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Ultra-Leveraged, Speculative ETF Strategy
2007-02-10 17:04:05
For those of you who are risk takers, speculators, or just looking to make a quick buck, this next strategy may be for you. Going back to a previous strategy where we were utilizing leveraged ETFs to achieve greater diversification and less risk, we are now going to use those leveraged ETFs to massively leverage our portfolio. As of February 8, 2007, the S&P 500 is currently trading at 1444 and its index tracking stock the SPY is currently trading at 144.60. The market for the month of February has been on a tear and my belief is that we are about to experience a short-term pull back. There are two types of ETFs, there are Ultra -short, which go up 2% for every 1% loss in the S&P and there are Ultra-Long, which go up 2% for every 1% gain in the S&P. To idea of this strategy is if we are bearish on the market, we will buy the Ultra-short and sell the Ultra-long, giving us a 4x leveraged position without buying on margin. The opposite should be done for a bullish market
Read more: Leveraged , Speculative , Strategy

Selling Covered Calls Against LEAPs Positions
2007-02-05 00:29:00
While this strategy can leave the investor slightly unprotected against the downside (or upside) depending on how the strategy is used, it can provide returns that are less volatile and will outperform in a flat or falling market.  The idea here is to expand on a typical covered call trading, holding long shares and selling calls against that position (1 call for every 100 shares).  This strategy is suggested to be used with index funds that follow the broad market indexes, to avoid individual firm risk.  Lets take a look at how this strategy can be used. Portfolio 1 - All Stock SPY - $101,346- 700 shares Portfolio 2 - Using LEAPS 7 SPY December 2008 $120 Call - Total Cost: $23,310 $78,036 in cash While purchasing the call option does entail an additional cost because of the premium, which is $8.49 per share, or a 5.9% premium to the current price, it does allow us to gain a full allocation to the index with about a 5th of the actual cost. We then will look to sell covered call
Read more: Covered

Selling Deep In-The-Money Call Options Against Stocks
2007-02-04 05:32:33
Another strategy that can be used by investors is one that has a high probability of success and a low probability of loss.  This strategy is to provide consistent returns and is not speculative by any means and will not produce outsized returns.  The premise of the investment strategy is to hold long 100 shares of stock of a particular security and selling a deep in the money call option in the hopes of being assigned.  The investor will weigh risk/return on a particular stock and this strategy should be used in a diversified manor to provide more consistency to weigh out any outlier security that does not perform as to expectations. To get a better idea of how this strategy works, we will apply it to Advanced Micro Devices (AMD), which has recently been under pressure from its larger rival Intel.  It is currently trading at $15.69 a share and we will be looking at going long 100 shares of stock.  Which would give us a total cost of $1,569.  Because we like the company and feel
Read more: Money , Options , Stocks

Why Should You Protect Your Principle with the Put Option Dividend Strategy?
2007-02-01 04:03:04
The stock market is full of volatility and this causes a deception of returns to retail investors. For example, lets say that you put $1,000 into the stock market last year and your investment declined 10%, you now have $900 in your investment account. Now, this year your investment increased 10%, most investors would think that they are at break even, but because of compounded returns, they are now left with $990, or a loss of $10. If you were to go back a few years to the end of the bubble this is what the returns looked like: 2000 -9.95% 2001 -13.11% 2002 -23.36% Taking into account compounding that is 40% loss from the highs. So in other words for every $1 invested at the beginning of 2000 in 2002 would now be worth $.60. In order for the investment to get back to break even from that fall, the market would need to return 66.7%. Using the Put Option Dividend (POD) strategy and the Covered Call POD strategy, the investor using the original POD strategy, that original decline of
Read more: Principle , Protect , Strategy

