Option Strategy Trading

Over the last few weeks more and more companies that have dealt with mortgages have been hammered hard. Even those with no direct exposure to the sub prime loan market have been hit as the global sentiment turns against lenders. Countrywide, the largest US lender could face bankruptcy if liquidity worsens. Northern Rock in the UK has seen its share price halve since the start of the year.

The Federal Reserve along with the European Central Bank has tried to alleviate the credit squeeze by increasing the amount of cash that’s available in the system, with the Europeans releasing 180 billion Euros. These actions have done little to ease the tension with the market now in the red for the year. Investors have had very little in way of reason to buy other then the fact that the market fell across all industries, thus making some of those equities a potential value buy.

The finger of blame is pointing to the loose lending standards from banks and mortgage companies. First in the dock are the hybrid instruments which allowed borrowers who were over leveraged to enter the real-estate market writes Betonmarket’s Michael Wright.

‘Flipping’ houses became a very profitable venture for a couple of years. As long as the market kept going up, more people jumped on the bandwagon. Many of these people had no means of paying for the debt they were taking on, but due to crafty financing were able to get loans. The only risk was that these investors had to ‘flip’ this house quick, before the much higher interest

rate was going to kick in. As soon as the market bubble burst and these houses lost value, many of people found themselves owning houses that

a) were worth way less then they paid for them just a few months prior

b) the higher mortgage kicker was coming quick, and hence the defaults

The fallout from this bubble will not be limited to financial markets. The U.S. economy and with it, the rest of the world, has the possibility of feeling the negative consequences for quite some time. All this will possibly be reflected in the equities markets, starting with the SP500.

The one thing that markets hate is indecision, more than anything they fear the unknown. Right now, nobody knows who is exposed to what. Banks are raising their overnight lending rates and hedge funds are having to sell safer equities to fund their margin calls. This crisis could spread like a virus to all areas of the economy. The one glimmer of hope was an emergency rate cut from the Fed, but this now seems unlikely. Voting member Governor William Poole recently indicated that their job is still not done on beating their primary enemy, inflation.

With Betonmarkets.com you can take advantage of this possibly profitable situation. A no touch which pays out when a certain level isn’t touched during the duration of the term seems like the more conservative and thus possibly most appropriate option. A no touch 100 points higher than the current price of the S&P 500 pays 11% over 20 days. This means that As long as the S&P 500 doesn’t rise 100 points over the next 20 days, you will win. It could rise 98 points, or chop around wildly, but you still win as long as it doesn’t rise 100 points.

The study of options can expand your perceptions about the range of possibilities. Most people are familiar with two forms of investment: equity and debt. There is a third method, however, and that third method is far more interesting than the other two. Its attributes are unlike any that most people understand-and these differences can be viewed as a troubling set of problems, or as a promising set of opportunities.
Let’s begin with a brief review, laying the groundwork about the two basic ways to invest. An equity investment is the purchase of ownership in a company. The best-known example of this is the purchase of stock in publicly listed companies, whose shares are sold through the stock exchanges. Each share of stock represents a portion of the total capital, or ownership, in the company.
When you buy 100 shares of stock, you are in complete control over that investment. You decide how long to hold the shares and when to sell. Stocks provide you with tangible value, because they represent part ownership in the company. Owning stock entitles you to dividends if they are declared, and gives you the right to vote in elections offered to stockholders. (Some special nonvoting stock lacks this right.) If the stock rises in value, you will gain a profit. If you wish, you can keep the stock for many years, even for your whole life. Stocks, because they have tangible value, can be traded over public exchanges, or they can be used as collateral to borrow money.
Example
Equity for Cash: You purchase 100 shares at $27 per share, and place $2,700 plus trading fees into your account. You receive notice that the purchase has been completed. This is an equity investment, and you are a stockholder in the corporation.
The second broadly understood form is a debt investment, also called a debt instrument. This is a loan made by the investor to the company, government, or government agency, which promises to repay the loan plus interest, as a contractual obligation. The best-known form of debt instrument is the bond. Corporations, cities and states, the federal government, agencies, and subdivisions finance their operations and projects through bond issues, and investors in bonds are lenders, not stockholders. When you own a bond, you also own a tangible value, not in stock but in a contractual right with the lender. The bond issuer promises to pay you interest and to repay the amount loaned by a specific date. Like stocks, bonds can be used as collateral to borrow money. They also rise and fall in value based on the interest rate a bond pays compared to current rates in today’s market. In the event an issuer goes broke, bondholders are usually repaid before stockholders as part of their contract, so bonds have that advantage over stocks.
Example
Lending Your Money: You purchase a bond currently valued at $9,700 from the U.S. government. Although you invest your funds in the same manner as a stockholder, you have become a bondholder; this does not provide any equity interest to you. You are a lender and you own a debt instrument.
The third form of investing is less well known. Equity and debt contain a tangible value that we can grasp and visualize. Part ownership in a company or the contractual right for repayment are basic features of equity and debt investments. Not only are these tangible, but they have a specific lifespan as well. Stock ownership lasts as long as you continue to own the stock and cannot be canceled unless the company goes broke; a bond has a contractual repayment schedule and ending date. The third form of investing does not contain these features; it disappears-expires-within a short period of time. You might hesitate at the idea of investing money in a product that evaporates and men ceases to have any value. In fact, there is no tangible value at all.
So we’re talking about investing money in something with no tangible value, that will absolutely be worthless within a few months. To make this even more perplexing, imagine that the value of this intangible is certain to decline just because time passes by. To confuse the point even further, imagine that these attributes can be an advantage or a disadvantage, depending on how you decide to use these products.
These are some of the features of options. Taken alone (and out of context), these attributes certainly do not make this market seem very appealing. These attributes-lack of tangible value, worthlessness in the short term, and decline in value itself-make options seem far too risky for most people. But there are good reasons for you. Not all methods of investing in options are as risky as they might seem; some are quite conservative, because the features just mentioned can work to your advantage. In whatever way you might use options, the many strategies that can be applied make options one of the more interesting avenues for investors. The more you study options, the more you realize that they are flexible; they can be used in numerous situations and to create numerous opportunities; and, most intriguing of all, they can be either exceptionally risky or downright conservative.
Tip
Option strategies range from high-risk to extremely conservative. The risk features on one end of the spectrum work to your advantage on the other. Options provide you with a rich variety of choices.

