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“Efficient Portfolio Management”: A Guide To Effective Investment Supervision Processes

In practice, it is essential to take an integrated approach to clients’ wealth management and investment supervision activities.  The integration is based upon expressly recognizing the three major components of this process:  wealth planning, investment supervision, and portfolio accounting and reporting.  Each component is now examined in turn.

I  The Investment Process:  Wealth Planning

Although often a convenient starting point for any investment relationship, the planning phase is really a continuous and dynamic process that requires ongoing review and refinement as client needs and objectives change.  It is during this phase that investment supervisors assist their clients in a determination of client goals, objectives, and constraints.  The importance of this process should not be underestimated.  Proper planning develops the inputs upon which all other portfolio management decisions will rely. 

Specifically, investment supervisors must be interested in learning about their client’s views and preferences regarding the risk to be taken.  These include determining the degree of tolerance for portfolio drawdown (peak-to-trough intervals of loss) and conditional value-at-risk (point-estimate maximal loss). 

Other metrics of interest often include the degree of aversion to skew (exposure to directional market bias) and kurtosis (exposure to extreme events).  The purpose of these inquiries is to closely discern the degree of client risk tolerance (where risk manifests itself in multiple dimensions). 

This concentrated focus on the specific articulation of risk tolerance differentiates “best practice” approaches and is a critical input to the portfolio management and supervision process outlined below.

Effective investment supervisors also assess the organization of their client’s investment-level entities in order to determine how such goals and objectives are shared across different constituents.  Other planning activities, including tax optimization (and related entity allocations), income and expense modeling, and asset and liability matching must also be conducted in order to more fully appreciate the requirements of the investment portfolio. 

The initial goal of this process is to help clients formulate a comprehensive investment policy statement, including the articulation of risk tolerance, which will ultimately guide the asset allocation and portfolio selection decisions.

II       The Investment Process:  Portfolio Management and Supervision 

Once an investment policy statement has been articulated, it must be translated into a consistent and actionable portfolio management process.  Ultimately, a diversified portfolio of investments in the “traditional” (e.g., cash, fixed income, equities), and “alternative” (e.g., hedge funds, private equity, real estate) asset classes is built through a deep and intensive due diligence process.

Numerous academic and empirical studies confirm the philosophy that the asset allocation decision is one of the primary determinants of portfolio return variance—both across time and across investment managers (For example, Brinson, et. al., 1991 and Ibbotson and Kaplan, 2000).  Security selection and Market Timing, though also influential, are generally secondary considerations that have marginal contributions relative to the overall asset allocation. 

Effective asset allocation optimizes the power of diversification and ensures that an investment portfolio maximizes the return generated for a given level of risk.  As a result, getting the “top-down” decision correct is of critical importance. 

Unfortunately, applications of the technique by many consultants, investment managers, and brokers often fail to account for varying degrees of market efficiency, skew (bias or event risk), and kurtosis (extreme events) often present among different asset classes.  Relying solely upon returns and standard deviations can lead to sub-optimal conclusions, especially since neither vector is particularly robust with respect to time.  In addition, the popularly used linear mean-variance optimization models tend to produce results that produce inherently unstable and grossly imbalanced portfolios that are highly sensitive to estimation error (Michaud, 1989).

Such narrow reliance among investment consultants and money managers is not uncommon; however, it often leads to an overestimation of expected return or an underestimation of risk and is the root cause of many forms of investor disappointment.  It is also a causal factor in many of the very notable fund “blow ups” that have been witnessed in recent times.

An “Efficient Portfolio Management (EPM)” Methodology

The EPM methodology explicitly addresses such shortcomings by taking on the issue of risk directly.  The goals of the EPM are to:

1. Explicitly determine how much risk to take and what forms of such risk are acceptable; and
2. Ensure that the portfolio is maximally compensated for taking on those risks.

Under the EPM framework, investment exposure (the sources of risks and, correspondingly, returns) comes in two forms, namely:  systematic and nonsystematic.  The EPM process is a synthesis of strategic asset allocation (for the purposes of determining systematic allocations) and active risk budgeting (for the purposes of determining nonsystematic allocations). 

A brief discussion of each follows below.

Allocations to Systematic Investment Assets

Systematic investment assets typically relate to broad, well-diversified market exposures (also generically referred to as “beta”).  In order to determine the optimal systematic exposure to various asset classes, EPM relies upon the process of strategic asset allocation. 

The process begins by identifying the investment universe of candidate assets.  These may include, for instance, the following classes (and their related subsets):  cash, fixed income, equities, commodities, and real estate.  In order to establish the initial (neutral) portfolio weights, EPM draws upon the general findings of the Capital Asset Pricing Model (CAPM), as described by Sharpe (1964) and Lintner (1965). 

According to the CAPM equilibrium, the optimal asset class weights are directly related to the relative aggregate market capitalizations of each such asset class.  That is, in equilibrium, the portfolio weights for the “market portfolio” in aggregate also become the optimal weights for individual portfolios.  EPM refers to these weights as the “Equilibrium Portfolio,” and it serves as the initial “center of gravity” for the strategic asset allocation process.

As prescribed by Black and Litterman (1992), EPM next “reverse-optimizes” the Equilibrium Portfolio to ascertain its implied views of asset class risk premiums.  Stated differently, if one believes that the Equilibrium Portfolio is in fact the optimal portfolio (as suggested by CAPM), what must the views on relative asset class risk premiums be in order to satisfy mean-variance optimality conditions? 

The analysis of such implied views is analogous to the more popular application of using implied volatility to evaluate options pricing.  In that approach, it is assumed that the market price represents both known and estimated variables that affect valuation.  However, given the difficulty of objectively estimating expected volatility, many investors consequently take the market price as a given and instead determine what it must imply about expected volatility.  Then, investors can make individual judgments about whether this implied volatility is in fact reasonable.

