Advantages and disadvantages of at-the-money option, in-the-money option and out-of-the-money option

Advantages and disadvantages of at-the-money option, in-the-money option and out-of-the-money option
An at-the-money option has both advantages and
disadvantages over stock and in-the-money options. First,
the at-the-money option will be cheaper then both the stock
and the in-the-money option. So there is less capital
requirement and less total risk.

Remember, when buying an option, you can only lose what you
spend. The problem is the amount of extrinsic in the
at-the-money option.

In order for you to profit from buying an at-the-money
option, you need the stock to make a move very quickly.
Because you have so much extrinsic value, you will be
battling against the option's daily rate of decay.

So, the movement of the stock must happen quickly enough
and large enough to offset the amount of money you will be
losing daily as expiration draws near.

With this said, the best chance you have to make money when
buying a naked at-the-money option is to use it as a short
term trade. The longer you hold onto this option, the
harder it is for you to be profitable due to the options
decaying extrinsic value.

At The Money Call vs. In The Money Call

An out-of-the-money option presents many of the same
advantage & disadvantage parameters to the investor. The
out-of-the-money option is even cheaper then the
at-the-money option which means more leverage and less risk.

However, with a smaller delta, the stock must move much
more than either the in or at-the-money options in order
for the options to become profitable. Again, we need the
option's delta to outpace the option's rate of decay.

Now, with the out-of-the-money option, there is less
extrinsic value than the at-the-money option so the amount
of total possible decay (cost of the option) and the rate
of this decay is less than the at-the-money option.

By being further out-of-the-money, this option needs more
movement from the stock. As a naked option, this
out-or-the-money example is extremely speculative and
should only be used naked when the investor feels there is
a very good chance of a stock having a large percentage
move.

An investor must understand that the odds of them profiting
from the purchase of a naked out-of-the-money option is
very slim. When purchasing a naked out-of-the-money option,
be prepared to lose your entire investment.

Out of The Money Call vs. At The Money Call

Although options can be traded by themselves for
directional plays, and can perform well under the right
conditions, they are much better used in coordination with
stock or other options in formatted strategies which will
be discussed in the next section.

While buying naked calls and puts can provide some of the
biggest leverage and highest returns, they can also involve
the most risk. This strategy should only be used by
experienced options traders or traders using risk capital.

----------------------------------------------------
Brett Fogle is the founder of Options University, a
training resource partner for traders. For a
comprehensive, free report on the 7 deadliest sins made
when options trading, visit
http://www.OptionsUniversity.com .

Wealthy Cash In On Holiday Flat Loophole

Wealthy Cash In On Holiday Flat Loophole
Savvy investors are still putting overseas property in
their pensions despite Labour's attempts to stop them

LAWYERS for some of Britain's wealthiest residents have
uncovered a loophole in the pension rules that allows
people to buy holiday properties with their retirement
funds. Scores of investors, including senior directors at
some of the City's top firms, have been quietly taking
advantage of the perk to purchase holiday apartments in
French ski resorts, coastal towns and even Paris with their
self-invested personal pensions (Sipps). It had been
thought Gordon Brown had stamped out the practice in
December when he reneged on an earlier promise to allow
Sipps to invest in residential property from April 6,
including buy-to-let flats and overseas holiday homes.

However, lawyers have found a way to circumvent the rules
by purchasing tourist apartments under the French
"leaseback" scheme. These are usually classed as commercial
properties and so qualify for Sipps. Sykes Anderson, a firm
of solicitors, has purchased scores of French leaseback
properties for its well-heeled clients in the past few
weeks, and hopes to branch into Spain, and possibly other
European countries that also offer leaseback. Another firm
is touting property in Cyprus for your Sipp. However, Sykes
Anderson has asked all professionals involved in its scheme
to sign confidentiality agreements to prevent precise
details leaking out to the wider market. There are fears
the chancellor could clamp down on the practice if ordinary
investors start to pile into the plans, as he did with
residential property.