Utilizing Leveraged ETFs to Simulate the Performance of the S&P with Less Risk
2007-01-30 01:22:56
This strategy involves a relatively new investment product to the market known as Ultra shares, which mimic the returns of the underlying index times two. The idea behind the Exchanged Traded Fund (ETF) is that if the S&P 500 increases 1%, the ETF will increase 2% and vice versa for a decline. The worry is that people will use these ETFs as a speculative tool and since they are marginable, they can be traded with 4x leverage. Take for instance a normal ($100,000) portfolio, which is invested in securities that closely follow the S&P 500, so we will use the SPY (iShares S&P 500 Index Fund): We purchase 702 shares of SPY @ $142.45 = $100,000 Possible Outcomes: Market falls 15% = $85,000 Market stays the same = $100,000 Market rises 15% = $115,000 We can simulate this portfolio with the ETF, SSO, offered by Proshares, which is a leveraged S&P 500 ETF. We can purchase $50,000 worth of SSO to create a $100,000 exposure. Here are possible outcomes: We purchase 576 sha
Read more: Leveraged , Performance , Utilizing

Writing Covered Calls Against the Dividend and Married Put Option Strategy
2007-01-29 04:32:02
The idea here is to combine two very conservative strategies, covered call writing and married puts on dividend paying stocks. Both strategies can be utilized in a self-directed IRA fund, which will benefit from the tax-deferred nature of the account type. The idea with combining both the married puts strategy as describe in the previous post and covered call writing strategy that will be described in this post is the low risk nature of a married put on a dividend paying stock and the monthly/bi-monthly income generated by selling calls against the shares held in the portfolio. In the previous example, I described a purchase of 100 shares of Altria Group (MO) at $88.00 and combining that with one January 2009 $90 Put Option at $8.80 with a total cost of $9,640. With this current setup the investor is protected to the downside by the dividends received on the 100 shares of Altria and can participate in the upside. Since we are currently long 100 shares of Altria Group, we can now se
Read more: Covered , Dividend , Strategy

Low-Risk Trading Strategy using Married Put Options and Dividend Paying Stocks
2007-01-28 22:42:22
What if you could go back 7 years to the very top of the stock market bubble, what would you do differently? What if you could have bought insurance on the performance of the stocks in your portfolio? There exists a strategy that protects the investor from both downside risk and opens it up for unlimited profit potential. It is the same as an insurance policy, you pay a little as you go along, for protection against loss. Today there exists opportunities that provide investors with an at worst loss of $0.00 and an unlimited profit potential over a two year period. As with everything dealing with the stock market, there is never a free lunch, and yes there is a time value to your money, that even though you might have a realized loss of zero, you may have less buying power in the future. The strategy is a well known strategy known as a “Protective Put” or “Married Put“, which involves purchasing an interval of 100 shares of a particular stock and buying one p
Read more: Dividend , Options , Stocks , Strategy , Trading

TheFinancialWhiz.Com is Up and Running
2007-01-18 04:11:38
Welcome to the blog and website of Bryan Moore.  Please check back frequently for updates in regards to financial situations and strategies that students, like myself, can employ to better understand and profit from the complex world of financial markets.  I hope you enjoy.
Read more: TheFinancialWhiz

Stocks that fit the profile for the Put Option Dividend Strategy
2007-03-01 20:02:25
BMY - Bristol Myers Squibb WB - Wachovia Bank C - Citigroup UST - UST Inc. PTR - PetroChina NCC - National City FITB - Fifth Third Bank VZ - Verizon Communications SO - Southern Company DUK - Duke Energy ED - Cons Edison T - AT&T MRK - Merck MO - Altria Group More to be added soon.
Read more: Dividend , profile , Stocks , Strategy

February 27, 2007: A Well-Needed Breather
2007-03-01 04:43:10
The main premise of this site is to develop and communicate new trading strategies, but sometimes there is a shock that comes along that tests even the best disciplined investors. Tuesday, February 27, started out with an approximate 10% drop in the Chinese A-shares stock market, which sparked a worldwide equity sell-off. While the 10% drop sounds like a lot, the Chinese stock market since February 5th has seen a non-stop 15% growth up until this drop. The problem is that there is so many risk-adverse investors right now that they weren’t valuing investments with appropriate risk premiums. The emerging markets do present some risks that are not an issue in developed markets, but investors were valuing those securities as if they were in a developed market environment. Another issue was that of the massive selling and profit-taking that went on domestically and around the world. This little shock in a somewhat unrelated region of the world sparked this weak open and market per
Read more: Breather