Similarly, investment supervisors can compare the implied views of the Equilibrium Portfolio with their own views of relative asset class premiums.  Importantly, under this approach, it is not necessary for investment supervisors to make forecasts of the absolute returns of every asset class; they need only make relative risk premium assessments. 

Where differences emerge between investment supervisor (or client) views and the market-implied views, EPM combines them through a conditional, Bayesian-weighted adjustment in order to capture the corresponding degree-of-confidence in each view.  The adjustment may also affect other asset classes, as the process attempts to maintain the consistency of the covariance relationships among such classes.  The resulting portfolio weights form a “passive risk portfolio.”  This approach tends to minimize the forecast errors and unrealistic portfolio tilts that often plague standard mean-variance optimization. 

Since the passive risk portfolio primarily addresses broad market, systematic (beta) exposure, its implementation is best conducted through low-cost, tax-efficient passive investment instruments.  Such composition for broad market systematic exposure is consistent not only with CAPM, but also with the general findings of Fama (1970) and Brinson, et. al. (1991).

Allocations to Nonsystematic Investment Assets

Nonsystematic investment assets generally relate to idiosyncratic exposures (also referred to as “alpha”) that are not correlated to the systematic universe.  In equilibrium, and relying upon the principles of diversification, such idiosyncratic exposure should not be expected to produce excess return.  Therefore, expected alpha return in equilibrium is equal to zero. 

In reality, however, the markets are often not in a state of CAPM equilibrium, especially in the short to medium term.  As a result, it is not unusual to find tactical sources of alpha that do in fact exhibit positive expected excess returns. 

Active investment management is the process of identifying and capturing this positive alpha.  In order to determine the optimal exposure to these activities from a portfolio management perspective, EPM relies upon a disciplined methodology of budgeting for such “active risks.”  This risk budgeting process operates on the principle that active risks should be assumed only where the marginal contributions to portfolio return from such activities exceed the marginal contributions to portfolio risk. 

Once again, the process begins by identifying the investment universe (in this case, of nonsystematic assets).  This universe typically includes certain hedge funds, private equity, and real estate investments.  However, it should not be construed that the nonsystematic universe consists solely of such “alternative investments.”  It can also include actively managed assets in the more traditional classes (equities, fixed income, and others). 

In those cases where an asset has elements of both systematic and nonsystematic exposure (as is sometimes the case for assets in the traditional classes), the alpha and beta components must be separated.  This decomposition can be accomplished by evaluating the distribution of the investment’s variance from its systematic benchmark.  In this context, the investment’s alpha is found by computing the mean of the distribution, while the “tracking error” is found by computing the standard deviation.

The active risk budgeting process now determines the most appropriate portfolio of active risks that, when combined with the passive risk portfolio, meets the client’s overall macro goals and objectives—as expressly defined in the earlier wealth planning activity. 

The methodology begins with a series of simulation and optimization studies to determine categories of active allocations (conditional upon an allocation to the passive risk portfolio) that can most efficiently meet the client’s objectives.  The optimization program explicitly recognizes each client’s individualized level of risk aversion by first satisfying client constraints related to portfolio variance, acceptable drawdown, and event risk and then determining which remaining combinations of assets maximize return.

This approach is unique in that it contains an explicit focus on the various degrees of each component of risk that can affect the total portfolio, including the higher order moments of the expected distribution.  Careful consideration of such risks can provide far greater clarity into the investment process, help optimize the returns achieved in exchange for the risks knowingly taken, inform a strategy mix that might most capably protect from a variety of systematic shocks, and ultimately lead to results that should more closely reflect the original intent and objectives of the client.

For practical purposes, EPM classifies assets into seven “active risk portfolios.”  Each portfolio consists of managers and strategies that share specific active risk signatures and exhibit stable covariance properties.  These portfolios are categorized as follows:  “Long Equities,” “Long Fixed Income,” “Long-Short,” “Tactical Trading,” “Event Driven,” “Relative Value,” and “Private Equity.” 

 In determining which assets are eligible for inclusion into EPM’s active risk portfolios, investment supervisors engage in a deep and intensive process of manager and investment diligence.  In this evaluation, two considerations typically emerge.  First, the key evaluation criteria are both quantitative and qualitative.  Second, building a portfolio of active assets involves more than simply finding the managers and investments that produce the best returns in isolation.  It also requires understanding how they might behave in different economic environments and how they might correlate with one another—and with the passive risk portfolio—particularly during periods of high market volatility.  Such analyses are critical, as correlation map surfaces can change dramatically as volatility, liquidity, and other “market stress” factors materialize.

The resulting active risk portfolios are then evaluated in terms of their marginal contribution to the risk (volatility, skew, and kurtosis [VSK]) of the passive risk portfolio.  As stated before, the object of this analysis is to determine which combinations of the passive risk portfolio and the individual active risk portfolios produce the risk signature that best satisfies the client’s original risk constraints and investment objectives. 

Once such a combination has been identified, investment supervisors once again utilize reverse optimization to determine what the implied views (on the expected excess returns of the active risk portfolios) must be in order to satisfy mean-variance skew-kurtosis (M-VSK) optimality conditions.

Investment supervisors again compare their proprietary views of expected excess returns in one or multiple active risk portfolios to the implied views from M-VSK.  Any variance is treated in similar fashion to the Black-Litterman approach utilized in the construction of the passive risk portfolio.  The resulting portfolio becomes the client’s global investment portfolio.

A Dynamic Process

Once the global investment portfolio is established, continuous monitoring and supervision of the portfolio must be conducted on an ongoing basis to confirm the variance, covariance, and other risk characteristics of the underlying investments.  Such supervision includes performance attribution (relative to absolute and style benchmarks as well as relevant peer groups), risk control and monitoring (tests of manager adherence to active investment mandates, style drift compliance, short and long-term volatility) and ongoing personal reviews with investment managers (including regular communications, verification of manager commitment to client goals and objectives, and custody and reporting).