It emerged last year that investors were preparing to
stockpile up to £10 billion in their Sipps to purchase
buy-to-lets and holiday homes from April 6, which would
have cost the government £4 billion in tax relief on the
contributions. When the scale of interest became clear it
was forced to backtrack on the rules. David Anderson,
chairman of Sykes Anderson, said: "Brown's u-turn may
appear to have ruled out using a pension to buy French
property, but it is still possible. However, we do not see
this as a mass-market product and we would certainly not
want the man in the street to think about buying a
leaseback property with his Sipp. With a pension of less
than £300,000 to £400,000, fees will take a big portion of
your fund."

Mark Nathan, 48, works for a well-known IT firm, and is one
of the investors who has used Sykes Anderson to buy a
leaseback property with his Sipp. He recently completed the
purchase of a self-contained apartment within a chalet in
Les Gets, a French ski resort. Nathan said: "One of the
main attractions is that I have control over my pension and
the underlying asset. I also think there is potential for
good capital growth — demand for apartments in the Alps is
strong and it is difficult to get permission for new
builds." However, he said prospective investors should not
be under any illusions. "I have to point out that the
process was complex, expensive in terms of the fees and
very hard work," he said. "However, I am confident that the
investment will provide a far higher pension income that I
would obtain by investing the funds in the usual way."
Under the French "leaseback" scheme, you buy a
self-contained tourist apartment in a development and lease
it back to a management company, which then lets it to
holidaymakers on your behalf.

The developments are particularly common in French ski
resorts, where firms such as Pierre & Vacances manage the
properties on behalf of their owners, and are also
typically found in Paris and coastal towns such as Nice and
Cannes.

They are classed as hotels, which are still eligible for
Sipps — as long as you do not have any accommodation rights
over the property. Most standard French leaseback schemes
allow owners to stay in the property free for two to four
weeks a year, so you would have to revoke this right before
buying the flat with your Sipp. You would be able to stay
if you paid an open market rent, but Sipp providers
discourage it. Revenue & Customs confirmed last week that
leaseback properties qualify for Sipps. "Provided it is
classed as a hotel and there are no rights to
accommodation, it is not taxable and can be held in a
Sipp," a spokesman said.

You do not have to invest through the leaseback scheme: you
could always source a hotel or tourist apartment yourself
and hire a management firm. But the leaseback scheme cuts
out the hassle of finding a property and attracts generous
tax breaks in France. Leaseback properties are exempt from
French Vat of 19.6% inside or outside a Sipp — as long as
you own them for at least 20 years. If you sell before
then, you will have to pay back the Vat. Leaseback Sipps
also attract generous tax breaks in Britain. When you
contribute to a UK pension, the government offers tax
relief of 22p for every 78p invested. A higher-rate
taxpayer can claim a further 18p through their tax return.
So it would cost just £60,000 to get a fund of £100,000.

Your Sipp can also borrow 50% of the value of its assets to
buy property, so you could buy a leaseback apartment worth
£150,000 with a fund of £100,000 and an outlay of only
£60,000. French leasebacks generally guarantee a rental
income of 4% or 5% after expenses for a fixed term, usually
rolling periods of nine years. This would be paid into your
Sipp and used to pay off any mortgage. Anderson admits a
rental income of 4% or 5% is little better than the return
on a deposit account. The real reason why investors are
buying leasebacks, he said, is for capital growth.

However, other professionals question the growth potential
of leasebacks, which have to be new or totally rebuilt
properties. Peter Esders of John Howell & Co, a firm of
international solicitors, said: "As with any new-build
development, there could be a glut of supply if a lot of
people decide to sell up at the same time." Anderson
recommends that you buy only in the most desirable parts of
France to maximise your returns. "Don't think about
Normandy, Brittany and Languedoc because you are just not
going to get the returns."

