the companies in its acquisition sights will be good investment targets.

I am positive we will have more “signals” in the very near future.

Source: Pfizer shouts its message to the world

Let me begin by saying that options are tools, nothing more. Tools can be used to build something. Or they can be used to tear something down.

The key is to understand and master your tools and, more importantly, not destroy wealth when your intention is to create it.

Let’s start by defining our terms…

The Difference Between Put & Call Options?

Here are the differences between put and call options:

• A put option gives the owner the option of selling a stock at a specific price, again known as the strike price, over a given period of time.
• A call option gives its owner the option to buy a stock at a specific price, known as the strike price, over a given period of time.

The key advantage of buying options is that it allows you to control a large amount of stock for less money than it would cost you to buy the underlying shares.

• If the stock moves up rapidly in a short period of time, your percentage gain in the call options will be much larger than if you had bought the shares.
• By the same token, if the underlying stock suddenly falls off a cliff, your percentage gain in the put options will be much larger than if you had shorted the shares.

Under normal circumstances, however, few stocks move sharply in the near term. They tread water. They bounce around in a narrow range. Or they trend gently higher or lower.

When you have rare periods of extreme volatility – like the one we’ve experienced over the last three months – options become pricier, making it more difficult to score easy gains.

But the bottom line is this: The overwhelming majority of options expire worthless. Most people trading call and put options lose money.

Why Options Are Riskier Than Stocks

Why are options so much riskier than stocks?

• With stocks, time is your ally.
• With options, time is your enemy.

Built into the price of every option is a time premium. As time passes, that premium diminishes.

To make big money in puts or calls, the stock doesn’t just need to move in the right direction. It needs to make a sharp move in the right direction in a short period of time.

This is no easy trick.

And it’s exactly why selling options – collecting those premiums – is a conservative strategy, while buying options – paying premiums – is an aggressive one.

In the world of options, buyers are gamblers. Sellers are the casino.

Why Investors Continue To Use Option Trading Strategies

If the odds are long against long-term success with buying options, some might ask, why do so many investors continue to use option trading strategies?

Here’s an analogy …

If you’re a decent golfer playing a short par five, you may be tempted to go for the green on your second shot and give yourself a putt for an eagle.

The golf course architect knows this, of course. So what does he do? He puts a pond in front of the green and sand traps on both sides.

The smart thing – the percentage shot – is to just lay-up in front of the water and then chip on for a shot at a birdie.

Yet, often as not, the weekend golfer pulls out his three-wood or long iron and goes for the green. He realizes that his ball will probably end up in the cat box or the drink, but he goes for it anyway.

Why? Because if he pulls it off and makes an eagle, it will be the best thing he did all week. In short, he’s willing to risk it.

If it doesn’t pan out, well, what the heck, he knew the odds when he stepped up to the ball.

I guess what I’m saying is we’re all big boys and girls. Options are a “no-tears” investment. If you don’t understand this, you shouldn’t be trading them.

Puts and calls are neither good nor bad. They are simply tools.

Give a man a chainsaw and he’s likely to do some good work with it. Give it to a six-year-old and someone is likely to lose an arm.

Govern yourself accordingly.

Source: The Truth About Options: Buying Puts & Calls On Stocks

Today, the situation for the VIX is looking quite intriguing. The highly watched index found the momentum to drop below its 50-day moving average. The VIX is currently indicated at 58.93, just below the moving average’s level slightly above the 60 level.

This is only the second time since the end of August the index has traded below its 50-day average. The last time was in late November and the trend lasted for just a few trading sessions. If today’s drop below the resistance level stands up, it will be an indicator of positive action to come.

What does it mean?

As a derivative indicator, the VIX is simply a mirror of what the overall market is doing. By itself, it has no inherent fundamental value. When it declines, it simply tells investors that volatility in the overall market is on the decline.

For average buy-and-hold investors, the VIX has little importance other than telling them the volatile, nausea-inducing ride that is the equities market is beginning to calm. But for options investors, a falling VIX proves that options prices are falling and the spreads between put and call premiums has narrowed significantly. After all, that is what the indicator is designed to tell us.

For the past few weeks, it has been difficult to implement many traditional options plays because implied volatility (the premium added to an options selling price) has been so high. An underlying stock needed to make a sizeable move for the play to pay off. But now that volatility is on the decline, options prices will drop and the profit potential will return. In other words, we can get back to traditional options strategies.

