Cheaper Commissions Not Always Cheaper!

Hi All,

These days it seems that everyone is going for the lowest commission schedule around, looking for ever cheaper commissions on stock trades. This desire has it's costs!

What you don't see by going to a cheaper commission schedule is that there may be strict restrictions in order to get the reduced commissions, the costs associated with other services may be higher, and you may also not get the full breadth of services that other brokerages offer.

1. Restrictions: These could come in the form of account balance minimums, trade count minimums, and qualification periods.

2. Other service fees: The costs for trading non-equity investments like mutual funds, fixed income, and

Looking for Value? Find it here.

Hi all,

At the end of the day you want to be in investments that you know and understand. You want to have your money and time invested in an investment that you have a solid amount of knowledge about, a good deal of experience with, and by all means a plausible case of why your investing in it. The very best investments I have ever made have been due to the following three keys:

1. Knew the subject / topic well.
2. Knew where the industry was going.
3. Knew where my investment was positioned.

If you don't know why you're getting into the investment or why it is good for more than just one reason, you probably should not be in it. People will always say that "those guys got in at the right time" or "they knew something I didn't" or "they must be on the inside", exactly! That's precisely my point.

If you're educated and versed in the topic, you'll know more about it than those who don't. If you're engaged in the issues at hand and know the reasons why something is happening, you'll be able to see what the next steps ought to be.

The idea here is to have a linear vision of the factors and influences of a non-linear environment. Being able to have a "line of sight" or to "cut through the fog" is what counts. And being on top of the game is going to give you that edge.

So how do you apply this to your investment strategies. One, What do you know well and why. Two, define your sources of knowledge and information, and ask if they're enough! Three, do you know how you can implement one and two into a feasible investment strategy that works in the current market place.

This strategy is evident when you hear big investors and smart money managers say they're "in cash" or "not active in the market place". What they're really saying is that they're learning about where to move next, what's going to make them move, and when is the right time. So yes, they are in cash because they're waiting for the right time to get in on something, and they will be certain to know more than just something about.

That's the hidden value!

Sincerely,

My Online Trader

Cash Balance Left Alone? Not good.

In order to keep your money working for you and not your brokerage, be sure to have any cash balances in your account invested in short-term interest bearing investments.

You can buy GIC's (Guaranteed Investment Certificates), Money Market Mutual Funds, or some Fixed Income investments like Bankers Acceptances or Bankers Discount Notes.

Why do you want to do this?

• Even though your broker will pay you interest on the money you leave there, they use that money to lend to others through margin accounts, or they use it to "overnight" themselves. Meaning, they're making money on your money.
  
• If you invest your money into something that is interest bearing, you know what your going to get, and it'll make you think twice about making hasty moves.
  

What to look for?

• Some Money Market Funds have minimum initial purchase amounts, so you might want to get that done first. Then they might have minimum subsequent buys as well, which are typically smaller.
• Some GICs have minimum purchase amounts as well, and you typically have to hold them for a fixed period of time. Plus you can't add to them. But they are insured usually against the issuer from going under.
  
• Most fixed income investments are priced by the firm you trade with, and thus have a commission built into them, so be wary of trading these frequently.
  

Bottom Line:

• Keep your money working for you while your between investments and trades.
• Stay active and aware of what's going on in your account.
  
• Make your money work for only one person, which is you.
  

Sincerely,

My Online Trader

Covered Call Writing with Dividends!!!

Hi All,

Today I am posting about how to earn income in two ways, using 1 strategy with equities and options.

First, find a stock that pays a dividend yielding about 4.5 % or higher and has options traded on it (Canadian or US, it doesn't matter).

Second, take a look at the Call options that are about 3 to 12 months out, and find a strike price that is out-of-the-money by about 2 to 5%, that has a decent premium on it.

Third, once you have found an optimal ratio of stock price, dividend yield, and premium make the trades:

1. Buy the stock in board lots.
2. Write the calls for the corresponding # of shares you have or for the number of contracts on the bid.
3. Wait until expiry or buy-back the calls if they have depreciated significantly to preserve your position.
   

How will you earn the income:

1. You will retain the premium for writing the calls.
   
2. You will earn the dividends on the stock from when you bought it (depending on ex-dividend dates).
3. You will be able to use the income you earned to invest in an interest bearing investment and keep it aside until you want to buy-back the options or otherwise.
   

Time for an example:

• Currently BAC (Bank of America) on NYSE is trading around $36 to $37 a share and has a dividend yield of about 6.97% .
• The January 2009 $40 Calls are trading around $3.40 to $3.60.
  

This means that if you bought 1,000 shares at $37 and wrote 10 contracts at $3.40 you'd get the following:

1. $3,400 for writing the contracts now for the premium.
2. $0.64 a share for possibly 3 quarters = $1.92 x 1,000 shares = $1,920 (or about 6.91% on an annualized return).

Here's the kicker: If you get CALLED AWAY!!!!

• Your shares would be sold for $40.00 a share, and you'd net a further $3.00 a share, which is $3,000 on 1,000 shares.
  

Thus, you could potentially make $8,320 if you did nothing and the stock went $40.00.

If you don't get called away, you still make $5,320 if you did nothing between now and next January.

Not bad, eh?

My Online Trader

The First Post

Welcome to my Blog!

This Blog is dedicated to learning the Ins and Outs of trading Online for yourself using an Online or Discount Brokerage account to trade stocks, options, mutual funds, and fixed income.

I welcome your comments, posts, and questions.

Enjoy,

My Online Trader