Critical to the process, however, is the periodic validation of the original risk constraints and investment objectives set forth in the wealth planning activity as well as the continuous supervision of the portfolio to ensure that its portfolio-level risk signature does not materially deviate from such specifications.  Under the EPM approach, there is no distinction between the investment supervision process and the risk management process; they are one and the same by design.

Over time, changes to the investment portfolio can arise from three different sources:

Changes in views:

Investment supervisor proprietary and market-implied views can and do change.  Obviously, the results of the strategic asset allocation will change as its inputs change.

Changes in active risk attribution:

The constituents of the active risk portfolio may change due to style drift, lack of continuing edge, lack of attractiveness in a portfolio-level context, or other diligence-related reasons.

Changes in client goals and objectives:

Client preferences and constraints related to risk aversion, tax regime, income requirements, time horizon, and other considerations may dictate a change from a planning perspective.

As a result, client portfolio management is a dynamic process that is responsive to both external (market and economic) as well as internal (client) influences.

EPM:  The Benefits of Synthesis

The EPM approach is intended to engineer a portfolio that is capable of obtaining the “biggest bang for the buck,” by carefully defining the clients’ limited tolerance for risk and then allocating that scarce resource to those areas where it can be most efficiently rewarded. 

As noted, EPM accomplishes this objective by explicitly segmenting the universe of investment assets by their risk characteristics; in particular, based upon of the level of systematic (beta) or nonsystematic (alpha) exposure each asset exhibits.  In making this distinction, the most appropriate techniques drawn from strategic asset allocation and active risk budgeting can be applied to determine what levels of exposure and combinations of assets best produce the desired portfolio characteristics.

EPM is designed to directly address a variety of issues that are often poorly addressed in the typical applications of asset allocation and portfolio management.  Consequently, the process actively:  considers the relative market efficiency of various asset classes, includes the higher order moments of asset class distributions in evaluating risk, and incorporates non-traditional, “alternative” asset classes.

Portfolios resulting from the EPM process tend to exhibit the following characteristics (versus other more traditional methods):

• Greater protection from the risks that clients choose to avoid and greater control over the risks that clients choose to take.
• Higher degrees of efficiency in the compensation for risks that are taken
• More rigorous standards for the acceptance of active risk
• Higher quality diversification across asset classes, managers, and strategies, based upon specific and tangible opportunities for incremental risk-adjusted return
• Lower sensitivity to estimation errors in asset class and strategy return forecasts

Taken together, these benefits lead to intelligent portfolio management solutions capable of more tightly meeting each client’s individual goals and objectives.

III     The Investment Process:  Tax Accounting and Portfolio Reporting 

Although the accounting and reporting function is often overlooked or treated as an afterthought, the effective utilization of accounting reports can be a powerful tool in assessing and diagnosing portfolio performance.

Reports can come from a variety of sources, including:  investment manager statements, reports from prime brokers and custodians, and valuation audits by independent accountants.  The investment supervisor’s role is to provide an additional level of independence and produce analytic diagnostics that can be used to make effective investment decisions.

In this regard, investment supervisors must maintain an extensive, redundant database of transactions and tax-lot accounting when this information is obtainable from various custodians.  The maintenance of an independent database allows us to analyze investments at the overall client family level, entity-level, and other customizable sub-groups of interest.  Investment supervisors can also conduct broad tests of concentration and diversification across various managers and custodians, track cash inflows and outflows to ensure proper deployment, and test the veracity of month-end and quarter-end statements produced by the investment managers.

The reporting function is also useful for aggregating data for the purpose of performance measurement.  Producing uniform performance and position reports allows fair comparison of different investment managers, regardless of their own internal performance reporting systems, which may vary by manager.  Such reports also enables investment supervision analysts to conduct detailed style regression and returns-based attribution analyses, tools that are particularly invaluable in evaluating managers who may not share granular information on their underlying investments. 

Finally, tax reports should be analyzed on an ongoing basis to identify and account for realized and unrealized gains/losses (by entity and by account), income and expense accruals (including amortization and accretion schedules), and potential “cross-manager” wash-sale violations, and for the identification of other tax-minimization strategies.

III     Concluding Remarks

The finance and investment literature is full of a variety of (sometimes conflicting) approaches to the proper and effective supervision of investment portfolios for clients.  All too often, academic treatments of the subject fail to recognize the realities of the investment world.  Investment supervisors are in the challenging position of having to apply otherwise “elegant theories” to the typically messy “real world.” 

In so doing, however, they must properly blend the best ideas from financial economics with the realities and opportunities that present themselves.  As such, no single prescription can work all the time and, indeed, any suggestions must continuously evolve to adapt to the constantly changing nature of the capital markets. 

The most important priority for an investment supervisor is to design and build an investment portfolio that best meets client goals and objectives.  In the end whatever methodology best satisfies this priority in a way that optimizes performance, cost, and tax efficiencies—and is rooted in sound financial economics and not arbitrary logic—is bound to be a viable approach.

About the Author

Professor Sury has been a trusted adviser to some of the nation’s wealthiest family groups and private organizations for nearly two decades.  Since having retired as CEO of Chicago Analytic Trading Co. (CATC) and Chicago Analytic Capital Management (CACM), a multi-billion dollar family office investment supervisor, Mr. Sury has been the Dean’s Executive Professor of Finance at Santa Clara University and an Adjunct Professor of Economics at the University of California, where he teaches investment theory, corporate finance, and applied portfolio management.  He is also the founding and current Director of the Santa Clara Initiative for Financial Innovation & Risk Management (SCIFIRM); and serves as a Board Member of the University of California’s School of Management in Silicon Valley, the Arditti Center for Risk Management in Chicago, and the Santa Cruz Center for International Economics.

As a recognized expert in the fields of portfolio theory and risk budgeting, Mr. Sury is a frequently invited speaker at various prominent venues, including for the CFA Institute, Financial Research Associates, FinanceIQ, Opal’s Wealth Management Summits, Private Banking India (Chair), and the University of Chicago.  His research on the optimal integration of traditional and alternative (hedge fund) investments is featured in the highly anticipated anthology, “Essential Readings in Advanced Financial Economics.”