One company worth watching is Arena Pharmaceuticals (NASDAQ:ARNA). In case you missed the news from this $289 million biopharmaceutical this morning, the company just announced clinical testing results for its closely watched obesity-fighting drug, lorcaserin. Of the 469 obese patients in the trial, a statistically significant proportion of them lost more than 5% of their body weight when compared to testers that received a placebo treatment.

While the drug still has a way to go before reaching the market, this is good news for the company in a highly competitive market. So far today, share price has risen by over 10%.

Options investors looking for a trading idea should look at the company’s January 5.00 calls (UGGAA).  Trading for just $0.15, these options have a strong shot at profits as more investors learn of the good news surrounding this company.

As the VIX surpasses its recent lows, more and more options trading opportunities will arise. Keep your eye out for high-potential plays and take advantage of the market’s latest trends.

Source: The VIX declines, Arena Pharmaceuticals (NASDAQ:ARNA) surges

Not every auto manufacturer wants charity, you know.

While Detroit’s CEOs were up on Capitol Hill whining and begging like street junkies for a mere $25 billion to tide them over until spring, salesmen from Bentley, Lamborghini and Maserati were working the floor of the Los Angeles Auto Show like madmen in an attempt to stem their stateside sales losses.

Now don’t let their $500 suits and smooth manners fool you. These guys are hurting too. Lambo’s down 15% (pretty much a match to the whole biz’ 2008 decline). And Volkswagen AG’s Bentley (VLKAY) group has slipped a whopping 30%.

No Pain Here

Perhaps the folks who buy BMWs and Mercedes are up against it right now. But this class is truly different than the rest of us.

While we might go so far as to flaunt a new E-Class as a token of our survival in dark times, to them, it just seems imprudent – or maybe even rude? – to show up at the club in a sparkling new “Azure” or “Reventón,” when the board has just voted to fire the gardener’s assistant. Better to make do with last year’s. After all, it’s not like the leather seats are soiled or such.

Still, despite these losses, these giants of gentility will not beg, not from you and not from Washington either. Aston Martin’s Ulrich Bez has even reputedly been overheard admonishing his people to actively pursue buyers with tales of grandeur (and maybe even hints as to a Vantage’s potential increase in value during these rough times).

The Man Who Saved the Planet

But of one thing you can be sure: the above persuasive admonitions do not come with discounts or “deals” of any sort. Aston Martin may indeed be staring at a 20% shortfall in 2008. But they do not beg.

Speaking of folks who could afford one of Mr. Bez’ prize stallions, those fine folks who own Major League baseball teams have been flying in to New York City for their quarterly confab. Commissioner Bud Selig thought they might be entertained (and possibly informed) by a guest speaker, so he asked his old friend Paul Volcker to stop by.

The once (and perhaps future?) Fed Chairman is a favorite of many of the league’s owners. Tampa Bay Rays owner Stuart Sternberg (who knows Volcker from the days when he was on the board of the American Stock Exchange) has described him as “the man who saved the planet.”

Eight More Years of Drought

Unfortunately, Mr. V. had nothing but dour pronouncements for the group. As Lew Wolff (owner of the Oakland A’s and Chairman of Sunstone Hotel Investors) put it, “He was pretty much alerting us that this is not over yet.”

On second thought, perhaps it is impolitic (or even imprudent) for gentlemen of this high caliber to be seen browsing in the Bentley show room. The League is reputed to have brought down some $6.6 billion in 2008. No on-the-record official, however, wants to guess whether 2009 will be anywhere near as kind.

Now, I am not a member of that rather exclusive club. (At best I occasionally kick in to help fund our local little league franchise.) Nor am I “The Hero of 1979.” But I will gladly hazard a guess as to how long this recession will last: Eight more years.

The Printers’ Devil (Look It Up)

Sound a little draconian? Don’t let it worry you overly much. First off, there’s not a damn thing you can do about it. Secondly, it’s not like the stock market will tank the entire time.

In fact, I do believe that President-elect Obama will be able to re-inflate American blue chip stocks reasonably quickly. He had pretty much promised to print as many dollars as it will take to float the markets, secure the middle class, cure poverty (and cancer too for that matter), and fight a war or three on the side.

