US Stock trading - Options

Preview by Aaron on 11.8.2012

Benefits of trading US stocks 

1. Free platform (can automate buy & sell), low brokerage
2. Free financial analysis (eg money.msn.com)
3. Free software for indicators and charts
3. Can take out money easily
4. Time zone - can trade after work (US Time is 12 hours behind Msia)
    US market opens at 9:30pm & closes at 4pm = Msian time 9:30pm-4am
5. Share gain is tax free - Msian govt encourage more overseas money to flow into Msia
6. Can trade in both direction - whether stocks go up or down
7. Can trade in Options or CFD
8. Big sea - big market capitalization

Comparison of Country GDP

Australia & Asia

NYSE + Nasdaq = 20.8 trillion (USD20800 bil)

HK 2.71trillion

Spore 650 bil

Msia  290 bil

Risk Management 

Learn not to lose money (before learning how to make money)

Rule no. 1 - Never lose money Rule No.2 - Never forget rule No.1 (Warren Buffet)

How to trade in stock

Step 1

Pick the right stock

Right stock = financially strong

Study fundamental analysis using money.msn.com -> investing -> stock

Stock rating 8-10 = strong (has tendency to go up)   1-6=weak (don't buy)

eg. PCLN rating 7 from USD100 to USD240

eg. GM rateing < 6  from USD30 to USD3

Step 2

Pick the fight Timing

Right timing = buy low sell high  or buy high sell higher (get in at lowest price, get out at highest price)

Nobody knows lowest and highest point so go for middle & earn smaller profit (not so risky, won't lose)  

Study technical analysis - 

Small profit = 3-4% price movement in 3-4 days (eg USD600 to USD630)

Step 3

Pick the right type of stock = "Options" 

Use a little money to make lots of money (generate 50% profit)

Mother share - USD600 Options - USD20

When price is expected to go up = buy Call option (design to go down)
When price is expected to go down = buy Put option (design to go up)

Options 
1. Derive value from its mother share price (derivative)
2. When mother stock price goes down option price goes up
3. Price is 5% - 10% of mother share (eg Baidu mother stock price = USD134.96  Option = 7.19 (5%)


Benefit of Options
1. If stock go bust-still can get money via OCC (Options Clearing Company) eg. Lehman Brothers 15.9.08
2. No margin required
3. Price is only about 10% of mother share (affordable)
4. Less risky, even if buy in wrong direction still can make money (buy call & put together)
    Mother share move from 300 to 345 (increase by 15%)
                       Cost
    Call option    15       price move to   45
    Put option     15                                0
                       -----                            ----
                        30                               45     Profit = selling price 45 - cost 30 =15
                       ===                            ===

When to use options
1. Stock must move (price must be volatile)

Robert Kiyosaki
Make money work for you
Most people - work for money (exchange time with money)

Miriam Macwilliam
Qualified investor = make money in both directions

Example of profit from stock trading 
                      Buy     Sold    Profit
1. Google     1319    1730    411    31%
2. Monsanto 7170   11020  3850   53%  in 33 days
3. Boeing
4. Home Depot
5. Yahoo                  
                                          --------
   Target                             10,000   in a year
                                          =====