Diversify Stocks Portfolio




Make sure you diversify this portfolio and buy calls on stocks from different industry groups. Also make sure you buy options with plenty of time left until expiration. This is not a time to buy �cheap� options, those with only a month or two before expiration. Buy time and give the calls time to work. Here is what this portfolio of calls does for you:- First, it gets you into the market without requiring a great deal of money. You buy in-the-money calls and use them as stock substitutes. Being in the market means you will not miss a major advance. Since you are buying them as stock substitutes, buy only as many calls as you would round lots of the stock. For example, if you were going to buy 500 shares of a stock, buy only five calls. Don�t buy ten or twenty or more calls.- Second, should the market move lower, your losses are limited to the purchase price of the calls. This limits your risk. Of course, these losses can be offset by interest earned from the balance of your funds that are not in the market.- Third, buying a portfolio of calls will give you diversity and will also reduce your risk in case one stock goes against you.- Finally, if the market rallies, you will have a choice of what you want to do with your call positions. You can either take profits in your calls or exercise them and establish equity positions at lower prices.The second example we want to focus on occurs not when the market is falling, but when it is rising. In this case, everything appears rosy. Earnings reports are good and so are the economic reports. There are invariably investors who may have missed the market and are now willing to get in. More than likely, they want to buy the �hot� stocks, but these are the ones that have rallied the most, more than likely. You can just go out and buy these stocks, but since they have already rallied, the fear in this case is of buying at the top, which means you potentially have a great deal of risk.The good news is, once again, options give you a way to initiate positions with a limited risk: purchasing call options on the stocks you want to buy. By buying calls, your risk is predetermined. You know exactly how much you can lose if the stock or stocks go against you. We mentioned buying a portfolio of calls in the first example. You can do that here as well, and it would spread the risk further.--Get 89.3% accurate stock market trading tips and online stock trading strategy, Turn 1000 USD into 1,000,000 USD guaranteed. For more details visit http://www.2stocktrading.com/discount.html.Source: http://www.articletrader.com
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