The real question won’t be whether this is achievable – with an infinite source of dollars it most certainly is – but whether it is sane.

No, wait, I am wrong.

Ride Both Sides of the See-Saw

Since there appears to be absolutely nothing we can do to stop this juggernaut, perhaps the only real question is: “How do we make so much money off it that they can’t possibly tax and inflate away our whole net worth?”

The answer is smile, nod, appear to be a team player… and play puts and calls on the whole damn mess as the market inevitably twitches and writhes thousands of points each way.

Source: These Upper Crust Automakers Are Too Proud to Beg

This from The Smart Profits Report:

Believe me, there are times I’m sure the last thing you want to hear about is the stock market. Sometimes, that’s true for me, too! And I understand that with each day that your portfolio losses grow, that’s when panic and/or depression sets in. When I was a rookie investor, I felt that way, because I didn’t think there was anything I could do.

But take it from me: At times like this, you must avoid panicking at all costs.

The thing is, markets are not one-way streets. And although it’s tough to argue that fact when we’re in a midst of an extreme correction that can only be compared to a 100-year flood, events like this can happen and we simply have to deal with it.

So this is not the time for a pity party or complaining. Here’s why…

Picking Through The Rubble For Strength And Extreme Value

While the stock market looks like a tornado has whipped through it over the past few months, lurking in the rubble are companies trading at valuations we haven’t seen for decades.

What’s more, they’re good, solid companies. True survivors that will allow you to recoup your losses as the market bounces back. And while it’s important to note that this may take some time, if you don’t have a horse in the race, you have no chance of winning, or even placing.

So where does that leave investors like you and me? What’s the best way forward?

An Investor’s Best Friend

Over the past few months, one investment strategy has risen to the top of the pack.

In fact, people whom I never thought would embrace it are now raving about its benefits. But understand that this is a strategy for those who can look beyond the hype and promise of home run, triple-digit return promises and instead towards something that many investors crave right now: Steady, consistent income.

And it’s a strategy that has taught me that there are ways to benefit from volatile and even falling markets – perfect for the current climate.

I’m referring to covered call investing.

In a nutshell, the strategy has two parts…

1. You buy shares of a company.
2. You sell call options against your shares.

What does this accomplish? First, it allows you to reduce your basis in the share price by collecting a special “dividend” (known as a premium) from the proceeds of the options that you sold.

In a flat or range bound market, you can do this over and over again, consistently reducing your original cost and setting yourself up for big returns in the future. Here’s how it works…

The Breakdown Of A Covered Call Trade

Let’s say you like General Electric (NYSE: GE).

You buy shares of GE at the current price around $17.

Against this position you sell GE $20 call options that expire in January 2009.

What this means is that you’re obligated to sell your GE in January at $20 if – and only if – the share price is over $20 at the time. If not, you keep your GE shares and any proceeds you received for selling the option.

If GE closes below $20 at expiration in January, you can sell another option and collect more money and continue to lower your cost. The caveat here is that if GE closes above $20, you still only get $20. The loss of the upside is the price you pay for the safety of lowering your downside.

The money you receive for selling the option(s) is called the premium. For example, if GE January $20 options are trading for $1, you will receive $1 for each share that you own and have sold an option against it.

Remember, options trade in contracts, with each contract equal to 100 shares. So if you own 100 shares of GE, you can sell one call option contracts. At $1 per contract, you will receive $100 – 1 contract x 100 shares per contract x $1.

So let’s say you sell just one call option against your 100 shares. With the $1 premium, your cost in GE is now $16 and your upside is $4 – the difference between the strike price and your cost. The extra dollar you picked up is like an extra 6% dividend ($1 divided by $16 (your cost).

But I like to put my own twist on this. It’s not exactly the conventional way of covered call investing – but it’s a big reason why my Strategic Income service has managed to notch up a 70% win rate over the past 11 years. Here’s what I do…

An Even Better Way To Trade Covered Calls

Instead of selling a call option above the price at which you buy the underlying shares, you sell it below that price.

My rationale is this: We’re essentially saying to the market that we want to own GE shares… but we want to own them at a lower price. Our price. Here’s how it works.

~ We buy GE at $17

~ We then sell the January 2009 $15 calls against the position.

