"You can be bad if you're young, but you can not arm when you are old." That was the slogan a few years ago in a financial services TV commercial.
Truer words were never spoken.
I was relatively poor when I was young. Just about everyone I knew and it was nice. We lived an almost communal lifestyle, sharing money, accommodation, food, beer, cigarettes and other necessities of post-adolescent life. Would it be as much fun as I had to do it again today? Would I do it again? Not on your life!
Now I'm anything but a financial genius, but there are five basic principles that I have learned and used to secure our financial future. And while far from rich, I am confident that I will not have to live in a refrigerator box when I stop working and that my wife is able to comfortably carry on in the event of my demise are premature. (You should know that I'm at an age where I think eighty is a premature death!)
Build a secure financial future related to rocket surgery? Absolutely not - you have to do five important things to get started:
1. Determine your short and long term financial goals. Start by taking a comprehensive snapshot of your current situation - your assets, net income, debts and living expenses. Once you have done this you can start setting long and short term financial goals. Decide what lifestyle you want to enjoy between now and when you retire, what retirement lifestyle you expect to have and what kind of education do you expect for your children.
2. After you determine where you are now and where you want to take in the future steps to your ability to come to protect it - and stay once you arrive there. A large part of the financial programs your family is to insure against large financial losses. There are simply no guarantees against serious illness, accident or untimely death. So take the necessary measures to ensure against loss of life, loss of income and loss of physical assets.
3. First pay themselves. Save at least 10% of pre-tax income - more if possible. Paying your mortgage as quickly as possible, especially in times of low interest rates. In the short term, you'll be better off reducing a mortgage that costs 6% over a taxpayer earning around 1.5% (or less) in a savings account.
Maximize your RSP/401K contribution every year and make the contribution at the beginning rather than at the end of the year. Just do substantially the size of your retirement nest egg will increase when you are ready to make money from you.
4. Avoid credit traps. When using credit cards you always pay any money due for interest is due. Consider paying off your credit card immediately if you have money in a savings account - as with the mortgage, the interest rate on savings is certainly less than what is charged by the credit card company. Avoid using credit cards for cash advances. Usually the interest costs are higher for these costs and start immediately. If you are carrying a balance on your cards to try to negotiate a lower rate with the credit card company. If you need urgent money, it is usually cheaper to negotiate with your bank or credit union. A personal loan
5. Finally, to protect in the event of your death your family. Making a will. If you die without a will in all probability the only thing you can really let your loved ones is a bloody mess - one that would take many years and a lot of money to find out.
Without a will, the court / government decide how your property and assets are distributed. I would expect that there are two chances that they act in a manner consistent with what your needs may be - slim and none!
Making a will does not mean that the Grim Reaper is about to visit you. It simply means that your business in ways you want to be sorted and, as a result, you can protect your loved ones. About your life with a calm mind, because
These five principles are just a starting point - a few suggestions that any financial management professional can improve and expand on. When I talk about how I over time have a regret my financial affairs handled it is not enough enlisting professional help. When we started, the financial management company was not as big and not as advanced as it is today. Who knows, with better help, I would write some of this warm Caribbean tax haven quite a cold Calgary office!
"Do not try this alone - use a trained professional," is absolutely the best advice that I'm really qualified to give.
Dr. Tom Olson © 2004, All rights reserved.
Permission to reprint article granted as long as this signature remains intact.
Dr. Tom Olson is the author of Don? T Die with your helmet on. For more information about Dr. Tom's book and his work
Sunday, 23 February 2014
Sunday, 9 February 2014
Straddle Strategies in Option Trading
The straddle strategy is an option strategy based on buying both a call and put in a stock. Note that there are various forms of straddles, but we will only be covering the basic straddle strategy. To initiate a Straddle, we would buy a Call and Put of a stock with the same expiration date and strike price. So we would initiate a Straddle for company ABC by buying a June-$ 20 Call as of June $ 20 Put.
Now why would we want to buy both a call and a put? Calls for when you expect the stock to go up, and Puts are for when you expect the stock to go down, right?
In an ideal world, we want to be able to predict the direction of a stock clearly. However, in the real world, it is very difficult. On the other hand, it is relatively easier to predict whether a stock is going to move (without knowing whether the move is up or down). A method for predicting volatility with the technical indicator called Bollinger Bands.
For example, you know that the annual report of ABC's coming out this week, but do not know whether or not they will surpass expectations. You might assume that the stock will be very volatile, but because you do not know the news in the report, you would not have a clue which direction the stock will move. In cases like this, would adopt a strategy Straddle good.
If the price of the stock shoots up, your call will be gone In-The-Money, and your Put will be worthless. If the price plummets, your Put away In-The-Money, and your call will be worthless. This is safer than buying either just a call or a put simply. If you just bought a unilateral option, and the price goes the wrong way, you look at possibly losing your entire investment premium. In the case of Straddles, either way you will be safe, if you spend more at first because you get the premiums of both the Call and Put to pay.
Let's look at a numerical example:
For stock XYZ, let's imagine the share price is now $ 63. There is news that a lawsuit against XYZ will close tomorrow. Whatever the outcome of the suit, you know there will be volatility. If they win, the price will jump. If they lose, the price will fall.
