Archives for August 2012

August 2012 - Page 2 of 20 - Money Morning - Only the News You Can Profit From

Options Trading Strategies: What You Need to Know About LEAPS, Spreads and Straddles

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There are hundreds of option strategies. And they can be vastly different in terms of tactics and desired outcomes.

But in fact, there are really only a few basic strategies, and everything else is built on these in some form. This range of possible strategic designs is what makes the options market so interesting, challenging, profitable… and also nice and risky.

Are you surprised by my characterization of risk as "nice?"

Well, "risk" and "opportunity" are really the same thing, and every option trader needs to accept this.

Because if you want to go fast and get some serious movement, well, you have to climb on board the rollercoaster first, even if it scares you a little bit.

In my last options trading strategies article I took the mystery out of long calls, long puts, covered calls, short puts and insurance puts.

But the truth is those are only five of the eight general strategies (and "families" of strategies) we use here At Money Map Press.

Today I'd like to tell you about the final three, explaining what you need to know about LEAPS, spreads, straddles.

Let's get started with LEAPS.

Understanding LEAPS Options

This strategy can be an attractive alternative to the otherwise very short lifespan of most options. And the potential for gains in either long or short LEAPS trades is substantial.

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Three Top-Notch Choices for Yield-Starved Investors

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My dad held up his hands and shrugged his shoulders. "But what can I do in a yield-starved environment?" he asked.

"Plenty, actually," I told him.

In fact, there are a wide-range of choices available for income-hungry investors who are struggling to overcome the Fed's disastrous zero-interest rate policies.

Obviously, though, the suitability varies widely depending on individual liquidity, credit and yield requirements.

Here are some of the more interesting options I've been exploring lately:

Near-Term Tax Free Fund (NEARX): From U.S. Global Investors, this fund is billed as an alternative for investors who want safety but are willing to take on a bit more risk.

I like the fact that the fund is a very consistent performer with more than 10 years of positive numbers in the record books. I also appreciate that the fund has been around since December 1990, particularly since I view it as a possible substitute for traditional money market funds or even CDs.

Morningstar gives NEARX 4-Star ratings overall in the 3-, 5-, and 10-year categories, while Lipper bestows 5 stars for preservation, expense and tax efficiency.

The fund's goal is pretty straightforward. It invests in municipal bonds with short-term maturities issued by state and local governments nationwide.

Examples include holdings from the City of Chicago, the Commonwealth of Puerto Rico, and the City of San Antonio Texas Water System Revenue.

The strategy is pretty simple. With at least 80% of its net assets invested in investment-grade munis, it's exempt from federal income tax — including my personal "favorite" middle-class eviscerator, the alternative minimum tax.

Maturities are kept to five years or less to avoid the volatility associated with longer-dated issues and the threat of rising interest rates. The average maturity is 3.40 years, while the average duration is slightly lower at 3.06.

30-Day SEC Yield: 1.03%

Expense Ratio: .45%

Note: Don't be unnecessarily put off by the 1.03% yield. Remember this is a tax-exempt fund.

On a tax equivalent basis, the yield jumps to 1.77% for an individual in the 35% tax bracket. That's actually higher than the yield on 10-year Treasuries as of press time.

iShares Morningstar Multi-Asset Income Index Fund (IYLD): From iShares, this fund is a more aggressive choice for income-hungry investors. It tracks the underlying Morningstar Multi-asset High Income Index, which is itself comprised of equity, fixed income and alternative income exchange-traded funds (ETFs).

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Trump: If Things Don't Change Soon "We're Not Going To Make It."

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By Terry Weiss, Money Morning The U.S. economy is in "deep, deep trouble" and nearing a point of no return. That's according to billionaire Donald Trump speaking on Fox News. He warned investors that four more years of our current leadership puts the economy – indeed the entire country – in grave danger. According to […]

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Oil Prices Dip After Hurricane Isaac Weakens

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After the country braced for the worst outcome, Hurricane Isaac spared the oil industry from costly damage, and oil prices erased earlier gains.