Under Mr. Sury’s leadership, Chicago-based S4 Capital became the #1 ranked US wealth management firm in both 2007 and 2006, according to Wealth Manager Magazine, a “Top 10″ Financial Advisory firm in 2006, according to Financial Advisor Magazine, and was the #2 ranked US wealth management firm in 2005, according to the Bloomberg Wealth Manager Survey.  Over the years, S4 Capital’s R&D arm, comprised of researchers with Ph.D.’s and other advanced degrees, developed state-of-the-art techniques and strategies for client-optimized portfolio management.

Prior to the formation of CACM and S4, Mr. Sury was an appointed Vice President at Goldman, Sachs & Co., where he built one of the fastest growing teams in the Midwest and advised a niche group of ultra-wealthy clients representing several billion dollars in investment assets spanning equities, fixed income, and alternative investments.  During his tenure, Mr. Sury also taught several classes of incoming Goldman Sachs Financial Analysts on topics ranging from portfolio analysis to accounting.

Mr. Sury had previously served in special advisory and enforcement capacities for both Federal/local government agencies and also held highly technical oriented positions with International Business Machines Corp. (IBM), Lockheed Missiles & Space Co. (C3I & SSD), and the MCC R&D Consortium.  For his achievements in these roles, he has been highlighted in the media and awarded a variety of honors, among them the prestigious IBM Austin Excellence Award, Lockheed’s Space Systems Division Commendation, and the SCC District Attorney’s Letter (for Service in the Economic Crimes Unit). 

Mr. Sury received his MBA (High Honors) in Finance & Statistics from the University of Chicago, Graduate School of Business.  He received his undergraduate degree in Economics (High Honors and Phi Beta Kappa) from the University of California, where he also held teaching assistantships in Macroeconomic Theory & Statistical Analysis.  In 2003, Mr. Sury was featured in Crain’s Chicago Business “40 Under 40: Chicago’s Rising Stars,” for his professional accomplishments.

On a personal note, Mr. Sury enjoys giving back to the community, through such efforts as Junior Achievement, Habitat for Humanity, and the Starlight Children’s Foundation.  He has also served on the Board of Directors of the MRIC/Children’s Memorial Hospital, and the GSB CEO Roundtable.  Based in part on his experience in law enforcement (criminal investigation), he currently serves on the Santa Clara Co. Sheriff’s Advisory Board and the Executive Committee of the San Jose Police Officer Association’s Charitable Foundation.

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Stock Market Videos: Stocks Surge As Technical Patterns Tell All

Learn How to Make Money Always Trading in The Stock Market

You can make Money Trading in the stock market if you gain some knowledge on how things work. If you look at the history of the stock market most people make money over time and it is a great way to build a retirement. Knowledge is how most people are successful when trading in the stock market.

How to: Trade Penny Stocks

First you need to have the right tools to be successful trading stocks. Most people like to stay up to date with companies by subscribing to the Wall Street Journal and other publications such as Barron’s. Be aware that more people are also using more up to date information that can be found online.

You Can: Get Rich Trading

Next you need to have an idea if you want to be a Day Trader and move in and out of stocks regularly. Maybe you are looking for solid investments that you can hold on to over the long haul so that you can build a nice nest egg that can give you the lifestyle you have always wanted.

Whatever you Investing method is you need to be informed before you start to buy stocks. In a lot of cases what you see on T.V. as great stocks to buy have already been bought and the price may have topped out. You need to look for stocks that will give you a great return over a long period of time rather than a one day bump.

Finally you want to have a plan of action to buy and sell stocks. It is always a good idea to talk with a seasoned investor so that you can get there input on how to get started. You may have a relative or friend that can help you get started and make the right decisions.

About the Author

Bryan Burbank is an expert in the field of Finance and Investing. For more information go to: Trade Penny Stocks

Where can i find free seminars on trading stocks and the stock market ?

Im a 17 year old trying to obtain as much knowledge on th stock market as possible can anyone help me ?

This is an easy one.

Go to your Google search box and type in: “Stock Seminars.”

This will bring you to a number of options embracing both live and online instruction.

Len

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forex trend Trading System – what is Trend Trading?

Know what is forex trend trading

In terms of trend trading, this is exactly what every Traders should know. In order to get advantage of trend trading you basically really need to basic understanding what on earth is trend trading, how it make your life so easier and why most traders cant follow trend. When you read this articles, I guarantee you’ll be able to enhance your trend trading performance.

Now how the trend starts? Basically they begin by breaking the new price high and continue breaking them while it evolve and creating a trend. You want to take fully advantage when this occurs. You can reduce your time analysis easily by only using indicator to search for the trend for yourself. Plenty of expert traders applying this indicator to find trend and you should also use it. Nonetheless it doesn’t stop there. Trend trading could make your life easier . Why? Because you are aware that you enter within the right trade and that is with trend. I believe you may have heard this phrase ” trend is your friend”, yes it’s absolutely true. You don’t need to worry a whole lot because whenever you the trend say bull, then go bull and vice versa. You know what I meant. Another reason is that it is because they can’t control their emotion and always thought of losing money. Go read some books the best way to think positive and it’s worth because you can put on it in your trading.
Congratulations , you understand that how the trend start and exactly how you are able to detect it easily with moving average, and how it may make your life easier and how to overcome negative thinking.
If you wish to get more info how you can combine trend trading with other strategies which become a hardcore system.

About the Author

If you would like to learn more regarding forex and how to use trend trading along with other strategies, check out my <a href=”http://forexsimplex.com”>forex system</a> and grab it now while its hot

where i can see world share market trend before doing Intraday Trading?

Kindly refer to nytimes .com

Best Stock Trading Course -Guy Cohen flag trader stock trading course cds can make you money in days

Best Options Trading Strategies for Novices

Options trading is a safer and more stable substitute to stock trading. Options trading doesn’t come without risks unlike stock trading. Options trading gives way to a large variety of choices on the improvement of strategies that will help you succeed. Options trading ensures you a greater chance for higher profits though it will demand a higher rate for broker fees.