----------------------------------------------------
Written by Nick Dowlatshahi Managing Director of Leapfrog
Properties who are French Property agents that specialise
in Property for sale in France.
http://www.leapfrog-properties.com

The 10 Keys to Successful Stock Options Trading - Key #5

The 10 Keys to Successful Stock Options Trading - Key #5
We're half way there in this 10 part series on how to trade
options, you are doing well keep learning, practicing and
applying these strategies and you will soon find yourself
able to successfully and profitably trade on a regular
basis. Last week we looked at ways in which to time the
entry of a trade so this week we will discuss how to get
out at the right time.

There are several strategies and ways to exit a trade and
you must decide which way (or ways) suits you. It is
infinitely more difficult to decide when to exit a trade
than when to enter it because it is at this time that you
will either be making a profit or taking a loss! You will
be faced with a myriad of different emotions while you are
in a trade, most notably fear and greed. Fear appears in
several different forms, fear of losing a profit already
made, fear of getting out too early, fear of taking a loss
and facing a mistaken trade. Greed also rears its ugly head
by encouraging you to stay too long in a winning trade and
possibly giving back some or all of your gains. There is an
old adage on Wall Street that says "Bulls can make money,
bears can make money but pigs always get slaughtered."

As I mentioned you must determine what suits you when it
comes to deciding how much of a loss you can handle and how
much of a profit you want to take. This is a direct
reflection of your risk to reward ratio. For example, I
often say "I never feel bad when taking a profit". I like
to take profits when I see them and I generally have a
fixed dollar figure or percentage in mind. Unless there is
no good reason to exit the trade I will take my profits and
if the trade keeps going in my direction after I have
exited it doesn't bother me. Conversely I always have a
fixed % loss I will accept. Some people would not be able
to handle leaving money "on the table" so they may prefer
to let their trades run, but then they may need larger stop
losses as well. You generally need large stop losses when
trading options because they are volatile and if you set a
10% loss, for example, there is a very good chance you
would get stopped out with the normal fluctuations of
intraday trading. Bear in mind that there is not as much at
risk when trading options as opposed to trading stocks. The
capital investment is much smaller so a larger stop loss
will not impact your account as much.

Some good rules of thumb are: First if there is profit on
the table and the underlying stock breaks down or crosses
below its 7 day moving average, take the profit. There is
nothing worse than watching a winning trade steadily lose
value while you sit there hoping it will rise again.
However if market conditions have not changed and your
technical analysis supports staying in the trade make sure
you do not exit too early. Often the most outstanding
profits are made by patient traders. Second, always exit
the trade if you are at a 50% loss. Chances are if you are
in a trade that is losing 50% it will keep going that way.
You must preserve your capital in order to trade again.
Third, always exit a trade if there is 30 days or less
before expiration. During the month before expiration time
decay can rob you blind of the value of your option.

I trust this has given you some things to consider when
deciding to exit your trades, stay tuned for next week's
installment where we will discuss how to put together a
complete trading plan.

US Government required disclaimer: Options involve risk and
are not suitable for all investors. Prior to buying or
selling an option, a person must receive a copy of the
Characteristics and Risks of Standardized Options. Copies
of this document may be obtained from your broker, from any
exchange on which options are traded or by contacting The
Options Clearing Corporation, One North Wacker Dr., Suite
500 Chicago, IL 60606 (1-800-678-4667).

----------------------------------------------------
Roger Cox was born in New Zealand and has lived in Los
Angeles for seven years. He was President of a freight
company at LAX before setting up his own consulting firm.
Roger has successfully traded stock options for over 4
years and teaches other people how to successfully trade at
http://www.prosperitywithoptions.com

Trading Naked Calls & Puts

Trading Naked Calls & Puts
An option is a derivative trading product that is best used
by investors as a hedging tool providing profit protection
and profit enhancement. Although it is a powerful risk
management tool, it can also be used effectively as a
stand-alone trading vehicle.

Under the proper conditions, options do not have to be
paired with stock or another option to be an effective
trading tool. To successfully trade naked options, an
investor must realize that certain options will fit certain
scenarios and certain options will not.