Isaac lost intensity since making landfall Tuesday night, taking the pressure off crude. Benchmark oil fell 87 cents Thursday to finish trading at $94.62 in New York.

Oil traders this week geared up for the impact from Hurricane Isaac-related supply disruptions as refineries along the Gulf Coast either slashed operations or completely shut down, and key import terminals were closed.

As the powerful storm grew closer to shore Tuesday, oil production in the U.S. Gulf of Mexico was nearly completely idled.

According to the U.S. Bureau of Safety and Environmental Enforcement, which oversees offshore oil and gas operations, an estimated 1.3 million barrels a day of crude, 93% of the oil production in the Gulf's federal waters was offline as a result of Isaac. The region's natural gas output was slashed by nearly two-thirds.

The agency said 509 production platforms were evacuated, or 85% of manned platforms in the Gulf of Mexico. Workers have also been pulled from 50 drilling rigs, or 66% of the total.

Luckily Hurricane Isaac spared the southern coast of costly oil rig damage. It was downgraded Wednesday to a tropical storm, relaxing pressure to dip into oil reserves to combat higher prices.

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Are Stocks Headed For a Romney Rally?

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Low-trading volume and sluggish price movement have filled the markets this week – is there a pickup in sight?

Money Morning's Chief Investment Strategist Keith Fitz-Gerald appeared on Fox Business' "Varney & Co." this morning (Thursday) and discussed what could give the markets a needed boost.

We all know that central bank movement from the United States or Europe can move stocks, but now the focus is more on politics than economic policy.

Keith said that's why investors should pay attention to what happens when U.S. presidential candidate Mitt Romney takes the stage at the Republican National Convention. If Romney delivers a "breakout speech," the markets could enjoy a "Romney Rally."

Keith warns that if U.S. President Obama takes a commanding lead in the polls the same may not be true.

Prepare for what's ahead in the markets with Keith's full analysis in the accompanying video.

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Gold Prices Await Big News from Bernanke

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Gold prices are desperately waiting for bullish news from the Federal Reserve this week after slipping from last week's gains.

Last week, gold woke up from its sleepy August and increased 3.5%. It saw its greatest one-week jump since January and gold exchange-traded funds (ETFs) followed in its footsteps by reaching four-month highs and breaking 200-day moving averages.

These jumps came in response to the Federal Open Market Committee (FOMC) meeting minutes that suggested the need for more stimulus and some sort of quantitative easing. The report release extended the recent precious metals rally initiated by European Central Bank President Mario Draghi, who pledged his commitment to keep the Eurozone in place.

Gold prices on Monday fell from last week's high of $1,674.28 to $1,671.80, and have continued that decline this week. The most actively traded contract for December delivery was down Thursday morning by $1.10, or 0.1%, to $1,661.90 per ounce.

So what happened to dampen last week's enthusiasm for gold?

Europe, China Pound Gold Prices

News from abroad knocked down some of the gold price optimism.

Germany's Ifo Institute announced Monday that its business sentiment declined for a fourth consecutive month in August to 102.3; this came in lower than the 102.6 estimates and July's revised 103.2 figure.

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Stock Market Today: Markets in the Red Ahead of Jackson Hole

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Here are the major headlines in the stock market today.

  • Consumer spending gains most in five months- Consumer spending rose for the first time in three months, increasing 0.4% in July from June but slightly below expectations of 0.5%. This follows no change in June and a slight drop in May. The gain was the best in five months for consumer activity which accounts for roughly 70% of the economy. Even though it was a good monthly gain, U.S. consumers' purchases advanced at a 1.7% annual rate in the second quarter, the smallest increase in a year. "The quarter is getting off to a decent start," Gus Faucher, a senior economist at PNC Financial Services Group Inc. told Bloomberg News. "The consumer's situation is slowly improving, but the job growth isn't there to support really big gains in future spending."
  • Jobless claims remain unchanged- The number of people filing for initial unemployment claims matched last week's upwardly adjusted figure of 374,000. Economists on average expected this week's initial claims to be 370,000 and the data suggests that hiring is not improving. The unemployment rate, which moved up to 8.3% in July, has been stuck above 8% for more than three years, the first time this has happened since the Great Depression.

