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Higher education in a land of equal opportunity is a dream for most students. Providing education to their children is what most parents? strive to do. Ample job opportunities exist but these go only to the educated. Getting educated can prove costly and only push you further into debt.

This is the reality of the education scenario in the states and in many parts of the world. Education is becoming costly due to increasing specializations, cost of laboratory and other equipment. Government is decreasing the subsidies and offering a solution: ?easier loan facility?. The result is student debt trap. The US department of education loans provides the much needed succor to families that aspire to educate their children. Private education loans compete with many governmental packages. Loans seem to be the recourse of many parents and students for undergraduate and graduate studies.

Under US law it is the parent?s primary responsibility to fund the education of the children till the age of 24. Easier loans are offered by the U.S. Department of Education’s Direct Loan Program. The Department of education provides funds for Stafford loans (for students) and PLUS loans (for parents). The Federal Family Education Loan program involves educational loans by Banks and private education loans as well. In addition to these loans for education other private loans are taken to provide for other needs; that increases the debt trap.

Only those with money can afford studies and this is the lesson that families and students are learning. One in every five graduates has to change career plans due to student debt. The wages for students who work part time and pay for their education has also decreased. After borrowing money to pay off the education students realize that the entry level salaries of graduates are too low to pay off the loans. The interest spirals and thus students end up paying twice or thrice the loan amount. Many cannot pay and land up in debt. A dream of upward mobility and of being in the elite of society has earned a student a life of debt and expenses to be paid to lenders.

Tips to avoid the debt trap

? Look carefully at various financial options and take education student loans only from Read more…

A stock option is defined as a right to buy or sell a stock at a stated price within a specified time. Buyers of stock options are called holders and those who sell options are writers. “Call” suggests an option contract giving the owner the right but not the obligation to buy a specified amount of an underlying security at a specified price within a specified time. “Put” refers to an option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time.

A stock option contract’s value or premium is decided by five factors: the price of the stock, the strike price, the expiration date, the cumulative cost required to hold a position in the stock (including interest plus dividends), and the estimate of the future volatility of the stock price. The price at which an underlying stock can be purchased or sold is called the strike price. A stock price must go above (for calls) or go below (for puts) the strike price, before a position can be exercised for a profit.

Stock options are a flexible way for companies to share ownership Read more…

Stock option trading can be considered as one of the most financially rewarding strategies one can become involved in. Sometimes, this becomes a destructive investment plan, though. Stock option is the ?right? to purchase a stock at a given price within a specified time. Stock option trading is largely dependent on certain factors, such as name of the associated stock, strike price, expiration date, and the premium paid for the option, plus the stock broker?s commission.

Stock option trading involves trading standardized options contracts, which are listed by a variety of futures and options exchanges. In the United States, there are presently six exchanges where stock options are traded, including four open-outcry marketplaces and two electronic marketplaces. The open-outcry marketplaces are Philadelphia Stock Exchange (PHLX), American Stock Exchange (AMEX) in New York City, the Pacific Exchange (PCX) in San Francisco, and the Chicago Board Options Exchange (CBOE). The International Securities Exchange (ISE) and Boston Options Exchange (BOX) are included in the electronic marketplaces. In Europe, the main futures and options exchanges are Euronext.liffe and Eurex.

Another option to trade a stock is the ?over-the-counter? (OTC) trading, which is the opposite of exchange trading occurring in option exchanges or futures exchanges. The OTCs are traded not in exchanges, Read more…

This is the continuing story of our two imaginary traders, Peter and Paul.

Peter is a professional trader, Paul is not. Peter has a tested, proven, written trading plan that he follows each time he enters a trade, Paul does not.

Peter and Paul have had vastly different Stock trading experiences – Peter has just made another substantial profit – this time from the Bear market, Paul has lost heavily.

A chance meeting with Peter’s group of friends one day at lunch launches Paul on a learning curve that will see him become a good trader, but not without some hard lessons along the way.

In discussing the different attitudes of our two hypothetical traders, Peter and Paul, I have tried to share with you the thought processes that make a successful trader.

If you read any of the marketing material from the Financial Planning community or the Mutual Fund promoters, they all stress the principle of diversification.

They say it enhances returns while minimizing risk – Peter believes that ,as Frank Watkins says in his book, Exploding the Myths, “Diversification is another word for risk minimization, but it has very little to do with making profits.”

As one of the World’s greatest Investors, Warren Buffet, has said on many occasions – diversification is simply an antidote for ignorance!

Diversification for diversification’s sake simply means that you will have your money in a lot of Stocks or markets that aren’t performing to their fullest potential – some will be rising, some will be falling, some will be going nowhere.

Hardly the best way to run your trading Business is it?

Peter’s view of diversification is different to that of the herd – use technical analysis to find several quality Stocks that are rising, then buy all of them in equal dollar amounts to reduce the risk of one Company crashing and taking all of his capital with it. When these quality Stocks stop going up, sell, take a profit and move on.

Why hold Stocks in a Portfolio that are not rising, or worse, falling in value, simply because you want to have some diversification?

If you look at the typical Brokers Portfolio recommendations, they will include Stocks that are in various stages of trends, both up and down. When you ask them why they would recommend something that is falling in price, they tell you, “Well you have to have some diversification.

And based on fundamentals, it’s valued at much more than the Market is quoting it. Don’t put all your eggs in the one basket, spread your risk through different sectors, etc. etc.”

Peter merely takes the prudent step of diversifying across several quality Stocks that are rising in price. Simple.

Below are some charts of Stocks that Peter found met his criteria – of course, this is in no way a recommendation to go Read more…

Options trading can increase the profits you make when trading Stocks if you understand how to use them and know what you are doing. Options can be a very useful tool that the average investor can use to enhance their returns.