Where does mortgage money actually come from? When you get a $500K mortgage, who actually writes the checks? Most people have no idea. Does it come from a bank? Does it come from the government or some large quasi-governmental agency like Fannie Mae or Freddie Mac? It all seems so confusing and the numbers are so big that they become abstract. But an understanding of where the cash comes from is the first step to understanding how the mortgage industry operates.

You can effectively break down the source of money into two broad categories. On the one hand, you have banks that recycle money that’s been deposited into personal and corporate accounts. We all have bank accounts; checking accounts, savings accounts. That money all belongs to us and the bank pays us interest on it. But they, in turn, lend that same money out to people who want to borrow it.

These banks then charge their borrowers a higher interest rate than they offer to their savers. That’s how they make their money. They charge what’s called “a spread” between their borrowing interest rates and their deposit interest rates. In fact, banks can even lend out more money than they physically have on deposit, based on ratios federally regulated by certain governmental agencies. But the details of that mechanism are beyond the objectives of this article. The point is that banks get money from our deposits and that’s what they lend out to their borrowing clients.

The interest rates charged by these banks are heavily influenced by the decisions of the Federal Reserve. Most of us are familiar with Alan Greenspan who has been the chairman of the Fed since 1992. His term just came to an end on January 31 2006 and he is now being replaced by Ben Bernanke. At the time of this recording, the Fed has raised interest rates 14 consecutive times during the past two years to gradually tighten a highly accommodating monetary policy that’s been in place since 2001.

The Fed manipulates interest rates by buying and selling bonds in the bond markets. During challenging economic times, the Fed buys bonds on the open market, and they pay for these bonds with cash. As the Fed continues buying bonds, it floods the market with cash. All of this excess cash makes money more available for people who want to borrow and interest rates naturally come down as different lenders compete for a limited number of borrowers. Think about it. If there’s excess cash out there, the interest rates to borrow that money gets bid down as different lenders compete for the business. Borrowers naturally go for the lowest rate.

When the economy starts growing again, consumer confidence starts rising and people start spending money again. They buy cars. They buy stainless steel refrigerators. They buy computers. With rising demand, companies can start charging more for their products. Profits start rising and soon, workers start asking for raises and better benefits. That increases costs for companies and a vicious cycle of inflation begins.

Inflation is a complicated phenomenon but suffice it to say, it can send the economy into a tailspin. So, to slow down that cycle, the Fed can start selling bonds on the market. Buyers pay for these bonds with cash and the Fed immediately puts that money away, taking the cash OUT of the economy. With less cash available on the open market, borrowers start bidding up interest rates which dampens the feeding frenzy and keeps the economic growth at a sustainable level.

The interest rate directly affected by the Fed is what’s called “the Overnight Rate.” This rate is what the banks charge each other. You may or may not be familiar with the Overnight Rate but most of us are familiar with the Prime Rate. This rate is simply the Overnight Rate plus 3. Right now, for example, the Overnight Rate is 4.5% so the Prime Rate is 7.5%. Every time the Fed makes a change, the Prime Rate changes at the exact same time.

There are also a number of indexes that are affected by these policy changes made by the Fed. Some of you have heard of the LIBOR index. If you’re curious, the acronym LIBOR stands for the London Inter-Bank Offered Rate. You may have also heard about the MTA index. It stands for the Monthly Treasury Average and there are others like the Cost of Funds Index and so on. All of these indexes are all heavily influenced by the actions of the Fed. So as you can imagine, they have all gone up significantly during the past two years. In 2003, the Prime Rate was at 4.00%. Today, it’s at 7.5%. In 2003, the LIBOR and MTA indexes were both around 1.00%. Today, they’re at 5.3% and 4.7% respectively.