So we decide to Straddle strategy on the XYZ stock initiate. We decide to buy a $ 65 Call and a Put on XYZ $ 65, $ 65 strike price that is closest to the current share price of $ 63. The premium for the call (that's $ 2 Out-Of-The-Money) is $ 0.75, and the premium for the Put (that's $ 2 In-The-Money) is $ 3.00. So our total initial investment is the sum of two contributions, which is $ 3.75.
Fast forward two days. XYZ won the legal battle! Investors are more convinced of the stock and the price jumps to $ 72. The $ 65 Call is now $ 7 In-The-Money and the premium is now $ 8.00. The $ 65 Put is now Way-Out-Of-The-Money and its premium is now $ 0.25. If we exclude both positions and sell both options, we would cash in $ 8.00 + $ 0.25 = $ 8.25. That is a profit of $ 4.50 on our initial investment $ 3.75!
Of course, we could just buy a basic call option and earned a greater profit. But we did not know which direction the stock price would go. If XYZ lost the legal battle, the price would have dropped $ 10, making our Call worthless and so we lose our entire investment. A Straddle strategy is more conservative and will profit if the stock goes up or down.
If Straddles are so good, why does not everyone use them for any investment?
It fails when the stock does not move. If the share price fluctuates around the initial price, both the Call and Put will not be that much In-The-Money. Moreover, the closer the cheaper the premiums at maturity,. Option premiums have a Time Value associated with them. So an option expires this month will be a cheaper premium than an option with the same strike price expiring next year.
So in the event that the share price does not move, the premiums of both the Call and Put will slowly decay, and we could end up losing a large part of our investment. The bottom line is: for a Straddle strategy to be profitable, there must be a clear movement and volatility in the share price.
A more advanced investor can tweak Straddles to create. Many variations They may have different amounts of Calls and Puts with different prices or buy Strike Expiration Dates, modifying the Straddles to suit their individual strategies and risk tolerance.
Steven is the webmaster of To learn more about Option Trading or Technical Analysis learn, do visit for various strategies and resources to help your stock market investments. More...
Now why would we want to buy both a call and a put? Calls for when you expect the stock to go up, and Puts are for when you expect the stock to go down, right?
In an ideal world, we want to be able to predict the direction of a stock clearly. However, in the real world, it is very difficult. On the other hand, it is relatively easier to predict whether a stock is going to move (without knowing whether the move is up or down). A method for predicting volatility with the technical indicator called Bollinger Bands.
For example, you know that the annual report of ABC's coming out this week, but do not know whether or not they will surpass expectations. You might assume that the stock will be very volatile, but because you do not know the news in the report, you would not have a clue which direction the stock will move. In cases like this, would adopt a strategy Straddle good.
If the price of the stock shoots up, your call will be gone In-The-Money, and your Put will be worthless. If the price plummets, your Put away In-The-Money, and your call will be worthless. This is safer than buying either just a call or a put simply. If you just bought a unilateral option, and the price goes the wrong way, you look at possibly losing your entire investment premium. In the case of Straddles, either way you will be safe, if you spend more at first because you get the premiums of both the Call and Put to pay.
Let's look at a numerical example:
For stock XYZ, let's imagine the share price is now $ 63. There is news that a lawsuit against XYZ will close tomorrow. Whatever the outcome of the suit, you know there will be volatility. If they win, the price will jump. If they lose, the price will fall.
So we decide to Straddle strategy on the XYZ stock initiate. We decide to buy a $ 65 Call and a Put on XYZ $ 65, $ 65 strike price that is closest to the current share price of $ 63. The premium for the call (that's $ 2 Out-Of-The-Money) is $ 0.75, and the premium for the Put (that's $ 2 In-The-Money) is $ 3.00. So our total initial investment is the sum of two contributions, which is $ 3.75.
Fast forward two days. XYZ won the legal battle! Investors are more convinced of the stock and the price jumps to $ 72. The $ 65 Call is now $ 7 In-The-Money and the premium is now $ 8.00. The $ 65 Put is now Way-Out-Of-The-Money and its premium is now $ 0.25. If we exclude both positions and sell both options, we would cash in $ 8.00 + $ 0.25 = $ 8.25. That is a profit of $ 4.50 on our initial investment $ 3.75!
Of course, we could just buy a basic call option and earned a greater profit. But we did not know which direction the stock price would go. If XYZ lost the legal battle, the price would have dropped $ 10, making our Call worthless and so we lose our entire investment. A Straddle strategy is more conservative and will profit if the stock goes up or down.
If Straddles are so good, why does not everyone use them for any investment?
It fails when the stock does not move. If the share price fluctuates around the initial price, both the Call and Put will not be that much In-The-Money. Moreover, the closer the cheaper the premiums at maturity,. Option premiums have a Time Value associated with them. So an option expires this month will be a cheaper premium than an option with the same strike price expiring next year.
So in the event that the share price does not move, the premiums of both the Call and Put will slowly decay, and we could end up losing a large part of our investment. The bottom line is: for a Straddle strategy to be profitable, there must be a clear movement and volatility in the share price.
A more advanced investor can tweak Straddles to create. Many variations They may have different amounts of Calls and Puts with different prices or buy Strike Expiration Dates, modifying the Straddles to suit their individual strategies and risk tolerance.
Steven is the webmaster of To learn more about Option Trading or Technical Analysis learn, do visit for various strategies and resources to help your stock market investments. More...
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