Traders who wish to earn more and much more money believe that options trading can provide them what they want. These folks who are driven by greed wanted more gains than what they can handle. It is possible to achieve gigantic amounts of profit at a short span of time; but, many investors turned to methods that are sure to fail because of wanting profits so terribly. The significant thing to remember is that to survive and succeed in options trading, one has to make the best options trading approaches. Know these approaches seriously and use them in every deal. You should also set clear trading rules that you should follow.

The following are the best options strategies that can help the trader attain great gains at the least amount of risks as possible.

To sell credit spreads is one best options Trading Strategy that you can try. Within a week, this strategy can be done for half-hour. This is a simple job that can make you increase your profit by 10-15% every month. The essential thing that you have to do in this strategy is to undertake a simple analysis on your selected Stocks in the market. Look at and monitor the simple trends of the market. Never overanalyze. The key here is to keep everything simple. This strategy is simple and profitable.

When you’re not contented with just selling credit spreads, there are still other best options trading approaches for you. One of them is selling naked puts. Unlike credit spreads however, this strategy is only effective in an upward trending market and also has higher margin requirement. On the contrary, it has very low risk in this kind of strategy and gains are up front.

An additional options trading strategy is buying and selling deep-in-the-cash options or DITM. This kind of strategy provides you with the chance to buy certain stocks for half their price. In this way, you have greater chances of doubling your profits. You do not have to be troubled about dividends and other long term factors because option trades last only for a very short time.

If you like selling stocks, selling covered calls is one best options strategy that you can use. You will be able to reduce the cost of your stocks every month by doing this.

Finally, there are more options tactics that can give you higher profits at a very low risk. These are elaborate approaches such strangles, straddles, butterflies and iron condors. On the other hand, these approaches have elevated broker fees and will cost you plenty of cash. Always bear in mind that everything in options trading is an investment and a gamble. You must also sacrifice a small sum of money to gain gains.

About the Author

Dr. Cayemitte currently offers seminars and free workshops on stock options at OptionsLearningAcademy.com (OLA). To learn more about the best stock options strategies, please visit us at http://optionslearningacademy.com

Is it possible to become a millionaire by trading the same volatile stock over and over again using options?

I want to know if it is possible to trade a single volatile stock over and over again by Trading Options and become a millionaire? Also, If this is possible I have found a stock that is very volatile, and that’s First Solar, Inc. It moves up and down between 2-5% every day and I know that the best way to trade a stock like this is using the straddle options trading strategy. Could this work and have there been any recorded cases of this ever happening at all by someone actually doing this?

Hello. Very good question.

When buying options on highly volatile stocks it is important to be aware that your are going to pay a higher premium due to the high IV (Implied Volatility) levels of the underlying stock, in this case FSLR. All that Volatility is baked into the cake so to speak. There is a chance that even if you do get the expected move that you would only be breaking even or worse loose money.

I know that this might sound kind of crazy, but this the nature of option contracts. Options have certain sensitivities associated with them, known as “the Greeks” . Vega, Theta, Delta, etc.

You might be better off trying to find a less volatile stock where the market is not expecting any big moves. These stocks would have lower implied volatility levels and would be cheaper to buy and you would stand to make considerably more profit if the stock did make the expected price move.

Without making this more complex than it has to be. Just understand that stocks that are highly volatile have options with high “Vega”. This means that you are going to pay a higher premium for these options due to the fact that the stock has a higher probability to move in either direction.

Now, Consider this. For every buyer there is a seller on the other side of the trade. Another strategy might be to find a volatile stock that you might actually want to own and instead of buying a decaying asset such as a long put or a long call, maybe sell a put instead. This way you could keep the high premium due to the increased (IV) levels, reduce your cost basis on the trade if you were to get assigned and have time decay(theta) actually working in your favor.

Don’t get me wrong, there is a time and place for all option strategies. There is nothing wrong with buying puts and calls or both. I am just trying to show you that there is more than one way to capitalize off of your views on the market.

Please feel free to visit our web site optionsimple.com for more information regarding basic, as well as advanced option trading strategies. It’s very important to know alternative option strategies prior to committing large amounts of capital to stock options. You would be very surprised at all the options you did not even know you had. Some other great sites for learning about options are cboe.com and optionmonster.com.

Oh, and yes it is possible to become a millionaire trading options, only with the proper RISK MANAGEMENT!!!:)

I wish you nothing but the very best in your endeavors. Good luck my friend:)

~Mr. Simple

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Ken Trester’s Complete Option Trading Camp [VHS] $75.19 …

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Trading Strategy Part 1

There are literally hundreds of tactical trading books in the marketplace these days. Almost every one of them will discuss the authors favored strategy or strategies for trading the opening gap. The strategies are typically framed as a set of trading heuristic rules, of more or less complexity, and they’re backed up with assertions of excellent performance. When you set all the strategies side by side you realize that many of them are diametrically opposed to a different author’s favored strategy.

How can all of these authors be right about trading a period of time measured in minutes, where volatility is at its highest, and where false starts, false breakouts, gap closures, and reversion to the mean are so commonplace and confusing to the new trader?

Is the opening gap simply something that new trader should avoid until they have years of experience in hand? Or should a new trader just pick a strategy from a favorite author and try to make it work with small position size and move along until you find something that works? How long should you wait before the morning gap is over and you can start trading intraday on a more reliable basis?

These are not trivial questions. Intraday Traders must struggle with these questions until they find the solution that is satisfactory to them.

My own research into gaps discovered some surprising truths. What I found was that the many different authors were occasionally right and occasionally wrong. I found that the truth about the gap and the best way to trade it varied in time on a regular basis.

I studied years worth of opening gaps of the market and found that there are times when the market reliably moves in the same direction as the opening gap, and times when the opening gap is reliably reversed, and many times when the market seems to be random with respect to the follow-through after the gap.

