The Bull Hunters Guide

Hello fellow Bullhunters

Well I am getting my head around all of this and we are nearing the end of The Bullhunters Guide to the US Stock Market which I know you have all downloaded by now. This resource will help you in your endeavour to comprehend what the stock market is about. Today we discuss some more about Options Trading and the reasons why some traders buy calls. So here is the excerpt…


Options Trading

On the other side of things are people who buy options. Someone buys calls because they believe a stock is going to go up. Imagine you were convinced that Microsoft stock was going to have a $5 per share gain by Christmas, but you only had $3,500 to invest. At $28.37 per share you could only buy 123 shares. If the stock went up to $33.37 as you expect, you would only make $635 in profit. Instead, you could leverage your money by buying calls.

You go online and discover that there are several expiration dates for Microsoft options - October, November, January, April. There are even options for January and April of the following year, but thats too far in the future for your Christmas strategy. You decide to look at the January and April calls.

You see that the strike prices are available starting at a low of $15 and going to a high of $37.50. Since Microsoft’s stock price is $28.37, any strike price under that would be considered in-the-money and any strike price higher than that would be out-of-the-money. The Options Clearing Corporation determines what strike prices are available for each stocks trading volume and current price.

You think that Microsoft is going to go up at least $5 to $33.37 so you look at the strike prices near that level. You see that January $32.50 calls are selling for $0.10 ($10 per contract) and April $32.50 calls are selling for $0.30. With your $3,500 you could either buy 350 January contracts or 116 April contracts. Obviously the April contracts cost more because there is greater chance that Microsoft (or any stock) will go up (or down) the longer the duration of the contract.

You decide to go with 350 January contracts. This gives you the power to control 35,000 shares of Microsoft - nearly $100,000 worth - for only $3,500. If the stock fails to reach $32.50, your contracts will expire worthless and you will have lost your whole investment. If it reaches $32.60 or more, you are guaranteed to break even. But the good news is that you don’t need to exercise your option (which would require upwards of $99,000) - you can simply sell it.


Trading for Cashflow

As you can see from this summary of buying calls, it can be a great way for you to produce a monthly cashflow with this trading strategy. It’s all about leveraging your money to make it work for you. So you could choose to make the small profit if the stocks go up or you can mulitply it to give you an even bigger return by buying calls.

This strategy is more advanced and to attempt it you need to be at least comfortable with writing covered calls and have your trading system and emotional intelligence in place to be able to deal with the outcomes of your trades. It is not for a beginner and you can build up to this slowly and gain confidence with every step you take in educating yourself.

Some of the graduates of the Jamie McIntyre homestudy have been very successful in learning how to rent shares (in Jamie speak) and have progressed to this strategy by learning how to cover themselves if things don’t go their way and the market happens to drop. Education for Life is the what Jamie teaches in learning how to become financially free and setting your own goals on how to achieve this.

To Your Success

Angela Recchia
Graduate Support
Universal Wealth Creation © 2004 - 2007

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I am going straight into another excerpt from The Bullhunters Guide to the US Stock Market today discussing the renting shares or more commonly known as the Covered Calls strategy.


Covered Calls - Renting Shares

Say your Grandma left you 10,000 shares of Microsoft. You held it for a few years and the stock basically did nothing. Microsoft doesn’t pay a very good dividend so you consider selling some of the stock to get some cash. But instead your broker recommends that you write covered calls. You say… What…

By writing a call you are selling an option on your stock. An option gives its owner the right, but not the obligation, to take action. In the case of calls, it gives the holder of an option contract the right to buy 100 shares of Microsoft at $30.00 per share any time between now and November.

Just as with stocks, you don’t really sell an option contract directly to another investor, but instead to a market or specialist. He then sells the contracts to individual investors who want them. Of course there is a spread between the bid and ask of an options contract as well.