This article – Options Trading Basics, looks at what options are and discusses some of the options trading strategies traders can use with these versatile instruments.

Options – An Overview

Options give the buyer the right, but not the obligation, to buy (a call option) or sell (a put option) the underlying Stock or futures contract at a specified price up until a specified date.

In other words, options are like tradable insurance contracts.

An investor can purchase a Put option as insurance against a decline in the Stock price or a Call option in case the Stock rises. Buying an option gives the purchaser time to decide whether they will buy or sell the underlying Stock. The price is locked in until the expiry date, which in the case of LEAPS can be years into the future.

Options trading has several advantages that every Stock Market investor should be aware of, such as high leverage, lower overall risk than owning the physical security, more versatility and the ability to generate extra income from a current Stock portfolio.

An option’s value fluctuates in direct relationship to the underlying security. The price of the option is only a fraction of the price of the security and therefore provides high leverage and lower risk – the most an option buyer can lose is the premium, or deposit, they paid on entering into the contract.

By purchasing the underlying Stock of Futures contract itself, a much larger loss is possible if the price moves against the buyers position.

An option is described by its symbol, whether it?s a put or a call, an expiration month and a strike price.

A Call option is a bullish contract, giving the buyer the right, but not the obligation, to buy the underlying security at a certain price on or before a certain date.

A Put option is a bearish contract, giving the buyer the right, but not the obligation, to sell the underlying security at a certain price on or before a certain date.

The expiration month is the month the option contract expires.

The strike price is the price that the buyer can either buy call) or sell (put) the underlying security by the expiration date.

The premium is the price that is paid for the option.

The intrinsic value is the difference between the current price of the underlying security and the strike price of the option.

The time value is the difference between current premium of the option and the intrinsic value. The time value is also influenced by the volatility of the underlying security.

Up to 90% of all out of the money options expire worthless and their time value gradually declines until their expiry date.

This clue offers traders a very good hint as to which side of an options contract they should be on…professional options traders who make consistent profits usually sell far more options than they buy.

The option contracts that they do buy are usually only to hedge their physical Stock Portfolios – that this is a powerful distinction between the punters and small traders who consistently buy low priced, out of the money and close to expiry puts and calls, hoping for a big payoff (unlikely) and the guys who really make the money out of the options market every month, by consistently selling these options to them – please think about this as you read the remainder of this article.

The seller of the option contract is obligated to satisfy the contract if the buyer decides to exercise the option.

Therefore, if he has sold Covered Call options over his Shares, and the Stock price is above the option strike price at expiry, the option is said to be in-the-money, and the seller must sell his shares to the option buyer at the strike price if he is exercised.

Sometimes an in-the-money option will not be exercised, but it is very rare. The option seller (or writer) has to be prepared to sell the Stock at the strike price if exercised.

He can always buy back the option prior to expiry if he chooses to and write one at a higher strike price if the Stock price has rallied, but this results in a capital loss as he will usually have to pay more to buy the option back than the premium he received when he originally sold it.

Many option writers simply get exercised out of the Stock and then immediately re-buy more of the same or another Stock and simply write more call options against them.

The buyer of an option has no obligations at all – he either sells his option later at a profit or a loss, or exercises it if the Stock price is in-the-money at expiry and he can make a profit.

The vast majority of options are held until expiry and simply decay in price until there is no point in the hapless buyer selling them. Very few options are actually exercised by the buyer. The vast majority expire worthless.

Having said all this, lets look at an example of how to use options to gain leverage to a Stock price movement when the trend does go in our favour…

For this example we will use MSFT as the underlying security. Let’s assume MSFT is trading for $24.50 a share and it is early January. We are bullish on this Stock and based on our technical analysis we think that it will go to $27.50 within two months.

In this example, we will ignore Brokerage costs, but they do have an effect on the percentage returns. The prices and price moves of the Stock and the options are hypothetical – they are intended as a guide only.

Buying 1000 physical shares will cost $24,500 and if we sell our position at $27.50 a share, we will make a profit of $3,000 or a 12% return on our capital. We will have $24,500 at risk if we take this position for a potential of 12% or $3,000 profit.

Instead of using cash to buy the physical Stock, we can buy 10 call options with an expiration that is at least three months into the future and a strike price that is close to current price of the underlying security.

10 contracts represents 1000 shares of the stock, a call option is bullish, three months until expiry gives us some time for a quick move, and buying an option with a strike price that is close to the current price of MSFT allows us to get the full potential of the intrinsic value.

We buy 10 MSFT $22.50 April Call options. These options are currently selling for $2.80 and they are in the money.

$24.50 (the current price of the Stock) minus $22.50 ( the strike price) is $2.00, which is our Intrinsic value. $2.80 (the option premium) Read more…

Just about everywhere you look these days you see news, articles or books about stock trading. Well, we?ve all heard of investing in stock but what exactly is stock trading and how is it different than investing?

Many of us are used to being invested in stock through a mutual fund in our retirement plan. We may switch from one fund from the other from time to time but for the most past we consider ourselves to be in for the long haul.

So basically an investor seeks to be in a stock or a group of stocks for the long haul.
Investors don?t expect a stock to skyrocket in value overnight but do expect that the value of the company?s stock they have chosen will appreciate over time.

In stock trading you don?t necessarily expect to be in a stock for the long run, but you are looking to profit form typically smaller short-term moves in a stock. In stock trading you are more like to use market timing meaning that you are seeking the best time to get into a stock and after that you are looking for the best time to get out.

Stock trading often involves the use of technical analysis to determine Read more…