The one reliable correlation that I found was that the magnitude of the gap in either direction correlates to the magnitude of the follow-through in either direction. Simply stated, large gaps make for large follow-through’s. But, unfortunately, there is no predictive value on the direction of the gap and the subsequent move on a regular basis.

I also found that the truth of the market’s behavior at the gap changes in time periods measured in days and weeks. The truth is not persistent. Study of the gaps may point out moments when you can justify a directional bias but most of the time the correlation is so weak or nonexistent that there is no statistical edge.

What does this all mean?

I conclude that you should be very careful about it except in wisdom from even the most popular tactical trading authors and conduct your own research with respect to the gap in a way that makes sense for the type of trading that you propose to do. There is very little about the gap that may be safely and universally generalized for the average trader.

I have a set of Trading Strategies that work for me and my style that took months to refine and only applying under strict conditions with limited opportunities. When those moments occur I am ready to trade according to my edge, but I also know how narrow the windows of opportunity really are.

If you must trade the gap, then be very careful.

Ken Long, Chief of Research, Tortoise Capital Management

finance: [http://www.tortoisecapital.com]

essays: http://kansasreflections.wordpress.com

Independent research, combining technical analysis and behavioral psychology.

30 day free trial of reports and live trader chatroom.

Training, education, mentoring and coaching for professional traders.

I want to start currency trading , what strategy’s should I start with and how many currencies should I watch?

Anyone can become a currency trader.

You will find most of the online brokers allow currency trading in some form. You can trade the currencies themselves, use options, or through a variety of ETF’s. Warning it is high risk, so open a paper money account & trade pretend money at first

Currency trading is a very high risk form of speculation as you usually trade on margin. This is you borrow most of the money to trade. This is fantastic when everything goes your way, but it can very quickly wipe out your account if your not careful.

I like the risk/reward ratio & use call options to control my risk. I by a call option to trade a currency pair [say AUDUSD] at a certain price up and until a date in the future. I pay a premium for this. The premium is the maxium amount that I can loose. My profits are smaller they could be, same can be said for my loses.

Why not start with one currency, then see how you go.

My website has a free newsletter you might like to look over: http://www.thedailytradingreport.com

Stock Market Trading Video Wall Street Online Trading Platform Entry for Profits on AMZN

Learning how to trade can be a very expensive business for Stock Market Beginners. They can take hit after hit on losing trades before they realise that it is not quite as easy as they thought it was going to be. Participating in virtual Stock Market Games offers a fun and easy way to avoid heavy losses and gain experience through practice trading, before risking any cash for real.

Trading – an Easy Way to Make Money

Most stock market beginners start out thinking that trading and Investing in The Stock Market is an easy way to make money but they can often find out very quickly that it is not quite as easy as they had envisaged. The fact is that most new Traders lose money instead of making money, and many beginners stand to lose all of their initial investment before they eventually decide to give up.

Paper Trading – Hit the Ground Running

Paper trading is a strategy that is often recommended to beginners as an introduction to the financial markets.

Paper Trading is a term that simply means to practice trading through placing virtual trades. This strategy offers beginner traders the opportunity to find out ‘on paper’ if they have the skills and knowledge to be successful, before they risk any cash for real.

It is a way of learning how it all works and to fine tune a Trading Strategy without risking any money at all.

If only more people started out this way, the failure rate for new traders would very likely be substantially reduced from the high percentage that it is now. The experience gained would help them to hit the ground running rather than falling flat on their face when they start trading for real.

The main problem with paper trading is that it can be extremely boring, especially for beginners who just want to get on and start making money. Even those who do start out with good intentions may get lured by the dream and end up getting drawn in too early, risking real cash before they have the knowledge and experience that they need to be successful.

Stock Market Games – the Fun Way to Learn Trading

Participating in stock market games can add the fun and excitement to practice trading that goes along with trading for real. Pitching your wits and skills against fellow traders in trading games adds the stimulation and extra interest to the mundane task of learning the basics.

Playing stock market games can help in learning how to master The Stock Markets by executing your virtual Stock Trades of real companies in real-time in exactly the same ways as you would through live trades. Create and manage your own virtual stock portfolio while competing risk-free against friends, colleagues and peers for the chance to win cash prizes.

How to Participate in Virtual Stock Market Games

Avoid heavy losses – Find out more about how to gain the knowledge and experience you need to be successful and how to participate in the webs best Virtual Stock Market Games!

This article was written by KennyM of tradersdaytrading.com – A traders guide to learning about the Stock Market For Beginners and how to start Day Trading and investing – successfully!

Copyright: you may freely republish this article, provided the text, author credit, the active links and this copyright notice remain intact.

Looking for good books or softwares for trading strategy in option & future in stock market? Kindly Inform?

there are good books to understand the market and then equities trading and the for options and futures.
After the trade is made, Securities operations are some of the good books. Do a google and u would find information.

Thx

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Penny Stocks Are High Risk, But Can Yield High Rewards

The arena of financial services there is many shades of gray, or green if you prefer. Some things have a simple and clear definition, while others defy pigeon holing. Penny stocks are one of those very concepts. Penny stocks are high risk, but can yield rewards. There is no accepted, official designation for the term “penny stocks” and which are and which are not will depend on exactly whom you ask. Each brokerage firm and financial entity will have a different set of criteria for deciding whether or not a stock is “Penny Stock” or not.

In the simplest of terms, penny stocks are usually determined by three factors. These factors are (1) the price per share, (2) the market that the Stock Trades upon and (3) the Market Capitalization of the company from which the stock derives. Of course, there are some variations on each of these factors, and some brokerage firms will treat all stock from companies under a certain market cap as penny stock.

The Securities Exchange Commission will consider all stocks with a price per share of less than five dollars a penny stock; brokerage firms may be far more lenient. Having one factor to qualify as a penny stock will not necessarily give a stock that determination, most have at least two and many qualify under all three.

