The Bull Hunters Guide

Hello fellow Bullhunters

This post will be the final excerpt from The Bullhunters Guide to the US Stock Market so I would like to hear your thoughts and what you have learned from this experience. I know for myself that it has been very helpful in understanding the stock market in a bit more depth. Although the ebook is a summary of the goings on of how the stock market works and how a share is valued, this tool is useful for the newbies starting out in the stock market and wanting to develop a trading system that will work for them. So let’s look at Intrinsic Value and Time Value and how that factors in to trading options…


Intrinsic Value and Time Value

Options are valued based on intrinsic value and time value. Intrinsic value is the positive difference between the stock’s current price and the option’s strike price. Since the strike price in the above example (previous post - Trading Options) is higher than the underlying stock, the options have no intrinsic value (intrinsic value cannot be negative). Therefore all $0.10 of the option’s value is time value.

As options get nearer to expiration, their time value erodes. Its like making a bet that you will run a marathon in the next 365 days. By day 100, it is less likely you will do so, but not entirely impossible. By day 364, the odds are you are not going to do it. The same is true of stock options, so as the expiration draws nearer, investors are willing to pay less and less for the time value.

But imagine Microsoft hit $35 a share on December 26. Now the $32.50 calls would have $2.50 of intrinsic value plus some time value. Instead of exercising your options - which would require you to buy 3,500 shares of stock - you could simply sell your option to a market for $250-plus per contract.


Options Go the Other Way Too

In addition to calls, there are also puts. Puts give you the right to sell a stock at a specified price within a specified period of time. This way, you can make money when a stock goes down, without taking on the risk of shorting.

For a real mindbender, you can short a put contract. This means you are selling the right to sell a stock at a certain price within a certain period of time. Confused yet? Don’t worry. In this book, I only want to cover the basics of the stock market. We can talk about derivatives in more detail in another book. Stay posted.

More Bullhunter on the Way

So there it is. The Bullhunters Guide to the US Stock Market first installment. While boring at first glance, following the financial markets can be the most entertaining hobby in the world. Once you understand the basics and begin to dig in, it is like following a sport that has no off-season.

I wouldn’t mind some feedback just to know how you are traveling and how you are getting along with the stock market and whether you are trading. How have we helped you with this blog and the ebook download. The reason I ask is because in order to give you what you want specifically, I need to know what it is.

To Your Success

Angela Recchia
Graduate Support
Universal Wealth Creation © 2004 - 2007

Social Bookmarks:

5.45am Tuesday morning, I jumped in the 4WD with my 2 sons and drove to Streaky bay in South Australia.  We made it as far as Caiguna on the Nullarbor Plain, approx 1300km down the road.  Another 1000km was left to drive the next day.  Last time I made this trek was 12 months ago and I have quite fond memories of my stock market experience at the time. It was the best dollar return I’ve had for less than 1 week trading with options.

Let me share it with you…

It was May 2006 and I was driving to SA for the first leg of the “I Fired My Boss” 2006 tour.  When leaving Bunbury, I located 4 high probability trades to place.  They where bought calls on NCM, BHP, NWS and a 4th one I cannot recall.  All trades where placed on the ASX, australian stock market and to a total value of circa $9,000.

I placed the trades, jumped in the car and proceeded to drive across one of the longest road streches in the world.  When I reached a place called Madura Pass, I called my broker (Angus Knight) and asked where the market was at.  The response was “up 100 points” or something to that effect.  At this point my interpretation of the charts, over the phone, didn’t require me to take any action. 

Action would mean:

Taking a trading profit, or..

Making a donation to the market (taking a trading loss)

Imagine the onlookers faces as my wife, Cherie and I did an Irish jig with the kids on the middle of the Nullarbor.  At this stage we had made approx $5,000 and all we had been doing was drive across our beatiful country.   Imagine the carefree attitude I had when filling the fueltank at 1.85 per litre:

Cool! Petrol is expensive.  That means my shares have gone up!

The next day we arrived at Streaky Bay. It was Friday afternoon. The market was closing in 1 hour and I hopped on a computer to check the market again.  My trades had gone up from $9000 to $24,000 in only a few days.  I applied a fast bout of Technical Analysis and determined that now was a good time to cash in some trading profits.  $15,000 profit in a handful of days: Thank you for coming!

This years cashflow trades for the trip?

Well.  Besides my longer term trades, I’m doing no options trading right now.  No renting shares. No writing puts. Last year I was chasing a dollar and cashflow. This time, I didn’t even think about placing any trades as I was pre occupied with other stuff.  However, I can tell you this much: 

As much as it was a fantastic experience and a real good story to tell, making $15,000 in less than a week, it is an even better experience not needing the money and not even caring about placing trades for a quick profit. 

For those of you that know me, you know how well my websites are going.  Even though I make more out of the stockmarket than I ever did in a JOB, the internet puts it all to shame.  It’s a great life and I’m loving every moment of it. It’s where my passion is.

Now, in the tradition of Jamie McIntyre of 21st Century Academy, I’m modelling his attitude of having one week off every 4 weeks. I started with this trip to SA.  Some time away will help me further develop my Emotional Intelligence and some wealth strategies.  Imagine how many MP3’s you can listen to in a 46 hour driving round trip of the Nullarbor Plain?

The kids didn’t have to put up with Financial Intelligence tapes.  They watched DVD’s all the way and I didn’t get one:  Are We There Yet?

Until next time, I wish you Universal Success

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2007

Social Bookmarks:

In The Bull Hunters Guide to the US Stock Market, I primarily explain the mechanics of the stock exchange. Without going into to much detail and confusing newbies to the stockmarket, my aim is to entertain while still providing insight into the workings of the Stock Market.

So far the feedback has been good. My intension is to do a second book, expanding further into the Dow Jones and more advanced mechanics of the stock market.

So how about talking about generating serious cashflow using the 30 stocks of the Dow Jones stock index?

Getting into the popular terms of Renting Shares and Selling Insurance over stock are a couple of topics I’m seriously considering. These terms are of course better know in stockmarket speak as Writing Covered Calls and Writing Puts.

Are these the sort of things you’d like to read about?

1. Do you like the idea of having more detail about the 30 stocks in the Dow Jones?

2. How about if I show Real Life Examples of Renting Shares over various stocks in the Dow Jones?

3. What if I used a whole years data, showing the good and the bad trades!

4. Could you get excited about learning some great cashflow strategies?

5. Is this something you could benefit from learning?

All suggestions are appreciated. Please submit as many ideas as you can in the comments section after this article. The more feedback you give me, the better the next book will be when it arrives in your inbox a few months from now.

What would you like the next Bull Hunter Book to be about?

Regards

Sean Rasmussen
Universal Wealth Creation © 2004 - 2007

Social Bookmarks: