Printable View
Merlin and John welcome back Dr. Richard Ebeling to talk about his recent article about The Follies and Fallacies of Keynesian Economics. The trio also look at the current debt picture in the US and the potential for the “End Game”.
http://mediaserver.fxstreet.com/Repo...1105145132.jpg
more...
Selling the put would place $140 in our brokerage account immediately. In return, we would be contractually obligated to buy 100 GLD shares at $114 per share if the option were exercised. We would need to have $11,400 in cash in our account in reserve in case that happened. If (and only if) GLD closed below $114 on the expiration on March 18, then the option would be assigned and the shares would be ours. Our net cost per share would then be $114, minus the $1.40 per share we had received for the puts – a net of $112.60.”Now for the second alternative which is similar but subtly different. In this variation we sell an in the money option put rather than an out of the money one. The effect is to buy the asset at a somewhat higher net cost but still at a discount to current price.
This one has the added bonus of making more money if GLD should soar out of sight than the first method would.Here is how it would work in this case. At the same time as before, instead of selling the $114 put at $1.40, we would have looked for a put at a higher strike price than the $118.36 then-current price. The plan here would be to intentionally have this new put assigned, and in that way acquire the stock. This would happen even if it remained fairly close to the current level and did not pull back all the way to the $114 strike price we were contemplating before. For this purpose, we could have sold the April $119 put for $4.50 per share.Now, if GLD should remain below $119 until the option expiration the shares would be put to us. Our net cost per share would be the $119 that we would have to pay at that time; less the $4.50 that we had already received; for a net of $114.50. That was still a considerable discount compared to the current price of $118.36. We would have a higher probability of acquiring the shares because now they only had to be below $119, not $114 as before.Our upside maximum profit in case the option was not assigned was now higher than with the $114 puts as well.
Because we had collected $4.50 in premium for the put instead of just $1.40, that $4.50 would now be our profit if GLD should zoom higher. If it did, and was above the $119 strike at expiration, then the puts would not be assigned. We would not end up with the GLD shares but we would still get to keep the $4.50 per share that we had received for selling the puts. The trade-off was that with the in the money puts our loss would be greater if GLD should go down instead of up.In summary, here is how the two short put trades stack up. In the captions below, OTM means out of the money option, and ITM means in the money option:
http://mediaserver.fxstreet.com/Repo...0301112357.jpg
more...
Australia posted a seasonally adjusted merchandise trade deficit of A$2.937 billion in January, the Australian Bureau of Statistics said on Thursday - a decrease of A$587 million or 17 percent on the deficit in December 2015.
Attachment 19290
more...
A day before the release of the closely watched monthly jobs report, the Labor Department released a report on Thursday showing that first-time claims for U.S. unemployment benefits unexpectedly increased in the week ended February 27th.
Attachment 19310
more...
2 weeks ago, Larry was on the show talking about a trade he recently opened in Pepsi. He mapped out the trade on air, and talked about the logic behind it. On this show, he shows us the results of the trade, and outlines how he is going to play it going forward. Larry and Merlin also talk about many of the resources available to traders, but free and paid for.
http://mediaserver.fxstreet.com/Repo...1105145132.jpg
more...
Employment in the U.S. increased by much more than expected in the month of February, according to a report released by the Labor Department on Friday, although the report also showed a modest drop in employee wages.
Attachment 19345
more...
Eurozone consumer prices would barely grow this year damped by the sharp fall in oil prices, prompting the European Central Bank President Mario Draghi to deliver more stimulus than what markets hoped, and policymakers expect euro area interest rates to remain very low for a long period of time as the bank signaled that there were limits to how much they can be reduced.
more...
Attachment 19549
Reflecting another steep drop in energy prices, the Labor Department released a report on Tuesday showing a modest decline in producer prices in the month of February. The Labor Department said its producer price index for final demand fell by 0.2 percent in February after inching up by 0.1 percent in January.
more...
Online Trading Academy teaches our students where the proper areas to buy and sell lie on the charts. Those areas, as you may know, are supply and demand levels. However, there seems to be some confusion among traders as to how to identify the best levels for entering or exiting trades.Remember, we want to buy at strong demand levels where the supply is very thin and prices are likely to rise. We want to sell at supply levels where the supply of stock overwhelms the feeble demand that may be there. Prices will halt and reverse when the current trend no longer has the pressure to sustain itself and the opposite pressure exerts itself.We must focus on how strong the opposing pressure is at those levels. For example, we buy at demand levels because they were turning points in the past. They are levels where prices could not continue to drop and started to rise.
This occurs as the supply is becoming exhausted as sellers dump shares onto the market. Eventually prices become so cheap that willing buyers jump in and support the price. When the demand from these buyers exceeds the existing supply from sellers, prices will rise. We focus on that area as an area of demand where we will buy again in the future.
http://mediaserver.fxstreet.com/Repo...0315100143.jpg
When we enter into a long trade, we want to buy at the strongest level of demand in order to have a high probability for success. Most traders think incorrectly that all turning points where prices rose will act as demand. We need to be selective in our trading. We want to find the strongest levels of demand for the best trading opportunities. Those strong levels identify themselves in the way that price leaves the level.Think of a glass filled with water. If you grab hold of the glass and it is filled with lukewarm water, you will be able to hold the glass for as long as you’d like. However, if you grab a glass filled with scalding hot water, you are likely to let go of it very quickly. Demand levels work the same way. If prices enter that area and then move sideways or slowly leave the area, there is not strong buying pressure there and it is a weaker demand level. However, if prices barely enter demand and move quickly away, there is strong buying pressure there and you want to use those areas as buying points in the future.
http://mediaserver.fxstreet.com/Repo...0315100214.jpg
more...
Attachment 19570
Reflecting another steep drop in energy prices, the Labor Department released a report on Wednesday showing a modest decrease in U.S. consumer prices in the month of February. The Labor Department said its consumer price index dipped by 0.2 percent in February after coming in unchanged in January.
more...
Last week I introduced some perceptions people tend to have about aspects of the market and then revealed the truth or reality of those incorrect perceptions. Here are a few more I’d like to share with you:
http://mediaserver.fxstreet.com/Repo...0322083216.jpg
“Futures trading is high risk”“Commission free Spot Forex trading”“I am brand new to trading, I should start by trading stock options”As I said last week, understanding how the markets REALLY work is essential to being able to profit in the markets. If you’ve been struggling to make consistent profits using the “common” strategies found in trading books and promoted by those on Wall Street, maybe it is because those strategies are based off of false perceptions of how the market works. You can learn more about how the market really works and OTA’s simple, rule based supply and demand strategy in our free Power Trading Workshop.Hope this was helpful, have a good day.
more...
Attachment 19712
eurusd and terrorism (bruxelles airport and metro today)
Last week I described a way to use options as a way to trade high-priced stocks, like Google or Priceline, with much less cost and risk than trading the stocks themselves. Below is the chart of Priceline as of our starting point on March 9, 2016.
http://mediaserver.fxstreet.com/Repo...0322092103.jpg
I compared two alternative trades to implement a bearish outlook:Sell the stock short at the price at the time around $1292, with a target around $1100 and a stop-loss price at around $1310.Buying a July put option at the $1300 strike, with orders in place to close out the trade if PCLN hit either our $1310 stop or $1100 target.
That article calculated that of the two trades, the put purchase had a potential to make 62% of the profit that the short stock sale would make if the stock reached the $1100 target; while tying up only 15% as much cash, for a much better cash-on-cash return. Today let’s look at using an additional option to improve the risk-reward possibilities even further.At the time that we could have bought the $1300 put described before for $90.70 per share, we could have simultaneously sold a put near our $1100 target and received about $20.00 per share.
Changing this trade from a simple long option into a vertical spread would do several things:It would reduce the net cash out of pocket required to enter the trade, from $90.70 to $70.70 per share, since we would be collecting $20 per share for the short 1100-strike put.If PCLN rallied to the $1310 stop-loss point, the loss would be less by about two dollars per share – about $14 per share instead of about $16 per share with the long put alone. This is because the short put would lose value in that case (good for us), and this would partially offset the loss in value of our long $1300-strike put.If PCLN did drop down to the $1100 target, the profit on the trade would be about the same with or without the short put, if the decline took a long time. If it took a short time, the spread would not do quite as well as the long put alone.Options at any moment in time may be cheap or expensive, in terms of the amount that traders are willing to pay per unit of time. This factor is dynamic – when expectations change, the option value per unit of time changes too.
We call this factor implied volatility. When we simply own an option, we are fully exposed to those changes in expectations. When we are both short and long options at the same time, then our exposure to these changing expectations is diminished. In this case, options were a little on the cheap side, but not by much. Since they were not extremely cheap they could still get cheaper; so we would want to reduce our exposure to that possibility. Adding the short option to the long option offsets some of our exposure to a change in implied volatility.
Creating this vertical spread was one of a number of ways we could have matched our outlook on the stock’s price to an option strategy. Options can be put together like Lego blocks to create different types of positions for different situations. We can finely tune these positions in ways that are not possible with any other instrument. And, using options can give us entrée to trading in stocks that might otherwise be beyond our reach.The selection of the right strategy is key to option profits. In our classes, we lay out a simple two-step process for selecting a strategy in any given situation. When you know how the pieces fit together, the puzzle becomes a picture.
more...
Attachment 19729
New Zealand posted a merchandise trade surplus of NZ$339 million in February, Statistics New Zealand said on Thursday.
more...
In this column we cover many aspects of options trading, from very basic options strategies to some pretty advanced topics. Many people are drawn to options precisely because there is so much to know about them. It’s an intellectual challenge and a source of fascination. If you are interested in solving puzzles, they can provide an endless supply.
There are many ways to make a profit and have fun at it. If you are an engineer, accountant, programmer, mathematician or would like to be any one of those, you have the type of mind that likes options and can make them work.
But for all their cool attributes – leverage, low cost, multiple strategies – options don’t perform magic. They work really well only when you have a clear idea about what the underlying stock price is most likely to do.The simplest option strategies – buying calls when you’re bullish or puts when you’re bearish – are designed to make large profits on a small risk when you pick the right direction.
They are straightforwardly directional trades. We expect to make money with them only when the stock goes in the direction that we anticipate, and in fact we can do just that.We can enhance the results of these simple directional options strategies by taking into account time decay and stock price volatility. These are the two additional dimensions that only options have. Those dimensions are the secret sauce that makes option trading different.
Still, no amount of finesse in analyzing time or volatility can make up for picking the wrong direction.Some people hear things about options that have a grain of truth but are misleading. For example, they may have been told that selling options (short) is far more likely to be profitable than buying them. That is sort of true, in a way, but with several caveats.
The sellers of options can make a little money even if they are a little bit wrong about the direction of the stock, it is true. But the flip side is that those sellers can also lose a lot of money, many times more than they could have made if they are very wrong instead of just a little bit wrong.
Selling options typically produces mostly modest winning trades, punctuated by occasional large losses. In this way it is like the insurance business. An insurance company takes in many small premiums and occasionally has to pay to rebuild a house that burns down. As long as they take in more in premiums in the long run than they pay out in claims, they will be profitable. Their edge is in knowing the probabilities of houses burning down. Or looked at the other way, of their not burning down (in which case the insurance company makes a profit).
Our edge as option traders comes most importantly from being able to determine with a high degree of accuracy, in advance, at what level a stock’s price is likely to change direction. Being skilled at that is just as important when trading options as it is when trading the stock itself.
more...
Attachment 20023
With imports rising at a faster rate than exports, the Commerce Department released a report on Tuesday showing that the U.S. trade deficit widened more than expected in the month of February. The Commerce Department said the trade deficit widened to $47.1 billion in February.
more...
The expression “Black Swan” existed as a description of something that couldn’t possibly exist, at least as far back as ancient Roman times. It was used in that way until black swans were actually found in Australia in 1697. Since then it has described things that were only thought to be impossible, until they occurred. The world of finance has had many black swans. The market crashes of 1929, 1987 and 2008 are obvious examples.
more...
The global economy is set to continue expanding at a slower pace as financial and geopolitical uncertainties increase and the prolonged weak growth pose greater risks to the outlook, the International Monetary Fund said Tuesday. In its latest World Economic Outlook, the Washington-based lender cut the global economic growth forecast for this year to 3.2 percent from 3.4 percent.
more...
Attachment 20223
The unemployment rate in Australia sank to a seasonally adjusted 5.7 percent in March, the Australian Bureau of Statistics said on Thursday.
more...
Attachment 20310
Consumer prices in New Zealand climbed 0.2 percent on quarter in the first quarter of 2016, Statistics New Zealand said on Monday.
more...
After reporting a sharp increase in new residential construction in the previous month, the Commerce Department released a report on Tuesday showing that U.S. housing starts pulled back by much more than expected in March. The report said housing starts tumbled by 8.8 percent.
more...