Penny stocks are high risk, but can yield high rewards if you carefully research these investments. Make sure that you understand that it is easy to lose all of the money you have invested, but it is equally easy to make fast money with some smart planning and a lot of good fortune. Some brokers will not deal with penny stocks because they can be considered volatile and wildly unpredictable. They are usually unable or unwilling to do the necessary background research for these un-proven, small company-based stocks, and in many cases may consider them beneath them.

A small market cap usually relates to a small business, which unfortunately in this economic crisis period has a higher rate of total business failure. Although probably not a good idea for the beginning trader, or those with already tight budgets, penny stocks can be profitable in the right hands. Because they are usually from smaller and largely unproven companies, they can be purchased at bargain prices. If the company does suddenly have a growth surge, not only have you gotten in under the huge price increase, you have just made a large profit.
 

About the Author

At conservativetrader.com they have many tools and resources to help the small investor and trader become more profitable. If you want to learn to reduce risk and become a profitable trader or earn extra income part time just visit us at
http://www.conservativetrader.com for more information

Why did the Dow Jones end high today – stock market?

Is money being artifically pumped into the market as happened the day before? it was down so low today and it jumped back up – anyone have an idea how it happened?
I heard that 41 billion was pumped into the economy yesterday, that’s 41 in one day. Yikes, that’s scary if it’s the truth. Anything fishy going on here?

Simple the buyers came into a very down market. There are two basic reason it might happen. First the obvious, very Good Stocks are low so it is the time to buy. Second the market had a lot of short interest and Traders were covering their short positions. *I haven’t looked at short interest in the market so I don’t know about that one*

This is a traders market. I owned QID at 53.21 and out at 55.51 I also bought QQQQ at the same time as the QID thinking the market would finish up in the last hour. I paid to much for it (LOL) but I still was in at 42.96 and out at 43.90. That gave me a $1600 plus day, and all the time I was sitting on the lanai watching the ocean. (One of the advantages or living in Hawaii, the disadvantage of course is I have to be up at 4:30 AM for market open and 3:30 AM in the summer.)

QID is short ETF of the QQQ Powershares (QQQQ) don’t ask me why it is QQQ and the symbol is QQQ ….always wondered myself.

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Docklands Light Railway rolling stock

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B92 stock train 57 arrives at Canary Wharf
The Docklands Light Railway (DLR) is operated by high-floor, bi-directional, single-articulated cars with four doors on each side, with each train normally composed of two 28m cars. Each car has 70 seats and has a total capacity of 284 passengers. The cars have no driver cab, although there is a small driver console concealed behind a locked panel at each car end from which the passenger service agent (PSA) can drive the car when necessary. Other consoles at each door opening allow the PSA to control door closure and make announcements whilst patrolling the train. Because of the absence of a driver position, the fully glazed car ends provide an excellent forward (or rear) view for passengers.
Despite having high floors and being highly automated, the cars are derived from a German light-rail design intended for use in systems with elements of street running. All the cars that have operated on the system look similar, but there have been five separate types, of which three are still in operation on the DLR. A further car type, with quite different styling, was first displayed in March 2008 and entered service in September 2008.
P86/P89 rolling stock

P86 stock number 10 with a train for Stratford in 1987

A P89 stock train running in Essen, Germany
The fleet for the 1987 opening consisted of 11 light-rail vehicles built in 1986 by LHB in Germany and numbered 01 to 11. These were referred to as P86 stock, with P referring to Poplar depot, where they were maintained. These cars were built for the initial above-ground system and, because of the lack of appropriate fire-proofing, were not allowed to operate on the tunnelled extension to Bank. Because of this, and because adaptation to a new signalling system was too costly, these cars were sold in 1991 to Essener Verkehrs-AG of Essen, Germany, where they were extensively rebuilt and put into service on its Stadtbahn between 1994 and 1998. Originally, they retained DLR colours and were limited to route U11, but after a further modification programme started in 2005, trains are appearing in a yellow livery and are used on all routes.
In 1989, BREL supplied another ten LRVs, numbered 12 to 21. These share the characteristics of the original P86 stock. They were, though, equipped with sufficient fire-proofing to operate through the tunnels of the Bank extension. These were designated P89 stock and remained in operation on the DLR until 1995. The P89s were rebuilt with sliding doors. They were also sold to Essen, where they entered service between 1999 and 2004 after major modifications had been carried out. They are now painted yellow and blue and are used on all routes of the Essen Stadtbahn network.
As the Essen Stadtbahn does not use fully automated driving, and uses overhead power collection, the modifications to both sets of cars involved fitting driver’s cabs and pantographs.
B90/B92/B2K rolling stock

B90 stock train 32 approaches Pontoon Dock
Further vehicles were required as the network grew and as the original P86 and P89 cars had to be replaced due to their unsuitability for the changed system conditions. Bombardier built 23 vehicles of B90 stock in 1991, 47 vehicles of B92 stock between 1993 and 1995 and 24 vehicles of B2K stock in 2001 and 2002. When new the B2K stock differed from the earlier vehicles in appearance due to doors and handrails painted in contrasting colours to their surroundings. They are also fitted with internal LCD display screens. These differences were all mandated by the Rail Vehicle Accessibility Regulations (RVAR) of the Disability Discrimination Act (DDA), which were not in force when the older stocks were built.
The B in the type codes refers to Beckton depot, where they are primarily maintained. They are of a common design and can be operated interchangeably in trains of two. All of them remain in service.

A DLR train is headed by B2K stock car 96, shown at Tower Gateway station

The interior of B92 stock train 49
The DLR fleet at the end of 2004 was:
2244: Bombardier B90, built 1991
4591: Bombardier B92, built 19931995
9299, 0116: Bombardier B2K, built 20012002
The numbering of the last cars can be seen to have restarted at 01 and to repeat the numbers of some of the earlier cars which had been disposed of. The main reason for this was that the DLR computer system had only been designed originally to handle 2-digit car numbers, and an upgrade did not take place until some time after these cars were received.
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About the Author

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Why did a 7.5 Billion contract for railway rolling stock go to Japan?