One of the major misconceptions that investors have about
options stems from the fact that most do not know how to
trade them properly. When they lose money trading them,
they feel that there is something wrong with the option.
They do not understand that options are on a higher, more
sophisticated level when compared to stocks.

Stock trading has fewer variables involved and is therefore
easier. No one is saying that the individual investor
isn’t smart enough to trade options. The problem is
not intelligence; it’s just education and experience.
Most investors have not been properly educated in the
proper use of options, and even fewer have had any real
experience trading them.

One of the biggest problems investors have is this: Even if
you buy a call and the stock goes up, you can still lose
money. Most investors tend to buy out of the money options
at a cheap price. The stock trades up a little, which is
the right direction, but the option still loses money and
the investor wonders why.

What the investor fails to realize is that in order for the
option to be profitable the options delta must out-pace its
rate of decay. Implied volatility also plays a key role if
the stock does trade up while implied volatility decreases,
the options delta must then outperform the decrease in
volatility. Remember, when volatility increases, the price
of all options goes up. When volatility decreases, the
price of all options goes down.

We have categorized options in several ways. One way is by
the option’s strike price, and its distance from the
stock price. We identified these options as either
in-the-money, at-the-money, or out-of-the-money.

In our discussion about trading naked calls and puts, we
will identify trading opportunities or situations that fit
each of these types of options, for both calls and puts.
But it is important to first review the definition of Delta
before continuing.

Remember, delta tells you how much the option will move
with a similar move in the stock and is given as a
percentage. For example, a 33 delta option means that the
option will move 33% of the movement of the stock and 70
delta option will move 70%. In-the-money options act like
stock. The deeper in the money the calls are, the more they
act like the stock. As the call moves deeper and deeper in
the money, the calls delta approaches 100 which means
it’s price movement will reflect 100% of the
stock’s movement.

In fact, deep-in-the-money options are sometimes even used
to replace stock positions. If you look at the charts
below, you can see how closely the in-the-money call mimics
the upward movement of the stock (2nd quadrant).

In the money options are best used for smaller stock
movements. The reason is that in-the-money options contain
less extrinsic value. The extrinsic value can work against
you when purchasing an option because extrinsic value is
affected by time decay.

As you wait for your stock movement, the in-the-money
option will decay less than either the at-the-money or
out-of-the-money options because it has less extrinsic
value. The amount of money you lose in time decay must then
be made back by additional stock movement.

Obviously, the less you lose in decay, the less the stock
has to move for you to be profitable because it has less
decay loss to make up for.

This is because an in-the-money call has a high delta and a
much higher percentage chance of finishing in-the-money by
expiration so they follow the stock more closely.

With less extrinsic value loss to make up for, a smaller
movement in the stock will produce a greater profit. For a
call example, as you can see in the chart below, the
in-the-money produces a profit with the least amount of
stock movement. With less extrinsic value, the ITM option
has a lower break-even point.

----------------------------------------------------
Brett Fogle is the founder of Options University, a
training resource partner for traders. For a
comprehensive, free report on the 7 deadliest sins made
when options trading, visit
http://www.OptionsUniversity.com .

Local French squeezed out of Property Market

Local French squeezed out of Property Market
In certain areas of France which have typically been
relatively cheap places to buy property are rapidly
becoming too expensive for local French to make a purchase.
Les Landes for instance in the region of Aquitaine has seen
steep price increases over the last few years as foreign
buyers have relocated here or bought their holiday home.
Price increases of 20% a year on the value of property have
not been uncommon in this department and many other regions
of France have seen a similar trend. The French Riviera has
seen the price of certain villas nearly quadruple over the
last 10 years often owned by wealthy Brits, Scandinavians
and Germans, whilst in the Alpine village of Morzine the
majority of home owners are now English. One restaurant
owner at a popular and high quality restaurant in the area
recounted that 75% of his business now comes from the
English upon which he depends for the success of his
business.

Cheap flights, low Euro interest rates and a better quality
of life have been the main reasons for the interest in the
French property market and expensive house prices in
Britain have meant that many have sold up to get much
better value for money across the channel.