Update on the Utilizing Leveraged ETFs to Lower the Risk in Your Portfolio
2007-03-03 17:52:11
When I first introduced this strategy, I mentioned how it could have been used following the recession from 2000 - 2002. A new interest has been shown in this strategy following the 4% drop of the S&P that occurred in the month of February. Investors are finally realizing that they had taken on too much risk and now they are rebalacing their portfolios. Another new issue is how correlated the global markets are now, most investors thought that by investing in International companies that they were protected from negative news domestically, however, last Tuesday has proved otherwise. Over the past month the S&P 500 has declined 4%, while aggregate bonds has increase around 1.25%. If someone where to enter into the leveraged ETF strategy on February 1, this is what their portfolio would have looked like today, March 3, 2007. I will also provide a comparision of what your portfolio would have looked like if you were only invested in the S&P 500 ETF. $100,000 Leveraged ETF
Read more: Lower , Portfolio , Update , Utilizing

Utilizing Leveraged and Unleveraged ETFs and Mutual Funds to Create a Fully Diversified Portfolio
2007-03-08 06:58:02
As mentioned in a previous post about the performance of the Leveraged ETF portfolio, I am currently testing a fully diversified portfolio that should perform in any type of market. While the performance may be mute and more of an average, the risk should be a lot less than a pure equity portfolio. The performance is also magnified by the leverage aspect of the portfolio which will increase the total returns, but may increase the portfolio’s risk. I put together a portfolio of different ETFs and Mutual Funds and the composition is as follows: (Name - Ticker Symbol - Allocation) Direxion S&P 500 Bull 2.5x - DXSLX - 33.74% ProFunds Ultra International - UNPIX - 12.27% ProFunds Ultra Emerging Markets - UUPIX - 4.29% ProShares Ultra Real Estate - URE - 4.91% PowerShares DB Commodity Index Tracking - DBC - 6.13% Direxion 10 Year Note Bull 2.5x - DXKLX - 10.74% ProFunds U.S. Government Plus - GVPIX - 6.13% Vanguard Convertible Securities Funds - VCVSX - 6.13% PowerShares Listed P
Read more: Mutual Funds , Portfolio , Utilizing

Update on the Ultra-Leveraged, Speculative ETF Strategy
2007-03-08 02:34:20
It has been one month since I posted the Ultra -Leveraged , Speculative ETF Strategy on the site. I have actively been testing this strategy since I posted the idea. In the example, I had mentioned how we looked to take a bear market approach to the S&P 500 since it was approaching the 1999-2000 peak and the market has not corrected more than 4% in over three years. Here is the update as of March 7, 2007: On February 8, 2007 the following purchases were made in the $145,000 portfolio: Long SDS - Proshares Ultrashort S&P 500 ETF - Trading at $56.20 We take a $145,000 position in that ETF by purchasing 2,580 shares for a total cost of $144,996 Short SSO - Proshares Ultralong S&P 500 ETF - Trading at $89.47 We take a $145,000 short position in this ETF by purchasing 1,620 shares for a total cost of $144,941.40 Let us fast forward to the present day of March 7, 2007 and take a look at the portfolio’s performance. Long 2,580 shares of SDS - Proshares Ultrashort S&P 50
Read more: Update

Option Collars - Low-Risk, Low-Cost, Market Perform Trading Strategy
2007-03-10 06:04:02
This trading strategy is very similar to the Put Option Dividend Strategy , but this strategy can be applied to stocks that don’t pay dividends, which provides some versatility and diversification. It would also keep transaction costs low as opposed to the Put Option Dividend Strategy with Covered Calls Strategy, which requires more options to be sold instead of one long-term option. The ideal situation would be to combine the two approaches into companies that you feel are fundamentally sound, and you will have a market-beating, low risk portfolio of stocks that generate returns greater than or equal to the market. The stock I would like to use as an example of this strategy is Google (GOOG). While the ability of you or I to purchase 100 shares of Google may be extremely limited because of its current trading price of $452.96 for a total cost of $45,296.00, it does represent a prime example of this type of strategy. Today (March 9, 2007) we purchased the following position: T
Read more: Collars , Market , Trading , Trading Strategy