Keeping with the Microsoft example, you could sell the contract mentioned above with a strike price of $30, expiration in November for $0.05 a share. Since each contract is for 100 shares, this would equal $5. That’s not a lot of money so you decide to sell 100 contracts, which covers all $10,000 of your shares (100 contracts*100 shares each). In this case you get $500 no matter what. Microsoft’s current stock price is $28.37 but if it reaches $30 or more, your contracts will probably be exercised. This means that you will be obligated to sell all 10,000 shares for $30 each - even if they reach $35, $50 or $100 per share. If instead the stock stays around $28.37, goes down or goes up but not to $30, the options you sold will go unexercised. In this case, you will keep the $500 and all of your shares.

When you write calls for which you own the underlying stock, they are said to be covered calls. In this example you owned 10,000 shares of Microsoft so you could write 100 covered call contracts. If the contracts were exercised, you had the stock to sell.

A more aggressive (and very dangerous) strategy is writing naked calls which is when you sell contracts for the stocks that you don’t have. If the contracts get exercised, it’s up to you to go out in the open market and buy the stock.


Trading for Cashflow

In the above excerpt, remember that Sean wrote the eBook last year so the prices and months that he mentions is because of this reason. This is only a brief summary of the renting shares strategy and it is a great one to use when you are trading for cashflow. Remember that with any new strategy that you take on , it is wise to paper trade for a minimum of three months until you get the hang of how it all works.

Many of you requested that Sean put some real live renting share trades in his next eBook as you are eager to learn the strategy. This Sharelord® strategy will be discussed in more detail in the next installment to the Bullhunters Guide. I trust that the articles here are of use for you in your endeavour to master the US stock market.

To Your Success

Angela Recchia
Graduate Support
Universal Wealth Creation © 2004 - 2007

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Hello fellow Bulhunters

Looking back at the last post, I sincerely hope that you have sorted out the Fundamental Analysis and the Technical Analysis and know how to use both to your advantage. Reading charts is something I love to do and when the various patterns show up, looking for entry and exit points can be fun when you know what to look for. Of course trading is a lot more than just looking at charts so today we will be discussing an advanced strategy known as going short or shorting a stock. More from the Bullhunters Guide eBook…


Going Short - The Napoleon Dynamite Example

When you own a stock, you are said to be long it. The owner of 100 shares of Wal-Mart would be long 100 WMT. When you sell a stock you own, you cancel out your position. You are no longer 100 WMT nor are you short of any shares. But did you know that you can actually sell a stock that you do not own.

Imagine your friend got an autographed picture of John Heder who is the star of Napoleon Dynamite, right after the movie was released on DVD. A few days later you noticed that Heder’s autograph was selling for $500 on eBay. You ask your friend if you can borrow it for a while and he says yes. So you take Heder’s autograph and sell it online for $500.

Six months later Heder has faded back into obscurity. Your friend asks you if he can have his autograph back and you say sure. You go online and see that eBay is flooded with Heder autographs and you buy one for $10. As soon as you receive it in the mail you return it to your friend. He doesn’t even know that you made $490 in the process.

In Wall Street gibberish, you shorted the John Heder autograph. Instead of the old adage, buy low, sell high, you sold high and then bought low. You can do this with stocks and the good news is that you don’t even have to ask permission.


Great Trading Strategy

Well who would have thought. Thanks Sean for bringing this to our attention. How many of you out there even knew this existed. It is another way to bring in some cashflow although it may take some time to actually see the cash depending on how volatile the stock is.

We are powering through The Bullhunters Guide to the US Stock Market and next we will look at an introduction to trading options. That’s right renting shares will be the topic of my next article so stay tuned and subscribe to the feed so you don’t miss out on any of these strategies.

To Your Success

Angela Recchia
Graduate Support
Universal Wealth Creation © 2004 - 2007

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Hello fellow Bullhunters

The Bullhunters Guide to the US Stock Market has certainly been an eye opener for me and I think we got more than what we bargained for when Sean wrote this eBook and offered us a free download of it.  Although the information provided us is short and sweet, it is all very useful information which gives us a look behind the scenes at the goings on of the US Stock Market.

Today we will be discussing some other ways that you can make money from the stock market so here is the next excerpt…

Conservative stock investors like to buy undervalued stocks and hold them until they are fairly valued (or even overvalued).  Many times, these investors concentrate on dividend-paying stocks. 