For doing so, we’ll automatically get $2 back – known as the “intrinsic value” ($17 minus $15.) But we’ll get more.

For time and risk, we’ll pick up an extra $1 to make the total premium $3 ($2 intrinsic plus $1 for time and risk). That lowers our original cost in GE to $14.

So we stand to make $1 profit on the trade, as long as GE closes above $15 in January. If this happens, our return is about 7% in a couple of months – a full $2 below the current price.

You see how this works? We’re not betting that the shares are going higher… we’re actually saying that if they go nowhere or even lower, we still stand to make money as long as the shares are above our cost of $14 ($17 purchase price minus $3 premium received).

Three Chances To Win In A Market Like This? I’ll Take It!

The bottom line here is that we have three chances to win…

1. If GE shares rise, we win.
2. If GE remains flat, we win.
3. If GE shares fall – but not under $14 – we win.

I don’t know about you, but I like those odds – especially in a market like this.

But what happens if GE slides under $14?

Well, since our cost was lower than the $17 we paid for the shares, there is an excellent chance that we’ll be able to sell more options and reduce our cost even further, while increasing our upside potential.

Source: The Best Investment Strategy For A Market Like This… The Truth About Covered Call Investing

This from Taipan Daily:

Damien Hirst creates grotesqueries. Grand statues of pregnant mothers’ intestines… drowned sheep in tanks of blue water… corpses in full wedding regalia lying under a table.

His conflations of birth, love and death have made him the darling of the art world in recent years. As aberrant as it might seem to place a diamond-covered human skull in the lobby of an office building, this sort of odd behavior is actually quite the norm at the peak of an inflationary bubble.

After all, it makes about as much sense to pay $3 million for a “Neimanesque” painting of four rotting skulls as it does to pay $3 million for a two-bedroom condo on Manhattan’s lower West Side. Why the heck not, when the money itself has become as meaningless as the art’s supposed aesthetic or the cachet of the address.

A Chill Breeze…

And then a crash blows through, bringing a bracing chill to the public’s fevered conscience. Suddenly, the idea of spending dollars as fast as one can possibly manage seems remarkably foolish.

And so it is that last week, auctioneers to the overly rich, Phillips de Pury and Co., were completely unable to peddle off Hirst’s “Beautiful Artemis Thor Neptune Odin Delusional Sapphic Inspirational Hypnosis Painting.” In fact, an additional 20 lots enticed no bids whatsoever – this despite all the champagne staffers plied attendees with.

This sudden grim turn is hardly unique to P.d.P’s. Christie’s reports that it was unable to move an equally grotesque self-portrait by Francis Bacon that had been expected to pull down some $40 million.

The Awful Grip of Reality

If I could tell you that this is all simply symptomatic of a long overdue upper-class comeuppance, I surely would. Unfortunately, while this crash may have started in Downtown Manhattan, it is now spreading its clammy fingers throughout the global economy, sparing neither high nor low.

Just last week I was perusing my Bloomberg feed and came across an article describing the alarming increase in shoplifting and pick-pocketing… by elderly Japanese retirees. According to Japan’s Ministry of Justice, the number of petty thefts by this suddenly-bereft cadre have doubled in 2008.

Chuo University’s Masahiro Yamada credits the spike to anxiety over increasing lack of assets and a failing social net. And this in a society famed for its familial loyalty and massive savings rate! One can only imagine the sort of future we have to look forward to here in the States.

How to Turn Wall Street’s Pain Into a Quick 146% Gain!

While current market conditions are treacherous for naive “buy and hold” investors, a small group of smart folks are converting the market slide into gains of 251%… 307%… even 387%… week in and week out… no matter how far the Dow falls. Here’s how you can join them — free — for a full six months!

High Anxiety

We are certainly becoming ever more anxious. Recent polls put the current White House occupant’s approval rating in the low 30s. And The Reuters/University of Michigan Consumer Sentiment Survey is pegged at a 28-year low for the second month in a row.

And for those of you who dismiss such surveys as “utterly disconnected from reality,” I must point out that this one has found alarming traction in the “real world.” Retail sales put in a record breaking collapse in October. Nor was this 2.8% drop but so unique. In fact, sales have fallen in each of the past four months, the first such instance of prolonged retail failure since we began keeping track in 1992.