A market that previously was only available to the affluent
foreign purchaser is now, due to vastly improved transport
links, ease of credit and generally higher wages, also
available to those who previously would never have dreamed
of the exuberance of owning a weekend getaway in Normandy,
for instance. A plumber or electrician by trade 30 years
ago could never have afforded to buy in France but now
things are different and more and more Foreigners- British
especially are taking the plunge and setting down their
roots in one of many beautiful and tranquil corners of
France.

All of this means that house owners in many regions,
especially coastal, are seeing their properties soar in
value. This is all well and good for current house owners
but for local French buyers not as wealthy as the
foreigners it is pushing them to buy in the more rural,
cheaper areas, possibly further inland. Hence the trend of
people moving from the countryside into towns is now being
reversed as expensive property prices push them into more
rural locations. So in the next few years it is likely that
property prices will be increasing even in the areas which
are relatively quiet right now where good value property
can be bought.

----------------------------------------------------
Written by Nick Dowlatshahi Managing Director of Leapfrog
Properties who are French Property agents that specialise
in Property for sale in France.
http://www.leapfrog-properties.com

Why Costa Blanca Property Is So Sought After

Why Costa Blanca Property Is So Sought After
Situated on the eastern coast of Spain, Costa Blanca is the
second largest town in the Costa Blanca region of Valencia
Province. With its much regarded boulevard, pleasant
climate, swaying palm trees, teeming nightlife, miles of
sandy beaches, and vibrant streets, Costa Blanca draws
tourists from across the globe, particularly from countries
such as Germany, Netherlands, and the UK. Costa Blanca is
also within easy reach of such famed resort towns as
Benidorm, Denia, Murcia, Torrevieja, and Villamartin.
Further, Costa Blanca boasts an international airport,
which is the only facility in the region, thereby serving
as convenient as well as quick gateway to the entire
regions in the Mediterranean Coast.

Perhaps, for these reasons, real estate in the region is
booming, and Costa Blanca property is always of special
demand. Owning a property in Costa Blanca has been proved
to be a great investment, as tourist flock here year-round
and hence there is no problem in finding a tenant or
renting them out. This helps you to yield huge returns from
your investment, especially during summer when demand for
vacation rentals is at its peak. The market trend reveals
that the property price in the region has reached the
record highs. Not only great as an investment, Costa Blanca
property also allows you to enjoy annual vacation in one of
the exciting as well as sought after destinations in the
world.

A fabulous range of Costa Blanca property is available to
choose from for investments according to your budget and
preferences, such as building plots, townhouses, country
houses, elegant villas, and beautiful apartments with such
facilities as gardens and swimming pools. No matter if the
property you have chosen is re-sale or new construction,
both have their own benefits. The prime benefit of a
re-sale property is that it allows you to own the property
within a short span of time. But in the case of new
construction, one of the greatest benefits is that you can
design layout according to your tastes and needs.

Even mortgages are available to purchase an Costa Blanca
property, and all you have to possess in order to avail a
registration number, namely, NIE, which in turn is vital to
sign certain important documents. However, it is important
that you make a thorough research with regard to the
property, before owning them. Although a plethora of real
estate firms are here to fetch you the best deal, it is
recommended to utilize the service of an expert attorney to
check vital documents related to property, like contract
and title deeds. The internet also serves as an excellent
source to make a research on recent market condition of
Costa Blanca property. Above all, there are specialist
companies in the scenario, which not only minimize the risk
associated with the purchase of Costa Blanca property but
also ensure maximum returns from these properties.

Besides investment properties, there are a lot number of
properties, exclusively designed for vacationers who take
advantage of the place for short breaks or just to enjoy a
weekend. From rustic apartments and villas to hotels and
resorts coupled with the most modern facilities, all
vacation Costa Blanca properties are awesome and
comfortable.

----------------------------------------------------
Lee Smith writes about Costa Blanca investment property in
Spain
http://www.lovealicante.com/property/index.html