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Investing 101 Archive

  • NYSE Euronext (NYX) launched mini option contracts on five of the most actively traded stocks and exchange traded funds on March 18th. The move enables NYSE Arca and Amex customers to trade options in smaller blocks than before, thus enabling investors with limited capital to trade options on higher priced issues without taking outsized risks. The first five securities with available mini options are Google (GOOG), SPDR Gold Trust (GLD), Amazon (AMZN), Apple (AAPL) and the SPDR S&P500 ETF (SPY).

    Steve Crutchfield, the head of U.S. Options at NYSE Euronext, joined Breakout from the New York Stock Exchange to explain to what that all means.

    1. Why minis?

    They're less expensive per transaction. The actual price of an option contract is typically $100x the quote. If a customer wanted to get long Apple calls listed at $10, the actual price would be $1,000. If Apple were a $45 stock it wouldn't be a problem. Because Apple is a $450 stock, its options would trade 10x as much.

    Suddenly our $1 Apple call is trading at $100 and the lowest possible cash outlay a trader can pay to by the contract is $100 x 100 or $10,000.

    Minis solve that problem. "A mini option is an option that delivers 10 shares of an underlying stock rather than the standard 100 shares," Crutchfield explains. Using the mini option contracts, investors can hedge their positions for less money.

    2. How should minis be used?

    Continuing with the example of an Apple shareholder, Crutchfield points out that an investor with $25,000 of Apple stock owns just over 50 shares. Previously, buying one lot of options to hedge that position would give the shareholder control of twice as many shares as they actually own.

    Read More »from Everything You Need to Know About Mini Options
  • This weekend marked the four year anniversary of the 2009 market lows, and it comes just days after the Dow Jones Industrials hit new all-time highs. So it seems fitting to assess this historic move and put it into context.

    For this edition of Investing 101, we will grab the bull by the horns, and analyze these most lucrative periods of rising stocks that are typically referred to as bull markets.

    What exactly is a bull market?

    According to Investopedia, "Bull markets are characterized by optimism, investor confidence and expectations that strong results will continue." It's a term that can be applied to any type of securities trading but, the site says, it is most often used to describe the stock market, and is the metaphoric antonym to the term bear market.

    How long do bull markets last?

    That depends. According to the Stock Traders Almanac the longest bull market we've had since 1900 lasted 2,836 days and ran from October 1990 to July 1998, wracking up a whopping 295% gain for the Dow Jones Industrials along the way. The Almanac says that the shortest bull market in the past 100 years lasted just 61 days during the summer of 1932 yet still saw the Dow bounce 94%! Those are of course the extremes, but the average bull market of the past century has lasted 755 days and delivered an 85% gain. The current bull run is now four years old and up about 120%, making it significantly above average by both measures.

    Read More »from Investing 101: Anatomy of a Bull Market
  • Despite all our good intentions, it is often said that we are our own worst enemy for the many foolish things we do that come back to hurt us. Nowhere is this saying more relevant than in the world of finance, where bad decisions are the norm not the exception. Even the smartest superstar fund managers will readily admit their mistakes and chalk them up to some contorted form of tuition.

    It is in this spirit that veteran investor, advisor and commentator Barry Ritholtz penned a recent column extolling the virtues of simplicity when it comes to portfolio planning.

    In this installment of Investing 101, the CEO of Fusion IQ and author of The Big Picture blog lays out five tips to keep things simple and increase your chances for success.

    1. Go Passive

    Simply put, Ritholtz says, "Most investors are far better off with a passive index than trying to pick the next great manager." Sure it is tempting to chase a highly decorated fund or hot performer. However, "80% of managers underperform each year and that it's a different 80% each year," which is enough to give Ritholtz pause. He will tell you the behavioral ramifications just aren't worth it when you add in the "cost, taxes and expenses of constantly chasing the hot hand."

    2. Diversity Across Asset Classes

    According to Ritholtz, when it comes to diversifying your investments it isn't just about stocks, bonds and cash anymore. He suggests that a broader selection will serve you well. He goes on to say that investors would be wise to add some real estate or REITS, perhaps a 10% exposure to commodities, as well as other types of bonds than U.S. Treasuries, including corporates, high yield, municipals and maybe even some foreign debt too.

    Read More »from Investing 101: Keep it Simple to Succeed, Says Ritholtz

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(53 Stories)

ABOUT INVESTING 101

Breakout’s Investing 101 helps you gain insight on money management and trading. Whether you’re managing your own retirement account, just beginning, or an advanced investor in need of a good refresher, Investing 101 will help you learn, grow, and keep you informed of the basic steps to effectively manage your money. Expect investing tips that focus on trading strategies, asset allocation, and portfolio management.





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