Needless to say, many of the retailers that comprise the Standard and Poors Consumer Discretionary SPDR (NYSE:XLY) have recalled their more optimistic guidance of a few short months ago, and are now finally warning of hard times ahead.

Capitalizing Fear and Pain

For some, this admission is rather late in coming, seeing as how the XLY has already cut itself in half over the past five months. Fortunately, regular readers of both this and my WaveStrength Options Weekly (WOW) column have been completely prepared for this blow.

Here, I have begged folks for the better part of a year to protect themselves by purging these stocks from their portfolios, while in WOW, I armed readers with put contracts against the weakest players that have garnered gains of approximately 1,873%.

It is NOT too late to do either. First of all, the retail stocks as a whole could still easily cut themselves in half again, as we move through the most “anxious” holiday shopping season in recent memory.

Beyond that, you can capitalize this loss simply by buying a mid-dated, at-the-money put against the XLY itself. My calculations show that a contract of this nature can expect to gain $50 for every additional dollar the retail ETF loses.

Heck, with the gains you might make, you could even buy that dreadful Hirst painting of the skulls and all. And probably at a marked discount to boot.

Source: High Anxiety Strikes New York, Tokyo – and Your Local Mall

More from Investment U:

Did you know that you could get paid to buy stocks at the price you want? That’s right, someone will actually hand you cash today for your promise to buy any stock you want at a cheaper price than where it’s currently trading.

All you have to do is decide which stock you want to buy, at what price you want to buy it, place the trade and collect your money.

Is this for real? Is this a joke? Is this legit?

This is absolutely for real, it’s absolutely not a joke and it is extremely legitimate. When was the last time someone gave you a wad of cash just for buying your favorite stock at rock-bottom prices? I’m guessing probably never, unless you’ve been using this very simple and safe strategy. I personally use it all the time, and many others “in the know” have been using as well.

Being a profesional options trader for the last 17 years, I’ve figured out exactly which options strategies are best to use at various times in different market environments. But one strategy can be used at almost any time…

It’s called “put option selling” and it’s a great way to get your hands on instant cash while at the same time giving yourself an opportunity to buy your favorite stock at a price much lower than where it’s currently trading.

Many people have never heard of, let alone used, this option strategy, but in my book there’s no better way to spend your time and effort while you wait for your stock to come down in price. I’m going to show you how you can use it to start collecting some of that cash that’s being handed out.

Being Paid to Wait With Put Option Selling

What do you usually do when there’s a stock you want to buy but it’s too expensive? I’ll bet in most cases, you enter into a limit-buy order for that stock using a price that’s lower than where it’s trading.

That’s how 95% of investors do it, so don’t feel bad.

But what are you doing in the meantime, while you’re waiting for the stock to drop in price? I’ll bet you’re just sitting there twiddling your thumbs and wasting valuable time. Has anyone given you cold, hard cash while you sit there and wait? Nope. Could you be doing something better with your time while you wait? Definitely.

Well, then put option selling might be right for you.

The actual mechanics of put option selling is quite easy:

• When you enter into a put-sell transaction, you’re entering into an obligation to buy the stock you want at the price you want.

• The person on the other side of the transaction, the put option buyer, pays you money today for your obligation to buy that stock sometime in the future at your price.

Put option selling is a bullish option trading strategy while put option buying is a bearish strategy.

When someone thinks a stock is going to fall in price, they can either short the stock or buy a put option contract. If they opt to buy the put option contract, they have to pay for it at the going rate.

That’s where you, the put option seller, comes in. Since you’re bullish, you want to sell that put option and the option buyer will gladly pay you the going rate for it. You keep that money, deposit it into your account and wait for option expiration to come. Easy enough, but let’s go over some specifics.

Options Trade As Easily As Stocks

Options contracts trade in the marketplace just as easily as stocks do. All options have “strike prices.” These are the levels in which you can buy or sell the stock if called upon to do so.

For example, IBM is trading at $90 currently. The options exchanges set up strike prices at various levels, like the $80, $90, $100, $120, $150, etc. You will buy or sell these strike prices at the going rate for each. An option like this, with say five months before expiration, could cost roughly $750.

All options have an expiration date that can span from days to years. When someone buys a put option whose strike price is set lower than the current price of the stock, it’s called an “out-of-the-money” put option.