The FOREX Market: Prime Conditions for the Reverse Scale Trading Strategy
2007-03-14 05:32:38
For those of you who have never heard of the foreign exchange market, you are missing out on the 24-hours-a-day market that is only closed Friday evening through Sunday afternoon. This fast moving market gives you the ability to leverage your transactions not by the typical 2x that you are allowed in the US Stock Market s, but up to 400x in some FOREX intermediaries (meaning for every $1 in your account you can control up to $400 of currency). While this huge leverage can significantly amplify your returns, it can also work against you just as fast until you are left with nothing. A commonly accepted figure is that 95% of Retail Foreign Exchange traders lose money while in this market; what separates the winners from the losers is money management and trading strategy. What makes this market so unique is that you do not pay commissions to trade, you pay the bid/ask spread, which ends up going to your FOREX broker, The cost is not immediately deducted from your balance, it just goes into
Read more: Reverse , Scale , Strategy , Trading , Trading Strategy

The Turkish Lira Carry Trade: High Interest Rate, Stable Currency
2007-03-17 01:06:53
For the past few years, probably the most popular currency trading strategy is that known as the Carry Trade . Traders feel they are acting as banks, keeping the interest rate differentials by paying out lower interest rates (Borrowing) and bringing in money through higher interest rates (Lending). The best part about this type of trade is that you not only keep the interest rate differential, but you can also leverage that interest rate differential to create a pseudo-residual dividend payment. The basic premise behind the carry trade is that in any FOREX transaction you are simultaneously selling one currency and buying another; therefore, you are simultaneously borrowing at one interest rate and investing at another interest rate. For example, we want to go long the US Dollar and short the Japanese Yen (a popular currency to short in a carry trade). We are, in fact, able to borrow our Yen at .8% and we are able to invest in US Dollar at 4.925%; thus, we are able to keep the interest
Read more: Currency , High Interest , Interest , Stable , Turkish

Chinese Yuan: The New Carry Trade Choice
2007-03-20 18:58:16
As mentioned in my previous post in regards to the New Turkish Lira being the top currency choice to hold long in a carry trade portfolio, my new short position choice is now the Chinese Yuan. The FOREX broker that I use, Oanda, is currently offering an interest rate of 5.925% per annum to traders who hold the USD/CNY long, meaning long USD and short CNY. Even though the Chinese Yuan is currently being allowed to appreciate by its government, the Yuan has only appreciated against the dollar by about 3.6% over the past year. It is not in the best interest of the Chinese government to allow its currency to appreciate greatly against the other world currencies, especially the US Dollar, because of China’s dependence on exports. All the talk over the past few weeks has been about the carry trade implosion when Japan announced and put into action its end to the 0% interest rate policy.  Over the past few days, all the talk has shifted to the Swiss Franc because investors are now look
Read more: Carry , Carry Trade , Choice , Trade

The Chinese Yuan Carry Trade Basket Experiment
2007-03-24 07:35:07
After writing about the viability of a carry trade involving the Chinese Yuan, I got to thinking about how I could develop a basket of currencies to create a diversified carry basket involving a number of major and exotic currency pairs. This basket would seek to profit from the low volatility of the Chinese Yuan and from the large interest rate spread received for holding the USD/CNY. In my previous post in regard to using the Chinese Yuan as a short, I illustrated the interest rate spreads with ten different currencies; I have taken those ten currencies and equally invested them against the Chinese Yuan. The basket is currently set up to make approximately 38.05% in interest a year, at the current interest rates. At first glance the strategy may appear to be risky, but this basket is only leveraged at 5 times the balance. The asset allocations for the basket are below with unit values and approximate USD values. As you can see from the $100,000 basket, I am short $500,000 worth
Read more: Basket , Carry , Experiment , Trade

