FUNDAMENTALS
Markets fell yesterday as investors eagerly await the coming job reports. The tech sector fell the most as NASDAQ fell to a 3 days low. The rebound in oil price to $62.78 also put additional pressure on a market that has seen historical highs. What the market needs right now is a good dose of strong data in order to fuel further advances. A favorable job report would certainly be the first thing the market would like to see as that is what the Feds will be paying a lot of attention to right now.
 
TECHNICALS
Markets continue its path sideways as it closed down for the day. The major indices have been moving in a horizontal line for the past half a month and that is not typical of the staircase formation. The staircase formation should take them to new highs before going sideways. This behavior tells me that the markets are up against their first real resistance level since the raly begun. The Dow seemed stuck against the 12315 level and the NASDAQ composite looks up against a wall of metal at the 2450 level. These levels have been tested and failed twice over the last 2 weeks forming a strong technical resistance level. Even though the major indices are off their short term overbought condition, they remain severely overbought on a long term scale. If we do not see a clear break to upside soon, this market may continue to go neutral and then into a correction.

Jason Ng
Founder, Masters ‘O’ Equity
mastersoequity.com
“Your Personal Stock Option Mentor”

By Jason Ng

Robert Kiyosaki says that Option Trading is the investment of the rich.

Indeed, option trading is the most versatile form of investment in the world today. Its versatility has been the topic of many speakers all over the world. Terms such as “Covered Calls” and “Credit Spreads” have become well known amongst traders new and veteran alike.

Option Trading Explained - Simply put, it is the trading of option contracts on a particular stock.

Options Explained – A contract that allows you to sell or buy a stock at a predetermined price within a set time frame.

There is enough material written explaining the technical make up of an option and I shall not dwell into it further in this writing. The purpose of this writing is to explain to you what the effects of option trading is. … let’s go into Option Trading Explained!

Option Trading Explained - What Can Stock Options Do?

Let us first examine the effects of this thing called stock options. Knowing all the effects of stock options allows us to better understand why it is such a celebrated investment tool and also why so many people go bust doing it. Let’s start from the Positive Effects of stock options.

Stock Options are:

Leverage. It allows you to control more shares (100 shares per option) with the same amount of money thereby exponentially increase your returns per dollar.

Discount. Just as you control more shares with just one option, you will then be able to control the same amount of shares with lesser money than before.

Protection. It allows you to protect the stock you hold by owning the right to sell them at a predetermined price no matter what happens.

Regardless of market direction. It allows you to profit from both upward and/or downward moves in the stock.

Creative. It allows you to put different types of options together to form all sorts of investment positions. It can even make money no matter which way the market goes.

And the Negative Effects are:

No value beyond expiration. You can potentially lose all your money along with the expiration of the option.

Negative Leverage. Just like it can amplify your gains, options will also amplify your loses.

Time Decay Effect. Options reduce in value over time and sometimes can completely obliterate any gains from movement in the underlying stock.

Looking at the above effects, it is clear that Option Trading indeed is an extremely versatile investment tool that allows its investor to profit from any market direction, protect his/her stock positions, reduce capital commitment and lots more, based on the way it is utilized.

Conversely, once such power of leverage is being abused, the investor could then lose everything he/she have put in by expiration or lose more from the same stock move than he/she is comfortable with. Also, by holding on to Options, time decay sometimes can obliterate your profits if the movement in the underlying stock is not big enough.

Therefore, investing in options requires careful planning on the part of the investor. You must know for what effect are you using options for and how much you are putting at risk. In essence, using options for Leverage confers the highest risk and the highest rewards and demands that you use only proven strategies with a proven track record.

Using options creatively even allows us to structure investment positions to reap a fixed monthly return that beats the market regardless of which way the market goes! Just like in the Ride the Flow System offered at http://www.mastersoequity.com/MOE_ridetheflow.htm . Where your capital can be fully protected no even if the market enters a severe drop. Sounds amazing?

Option Trading Explained - Conclusion

I hope this “Option Trading Explained” has given you a good overview of the effects of options.

Jason Ng is the Founder of Masters ‘O’ Equity international. He is a fund manager specialising in options trading and his Star Trading System has helped thousands of traders worldwide achieve financial freedom. Please visit Masters ‘O’ Equity’s website at mastersoequity.com.

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