Option contracts represent 100 shares of stock, so for every option you sell, you’re obligating yourself to potentially buy 100 shares of stock.

If someone chooses to buy the “$80 put option” today when IBM is at $90, they are speculating that IBM will fall below $80 per share by option expiration date.

Why would anyone want to sell IBM at $80 when it’s currently trading $90? Why don’t they just sell it now at $90? Good question. Probably because this person already owns IBM shares in their account and wants protection in case of a disaster.

If IBM happens to fall to $60 per share before expiration, the put option buyer can “exercise” the option and sell IBM at $80 even though it’s now trading at $60. This is how professionals “hedge their position.”

But what happens if IBM never falls to $80 by expiration? Well, the option expires worthless and the put buyer ends up losing the full $750. Who gets to keep that money? You, the option seller! It’s been estimated that up to 90% of out-of-the-money options will expire worthless, so in most cases, you’ll get to keep the money free and clear.

How to Buy Stocks for Less With Put Option Selling

Let’s say that you want to own IBM at $80 per share while it’s trading at $90. Instead of putting in that limit-buy order and waiting, you now know that you could sell the $80 put option and collect $750 for every option that you sell.

If IBM happens to end up trading below $80 per share at option expiration, then you’ll be called upon to buy your shares at $80 per share. That’s a good thing because $80 was the price you wanted to acquire it, and $10 cheaper than where it had been trading. Not only that, but someone paid you $750 extra per option just for your time and effort to buy your stock at your price.

Since options trade in 100 multiples, the option is quoted as $7.50. When it’s time to collect the money, you will receive $750 (100 shares x $7.50).

Even better, that $7.50 actually lowers your cost basis if you have to buy the stock. Even though you’re buying IBM at $80 per share, it’s really only costing you $72.50 per share when you factor in the $7.50 you received up front – an extra bonus.

Here’s a sample option chain for IBM options that expire in April 2009. The option chain lists all options activity and the options that trade for a particular stock and can be accessed online or from your broker.

Courtesy www.optionsxpress.com

You can see with IBM currently at $88.22 per share, the April 2009 $80 put option can be sold for $7.50 (splitting the bid/ask prices). So for every option you sell, you will instantly collect $750. If you sold 5 put options, you would receive $3750.

Put Option Selling & Option Expiration Day 2009

Here’s what goes down at option expiration day in April 2009:

1. If IBM is trading above $80 at expiration, then the options will expire worthless and you get to keep the full $750, no questions asked. You can then move on and do another put-sell trade for a future expiration period. Unfortunately, you will not be asked to buy any shares at $80. But at least you were compensated $750 per option for your time.
2. If IBM is trading below $80 at expiration, then congratulations, you will be called upon to buy the shares at $80 a piece. This is good news because $80 was the price you wanted to acquire them. Plus, you still get to keep the $750 paid to you on Day 1. The shares will show up in your account and you’ll be required to pay for the shares in full at that time. If you sold five option contracts, which is the same as 500 shares of stock, you will be required to pay out $40,000 at that time.

Just remember, you’ll only get to buy the shares if the price of the stock is trading below the strike price on expiration day

A few points to consider before implementing a put-selling plan of attack:

1. Only sell put option contracts on stocks that you want to own for the long haul, as you might be required to buy them at expiration. We use this strategy to acquire high-quality, top-notch stocks. Don’t sell put options on risky stocks that you have no intention of buying, or only do it just to receive the put option income.
2. You will need to have an option trading account set up with your broker in order to sell put options.
3. Only sell the amount of put options that correspond to your buy levels. If you eventually want to buy 500 shares, then don’t sell more than five option contracts.
4. You will need to keep a percentage of money in your account on hold at all times while the trade is active. This percentage is called the “margin requirement” and is set by your broker. In most cases, your broker will ask you to keep anywhere from 10% to 50% of the full purchase price of the stock while the trade is active. This is great, as you don’t need to keep the full $40,000 (in the IBM example) on hold at all times. This still allows you to use your funds for other trades

That’s it, put selling, in a nutshell. It’s an alternative way to acquire stocks while getting paid for your time and effort. You get to pick the stock you want and the price at which you’re comfortable owning it.

Just remember, stick with quality stocks that you want to keep for the long haul.

Source: Put Option Selling: Get Paid to Buy the Stocks You Want