Buy and hold proponents feel that the market is often irrational in the short-term.  Good stocks can go down; bad stocks can go up.  But in the long run, they believe that the cream rises to the top.  Buy and holders aren’t concerned with the day-to-day fluctuations of their portfolio.  They take their time before buying a stock and by the time they pull the trigger, they’re confident that they’ve made the right decision.  When their stocks suffer substantial losses, they often buy more.  This is called buying on the dips.

By buying on the dips, investors lower their cost basis.  For example, if an investor bought 100 shares of Ford for $10 and then bought another 100 at $9, his basis would be $9.50 per share - ((100*$10)+(100*$9)) / 200.  When the stock hit $11 he would have a profit of $1.50 per share instead of just $1.00 per share.

Not everyone agrees with the buy and hold strategy.  Aggressive investors think that they can maximize their profits by trading more frequently.   They see no reason to hold a stock when they think it is going to go down.  Why not just sell it, and then buy it back when it has bottomed.

Buy and holders think this sort of philosophy is conceited.  They say that frequent traders are trying to outsmart the market which is something that cannot be done on a consistent basis.  Buy and holders also point out that the commissions associated with frequent trading can take a big bite out of profits.  But aggressive investors still say that their way produces better results.

These two strategies are from one end of the scale to the other.  They speak for themselves.  So whether you want to make a quick profit or be on the conservative side and buy and hold, there are pro and cons for both.  It also depends on if you are building a portfolio or trading for cashflow.  This is something that only you can consider and also be aware of whether these strategies fit into your trading system.  They may or may not and there are other strategies to consider like renting shares for cashflow which is more conservative than day to day trading.

We are not done with the Bullhunters Guide yet.  There is more on the way so keep an eye out until next time.

To Your Success

Angela Recchia
Graduate Support
Universal Wealth Creation © 2004 - 2007

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So today’s little excerpt is about the DJIA Tech Stocks.   Remember when the big thing was to buy tech stocks.  Well lets find out a little more about them here.  If you are new to the Bullhunters Guide blog, I am dissecting the eBook so that we can  understand the workings of the US stock market a little better.  The Bullhunters Guide to the US Stock Market is downloaded hundreds of times every week so get  your free copy now just to your right of this screen so that you have your own copy to read whenever you like.  Let’s continue…

Hewlett Packard, IBM, Intel and Microsoft are the pure tech stocks in the Dow.  AT&T and Verizon are telecommunications companies.  While all of these companies benefit from a strong economy, corporate customers often invest in technology and telecommunications in the period directly before a recession.  This makes tech stocks somewhat counter-cyclical.

Technology stocks are also more individualistic than most stocks.  For example Hewlett Packard (HP) has a strong direct competitor in Dell.  While what’s good for GM is typically good for Ford, HP and Dell go in opposite directions.  The same can be said for Intel and its prime competitor, Advanced Micro Devices (AMD).

As one of the largest companies in the world, Microsoft is often the creator of cycles.  Every time ‘Mr. Softy’ (as it is known on Wall Street thanks to its MSFT ticker symbol) releases a new operating system, millions  of businesses must upgrade.  This alone causes a bullish tech cycle, with many business and individuals  purchasing new computers and other hardware.

So as we can see from this little excerpt, the tech stocks perform best when the economy is in the later stages of the business cycle which are the predictable cycles of economic activity that repeat over time. The five stages of the business cycle are growth, peak, recession, bottom (or trough), and recovery.  They would be great on your watchlist even if you don’t trade them to give you some idea of how the market is performing.

Let me know how this is helping you by leaving me a comment.  Yes you have to register and it only takes less than a minute to do.   As I mentioned in the last post, I was happy to hear form supporters of the Bullhunter blog by emailing me and leaving me messages to say that we are providing some good information here.

Sean Rasmussen has been working on the next instalment of the Bullhunters Guide and you have been waiting patiently for it.  In it he will discuss the renting shares strategy that Jamie McIntyre teaches in the 21st Century Academy homestudy and how to apply it to the US stock market.

To Your Success

Angela Recchia
Graduate Support
Universal Wealth Creation © 2004 - 2007

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