Attachment 20352
Japan posted a merchandise trade surplus of 754.985 billion yen in March, the Ministry of Finance said on Wednesday - up 237.9 percent on year.
more...
Alone in studio, Merlin takes a look at the inconceivable market rally which refuses to acknowledge a poor earnings season, and economic data. This transitions to a trade setup and analysis for the platinum futures, offering insight into risk management techniques.
http://mediaserver.fxstreet.com/Repo...1105145132.jpg
more...
Ever wonder what it takes to be a successful market speculator? The first answer that usually comes up is the mastery of chart reading, or another common perception is that one needs to gain lots of information about the companies or markets that he or she chooses to trade. The former is known as technical analysis, while the latter is referencing fundamentals. While it doesn’t hurt to understand both ways of looking at the markets, what I most commonly see that poses the biggest challenge for
more...
Attachment 20708
The unemployment rate in New Zealand climbed to a seasonally adjusted 5.7 percent in the first quarter of 2016, Statistics New Zealand said on Wednesday.
more...
Attachment 20762
Employment in the U.S. climbed by much less than expected in the month of April, the Labor Department revealed in a closely watched report on Friday. The report said non-farm payroll employment rose by 160,000 jobs in April compared to economist estimates for a jump of about 200,000 jobs.
more...
If you are like most people, the savings earmarked for your retirement may be scattered among several different places. Today we’ll look at a few of those possibilities and discuss some alternatives.The point of this discussion is to help you to see the entirety of your retirement asset base as a whole, but one with multiple components; and to think about ways to maximize the overall rate of return.The first thing to do is to categorize those retirement assets that you currently own.
more...
An exit from the European Union posed no positive outcome for the U.K. and the fallout from such an event would be "pretty bad to very, very bad", International Monetary Fund Managing Director Christine Lagarde said Friday.
more...
If you’re someone who has ever considered telling your boss to “shove it,” before jacking in the day job to pursue a career as a stay-at-home trader, in your slippers, then you’re in good company! Unfortunately, the shocking and ironic truth for those who do go ahead and make the leap of faith and quit their 9-5 job to trade from home is that they end up blowing up their trading account and shattering all dreams and aspirations...
more...
The strong criticism faced by the European Central Bank in recent weeks could be the response to some of the bank's stimulus measures blurring lines between monetary and fiscal policy, ECB Governing Council member and Bundesbank Chief Jens Weidmann said.
more...
Partly reflecting a jump in orders for commercial aircraft and parts, the Commerce Department released a report on Thursday showing that new orders for U.S. manufactured goods surged up by much more than expected in April. The Commerce Department said durable goods orders shot up by 3.4 percent.
EUR/USD M5: 47 pips price movement by Durable Goods Orders news event:
Attachment 21245
more...
Attachment 21362
Australia posted a seasonally adjusted merchandise trade deficit of A$1.579 million in April, the Australian Bureau of Statistics said on Thursday - marking a decrease of 20 percent on the deficit in March.
more...
Fitch Rating affirmed Japan's credit rating on Monday, but lowered the rating outlook, citing reduced confidence over the government's commitment to fiscal consolidation.
more...
Attachment 21643
The unemployment rate in Australia came in at a seasonally adjusted 5.7 percent in May, the Australian Bureau of Statistics said on Thursday.
more...
Japan had a merchandise trade deficit of 40.7 billion yen in May, the Ministry of Finance said on Monday.
more...
IHS Global Insight Economist Howard Archer said he believes that the vote to leave the EU is bad news for the UK economy, certainly in the near- and medium-term.
more...
The U.K. is ready to face the future with a strong economy that will adjust to the new situation, Chancellor of the Exchequer George Osborne said Monday.
more...
UK Chancellor of the Exchequer George Osborne abandoned his main target of achieving a budget surplus by 2020, as uncertainty linked to the implementation of the unexpected "Brexit" decision is likely to cause an economic slowdown.
more...
British politicians who campaigned fiercely to leave the European Union have stepped down when the time came to implement the "Brexit", European Commission President Jean-Claude Juncker said Tuesday, reiterating that there will not be any negotiations before the U.K. formally notifies of an exit.
more...
After receiving a standing ovation in his final Prime Ministers Questions session, David Cameron is set to hand over the U.K. premier role to Theresa May later on Wednesday. Hosting his final PMQ in the House of Commons, Cameron said in a light-hearted speech, "I will miss the roar of the crowd, I will miss the barbs of the opposition, but I will be willing you on."
more...