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Why the Jackson Hole Fed Meeting Will Look Familiar

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U.S. Federal Reserve Chairman Ben Bernanke will take the podium this Friday at the economic policy summit in Jackson Hole, WY, as traders hang on every word hoping he'll deliver a clear signal of central bank action in 2012.

They have good reason to think the Jackson Hole Fed meeting can move markets. It was at this summit two years ago in August 2010 that Bernanke announced an economic stimulus program that came to be known as Quantitative Easing 2.

QE2 consisted of the Federal Reserve inflating its balance sheet to purchase $700 billion in U.S. Treasury bonds from November 2010 to June 2011. This was necessitated as no investors, either foreign or domestic, could be found to purchase U.S. Treasury bonds at such low interest rates.

Now, two years later, the U.S. economy has economic growth falling with unemployment rising. Consumer confidence is at record low levels. Lending institutions are processing millions of properties through various stages of foreclosure. Businesses are sitting on record levels of cash, preparing for the worst, rather than investing in job-creating plants, equipment and machinery.

Oil prices are also rising, which will have a negative impact on the U.S. economy. The more money sent overseas to pay for imported oil, the less there is to buy the goods and services that raise the level of employment in the United States.

This was how things were in 2010. Actually, things seem worse now since Standard & Poor's in August 2011 downgraded the credit rating of the United States.

In an attempt to change this gloomy outlook, the Federal Reserve is letting it be known that it will act again in a major way, like in did in August 2010.

But, like that year, no new policies will officially start until after Election 2012.

The Federal Reserve cannot be seen as doing anything that might influence voting when Americans go to the polls the first Tuesday in November. That is the way it was in 2010, and that is the way it will be this year.

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Dividend-Paying Stocks: AOL Not the Only One to Raise Payout

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AOL Inc. (NYSE: AOL) announced Monday it would divvy out $1.1 billion in cash to shareholders, joining the growing group of dividend-paying stocks – although only for brief moment.

AOL will dole out a one-time payment of $5.15 a share to holders of record Dec. 5, for a total of $500 million given out in dividends.

In addition to the whopping and unexpected dividend news, AOL also reported a $600 million fast-tracked share repurchase agreement with Barclays Plc (NYSE ADR: BCS).

The move comes on the heels of a deal inked in April to sell 800 patents to Microsoft Corp. (Nasdaq: MSFT). At the time, AOL assured its plans were "to return a significant portion of the sale proceeds to shareholders."

The move also follows a push from activist shareholder group Starboard Value LP, which had been lobbying for AOL to unload its patent cache and reward shareholders with a dividend and share repurchase program.

Investors applauded the dividend news, sending shares of AOL up more than 3% Monday. The stock has been on a tear, climbing more than 120% year-to-date.

While AOL has only planned a one-time dividend, many other companies in 2012 have announced regular payouts.

Dividend-Paying Stocks: Payouts on the Rise

A number of companies are beginning to recognize just how important dividends have become in this era of low-interest savings accounts and certificates of deposits (CDs) that offer paltry yields.

In fact, dividends, once a trademark of stodgy blue chip companies, are emerging in full force in the tech sector.

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Brown Shoe Tops on Lower Cost - Analyst Blog

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St. Louis, Missouri-based Brown Shoe Company, Inc. (BWS) recently posted second quarter 2012 adjusted earnings of 16 cents per share, breezing past the Zacks Consensus Estimate of 3 cents and the year-ago quarter loss of 6 cents per share. The better-than-expected results were attributable to cost control efforts. On GAAP basis, the company reported loss […]

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