Or are we brits not capable of this engineering challenge?

Now I wonder what would make the decision makers go against everything that is right,What could be in this for them.I wonder.Dah

Jonathan’s Trading Journal 2 06-21-07

Automated Forex Trading software is a special program designed to analyze the current condition of the foreign exchange and create investments on your behalf. This is one of the essentials that a trader must have along with a good platform and a sound strategy.

Experienced and novice players alike are relying heavily on the benefits of having an automated Forex Trading Software. One of its specific functions is to assess the different variables that affect a certain market and determine if it is favorable for the placement of trades or not. It will take into account the different economic variables such as the GDP and GNP, inflation, current currency exchange, and cash flow. Furthermore, it will not only consider the domestic market but other international economies as well. This is one of the best things with this robot because it will save you so much time from learning the complexities of the foreign exchange and learning how to play with the trends.

However there are several companies that manufacture such products today, a reason why it is very important that you take some time in deciding which will suit your playing style best. Automated Forex trading software should have the ability to analyze the actual market all the time. The success of a trader relies on the reliability of its tools that is why it is very necessary that your robot can gather live data. It must have the ability to present you with solid facts so that you will be assured that it is accurate.

You must also make sure that it is as flexible as possible. As you already know, markets can be very volatile nowadays in such a way that what we previously know as a dormant economy can soon become one of the biggest emerging economies. Trends can be very unpredictable that is why you need a program that can be adjusted anytime a shift in the trend is seen. This where the different expert reviews can help you because they will tell you which among the hundreds of products out there will be able to meet the demands of modern economies.

One of the best characteristics of a good trader is the ability to foresee unfavorable things. Even though an automated Forex trading software robot is supposed to be free from human intervention it will be a good idea if you will monitor it once in a while.

S. Singh often teaches how to trade forex. To learn more about how to trade forex visit http://www.howtotradeforex.biz.

Stock Market Trend Analysis 3/9/09

Stock Markets For Dummies – A Beginner’s Introduction to Stock Markets

Whether you want a quick re-cap of the facts of stock markets or a beginner’s primer, this article gives you a basic understanding of Stock Market For Dummies. There are many reasons you might be interested in learning about The Stock Market from a beginner’s perspective. You might want a quick and dirty low-down on what stock markets are and how they can earn you money. You might be confused about all the Stock Market Investing jargon out there and want someone to clear it all up for you. You might want to Learn About The Stock Market but haven’t a clue where to begin. Whatever your reason, you’re on the right track in wanting to learn how the stock market works because it is one of the surest ways of multiplying your money. Here is the most basic stuff about stock market investing that you need to know to get started (think of this as stock market for dummies): What is the Stock Market? A stock market is essentially like any other market: a place to buy and sell something, which in this case are Stocks. Stocks are instruments of ownership in a company. In other words, owning stock in a corporation means you own a part of that organization. Owning stock also generally gives you the right to vote on important decisions in that company. How Does a Stock Market Work? A stock market works on the same economic principles of supply and demand that any other market works on. When demand is high and supply is limited, the price of stocks goes up; and when demand is low and stocks are aplenty, it drives down the price of stocks. The price of a stock is an important indicator of a company’s viability: if the Stock Price goes up consistently over a long period of time (a year or two), then the stock is generally deemed a good investment. What are the Financial Benefits of Stock Market Investing? Most people invest for two reasons: to maintain their wealth or to increase their wealth. If you’re like most people, you fall in the latter category because you want to make money by investing in stock. The way to earn an income from stocks is through dividends. Companies pay out dividends to its stock holders as a way of thanking them for investing in the company. Dividends are a percentage of the profit that the company has earned. Since you are a part-owner of the company (through your Stock Investment), you are entitled to a part of the Earnings. Your dividend amount generally represents the value of stock you hold in the company. How Soon Can I Make Money with Stocks? Stock market investing is a long-term game plan so be ready to have a long term Investment Strategy. Short term investing (anything less than a year) is called “speculating” and is considered risky. Long term investing is better because stocks tend to fluctuate (sometimes wildly) on a daily basis but become stable over time and it is generally easier to spot (and utilize data from) Stock Market Trends over the long term. What are Stock Market Trends? If you’ve ever watched financial news and analysis you’d have heard of the bull market and the bear market. Essentially the stock market is called bullish when the economy is looking good and more people are Buying Stock than selling it. The stock market is called bearish when more stock selling than buying is going on and the economic outlook is looking towards a downturn or perhaps even a recession. Since stock market trends gradually become apparent over time it is useful to analyze past market data combined with future economic outlooks to predict which direction the stock market will take. Understanding when a bull or bear market is about to hit is the key to understanding when to get in or out of the stock market. Doing your market research is vital to understanding how the stock market functions. And once you understand how it functions, making money from Stock Investing can be a great way to generate income for the years to come. So whether you want to save up for retirement, set up an income stream or become a major player in the stock market, remember to follow the advice given here to Understanding The Stock Market. If you’re a beginner, start by reading up as much as you can on stock market for dummies.
About the Author

Kelly Clifford from StockMarketsMadeSimple.com has put together a complimentary report titled “Stock Market Basics: A Beginners Guide To Understanding The Stock Market” that will likely prove invaluable in putting you on the fast track to becoming a knowledgable and successful Stock Market Investor. To download your copy now instantly.. visit http://www.stockmarketsmadesimple.com/index.php

What would happen if you played the stock market using…?

The same type of chart analysis skeptics use to indicate the “cooling trend”? Looking at this graph, would that mean it’s time to sell short ?

What would happen is that you would be buying and selling stock every single day based on the short-term increases and decreases. If a stock value dropped for the day, you would panic and sell it. If a stock price rose for the day, you would buy it.

Consequently you would be buying high and selling low, and losing a lot of money.