Chinese Yuan Carry Trade Basket - Interest Reinvestment Plan
2007-04-01 05:47:28
In the previous post entitled “Chinese Yuan Carry Trade Basket Experiment,” I described the basic composition of the basket of currencies in that post and this post I have set out to develop a plan to further take advantage of the interest that is received on the currency positions.  I looked to a popular stock investment strategy, entitled DRIP (Dividend Reinvestment Plan), takes the dividends that a company pays on its stock reinvests the dividend into that company’s stock. The DRIP strategy runs off of the idea of compounding, where you are receiving dividends, reinvesting those dividends, and then earning dividends off of your initial investment plus the stock which was purchased in the reinvestment plan. I am proposing using the idea of the DRIP strategy in combination with the carry trade basket so that the interest that is paid on the basket is reinvested equally over the entire basket, instead of different amounts being invested in the specific currency pair
Read more: Carry Trade , Chinese Yuan , Interest

An Update on the “Chinese Yuan Carry Trade Basket Experiment”
2007-04-08 02:29:30
The success of this basket so far is exceeding my initial expectations. I have uploaded a spreadsheet of the account transactions, including interest payments, available for download if you wish to inspect the results. While the overall sentiment over the past few weeks (since March 20, 2007) has been bearish the dollar, I still feel that this basket can still continue similar returns in any currency environment. I am a bit disappointed with Oanda for increasing the interest rate at which an investor can borrow at in Chinese Yuan (Previously it was -1%; now it has increased to .5% for a total increase of 1.5%), but we can make due with what we have. The results after two weeks: Total Increase (Decrease) in Account Balance: $1,855.44 Total Increase (Decrease) in Unrealized Gains: ~$6,000.00 Total Increase (Decrease) in Net Asset Value: $7,855.44, or a 7.86% Return in Two Weeks The 7.86% return in two weeks represents an annual return of 204.36% without compounding. Now the timing of the
Read more: Basket , Carry , Carry Trade , Chinese Yuan , Experiment , ldquo , rdquo

April 15, 2007 - Chinese Yuan Carry Trade Basket Update
2007-04-16 05:32:00
Here is an update on the performance of the Chinese Yuan Carry Trade Basket .  The experiment was started with a base of $100,000 on March 20, 2007. Since Inception: Increase (decrease) in Account Balance: $2,646.52 Increase (decrease) in Unrealized Gains: $9,830.41 Increase (decrease) in Net Asset Value: $12,476.93 Total Portfolio Value: $112,476.93        +12.48% Since Last Update on April 7, 2007 (One Week): Increase (decrease) in Account Balance: $791.08 Increase (decrease) in Unrealized Gains:$3,830.41 Increase (decrease) in Net Asset Value: $4,621.49 The basket has been the beneficiary of deteriorating fundamentals of the US Dollar.  All the positions in the basket are in profit, except for the the USD/CNY positions, which is our carry trade borrowing currency.  Please check back for further updates at a later time.  Please post any questions you may have.
Read more: Carry Trade , Chinese Yuan

Stock Portfolio Strategy - Leveraged ETF and Fixed Income Model Portfolio
2007-04-19 02:55:59
Investment Strategy : The portfolio strategy was developed around the use of the new leveraged ETFs (Exchange Traded Funds) that seek to double the daily performance of a particular index. The strategy is to create a diversified portfolio, which will lower the risk of the portfolio as a whole, all while maintaining the profitability of investing in an index. The goal of this portfolio is to allow a long-term investor to create a basket of securities that do not limit the upside potential of being invested in equities, while creating a cushion if the equity markets become negative. The main focus of the portfolio is for capital preservation, which is accomplished by investing in two asset classes that typically move inversely depending on the market conditions. Ideally, the portfolio would be rebalanced yearly to preserve the initial allocations. The yearly rebalancing will take profits on a security that has increased in value and add to positions in a security that have decreased
Read more: Fixed , Income , Leveraged , Portfolio , Stock

Utilizing “Hedge Fund” Mutual Funds to Generate Consistent Returns
2007-05-30 13:45:40
The rules regarding hedge fund investing are very strict and they restrict investors with a small asset base from participating in the lucrative returns that come with the asset class. However, there are mutual funds currently employing strategies typically seen in hedge funds. The construction of this portfolio strategy is similar to that of a “fund of funds” hedge fund approach, which invests in different hedge funds that use various investment strategies. The approach of purchasing many “hedge-fund” mutual funds, gives the investor diversity which combats the potential risks that come with investing in individual management firms and potential fund-related risks. The back-test of an approach utilizing the “hedge fund” mutual funds shows comparable returns to that of overall equity markets—with much less volatility. The portfolio appears to be a great hedge against market downturns because the strategies used in the majority of the funds are long-short, which involv
Read more: Funds , Hedge , Hedge Fund , Mutual , Mutual Funds , Returns , Utilizing

Chinese Yuan Carry Trade Basket Update - June 7, 2007
2007-06-07 19:10:38
Here is an update on the performance of the Chinese Yuan Carry Trade Basket . The experiment was started with a base of $100,000 on March 20, 2007. Since Inception: Increase (decrease) in Account Balance: $7,379.42 Increase (decrease) in Unrealized Gains: $12,751.94 Increase (decrease) in Net Asset Value: $20,131.36 Total Portfolio Value: $120,131.36 +20.13% Although the Chinese Yuan has been gaining considerable strength over the past three months, declining about 1.31%, my belief is that the currency will tread water for now.  The quick decline was due to political pressure placed on China to appreciate the Yuan.  I have also been running the Chinese Yuan Carry Trade Basket at double the size of the positions as was presented in the original post.  The performance of that fund is just two times the above performance figures.  Please check back for further updates at a later time.  I would appreciate any suggestions on improving the strategy.
Read more: Update

How to Create Synthetic FOREX Currency Pairs
2007-06-13 19:05:17
When trading FOREX, investors usually have major currency pairs at their disposal, but if they wish to trade in some of the exotic currency pairs, their options are somewhat limited. The problem that traders face most often is that these exotic currencies are paired up against either the US Dollar or the Euro; therefore, if someone wishes to trade the Mexican Peso against the Japanese Yen, he would be out of luck. Nevertheless, this trade is possible—it just requires a little extra work on the trader’s behalf. In the above example of using the Mexican Peso and the Japanese Yen, a trader could accomplish the desired trade by tying the USD/JPY and the USD/MXN together. The idea in doing this would be to have the zero USD exposure, giving the trader the synthetic MXN/JPY pair. For instance if a trader wanted to go long $5,000 worth of Mexican Pesos against the Japanese Yen, he would need to go short 5,000 units of the USD/MXN (short USD/long MXN), giving them a $5,000 short exposure t
Read more: Currency , Pairs , Synthetic

The “Expensive” Truth About Rydex CurrencyShares ETFs
2007-06-12 06:39:23
Over the past couple years Exchange-Traded Funds have been popping up quickly; first they appeared in the general areas of the market, and now they are moving into the niche markets. In the past year, Rydex has introduced eight new ETFs, known as CurrencyShares, into the market. These ETFs focus purely on currency. CurrencyShares Euro Trust (Ticker: FXE) CurrencyShares Mexican Peso Trust (Ticker: FXM) CurrencyShares Swedish Krona Trust (Ticker: FXS) CurrencyShares Australian Dollar Trust (Ticker: FXA) CurrencyShares British Pound Trust (Ticker: FXB) CurrencyShares Canadian Dollar Trust (Ticker: FXC) CurrencyShares Swiss Franc Trust (Ticker: FXF) CurrencyShares Japanese Yen Trust (Ticker: FXY): According to the Rydex Prospectuses, the ETFs allow investors to buy into a trust denominated in the particular currency that bears interest according to that currency’s particular interest rate. These funds seem to hit the market at the perfect time—right at the turning point of further
Read more: ldquo , rdquo , Truth

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