The Prime Rate and all these various indices govern the interest rates of all variable rate loan products. For example, a home equity line of credit is a variable rate product and is generally tied to the Prime Rate. There are also a lot of loan products these days that are fixed for the first few years, but that become variable after that. Once the fixed period expires, they are tied to one of the indices like the LIBOR or the MTA. Anyone who has a variable rate product has seen their payments go up significantly over the past two years.

We started this discussion by saying there are two primary sources of mortgage money. The first is from bank deposits. The second comes from a wide variety of “investors” who provide money through Wall Street. But don’t think these are just a bunch of super wealthy individuals. They’re actually Money Managers that are managing our own money. Most of us have investment accounts like Insurance Funds, Pension Funds and various Retirement Funds. Many of the accounts that contain all these funds end up housing huge amounts of cash. You can imagine the Pension Fund for General Motors or some other Fortune 500 company. Think about Insurance Companies like New York Life or State Farm. These companies manage immense sums of money; money they have accumulated from all their contributors – people like you and me.

These huge funds are managed by professional Money Managers. They are always trying to maximize the return they get on this money so they look for good places to invest. For the most part, they end up putting the cash into three main areas. They buy equities; stocks of various companies that trade on the stock exchanges – shares of General Electric or Google or Starbucks Coffee. They also buy corporate and government bonds. That’s the second choice. And they buy what’s called “mortgage-backed securities”. That’s the third choice. Well, those are mortgages! They’re bundled mortgage loans that are bought and sold on Wall Street every day.

Essentially, these various Money Managers approach the mortgage business and say, “all right, you can lend out our money as long as you follow these guidelines”. The guidelines they’re referring to are the underwriting guidelines Mortgage Brokers have to follow when helping someone apply for a loan. The interest you pay becomes the return on investment for these Money Managers. So that’s where much of the money comes from. Now, within certain limits, many of these loans are insured by Fannie Mae or Freddie Mac as long as they meet their underwriting guidelines. As you can imagine, most investors have guidelines that closely resemble the Fannie Mae or Freddie Mac standard underwriting guidelines. The Fannie Mae and Freddie Mac guidelines are the benchmark for the entire industry.

Today, there’s so much money out there, money that has accumulated from Baby Boomers putting money aside for their retirement during the past 25 years, that a lot of investors have widened their guidelines beyond the standard Fannie Mae or Freddie Mac requirements. This is happening through the competitive process. There’s a lot of money out there. An economist might say, “there’s excess capital” out there. And what happens when there’s excess capital? Well, you can bet on two major results. First, you can bet that interest rates will get bid down as various investors compete for the business. Second, you’ll start seeing more and more innovative loan programs out there.

You have all seen this in your own lives. You’ve seen interest rates get bid down lower and lower with the bottom just behind us, back in 2003. Interest rates are now slowly on the rise again and you can bet they’ll start rising faster when all the Baby Boomers start retiring in a few years and start drawing money out of those huge pools of investment capital. You’ve also seen a flood of innovative loan programs. First came all the different Adjustable Rate Mortgages, or ARMs. Then came the Interest Only options. Now, they have these Negative Amortization loans. You know the ones: the loans that start with an interest rate of just 1%. Interest rates were never that low and they never will be. These loans allow borrower to make payments that are not even enough to pay the interest. So the loan balance actually gets bigger each and every month. We’ve all seen these phenomena play out right in front of our eyes.

On the surface, it looks like all these mortgages come from a few large well known players; companies like Countrywide Mortgage, Wells Fargo, Chase or Bank of America. Yes, these guys are huge players in the mortgage business. But that doesn’t mean the money is all theirs. Of course, Wells Fargo and Bank of America have all kinds of regular banking business but their mortgage divisions are generally in the business of packaging and servicing loans. They package the loans and sell them on Wall Street. In many cases, you may not even know because they continue to “service” the loans themselves. That means they do the customer service, they collect your payments and they pass them on to the investor that holds the actual loan, less an administration fee of course.

So again, this is all a direct result of excess capital. There’s a lot of money out there and they’re all competing for your business; your mortgage. So they’re all offering different perks to try and get you to pick them. A lower rate. Looser guidelines. Flexible new loan programs. It’s all marketing, trying to get you to borrow their money rather than somebody else’s.

Reviewing, there are two sources of mortgage money and both sources come indirectly from you and me. Your bank deposits get recycled and lent back out to the community. Your investment, insurance and retirement funds also get recycled and lent back out. It’s all a big circle from our savings to our debts. Obviously, there are some very wealthy people out there who have huge savings and few debts. Others have huge debts and very little savings. But in the aggregate, it’s the entire community that lends money to itself and it’s the total amount of savings in the community that determines the interest rates within it.

If there’s lots of money available, interest rates are low. If there’s a shortage of money, interest rates rise. So the fact that we’ve enjoyed steadily dropping interest rates in recent years is a sign that the economy is healthy and that there’s lots of money available. And the fact that rates are now slowly rising is a sign that the pool of investment capital is slowly shrinking. The soon-to-be retiring Baby Boom generation will definitely shrink that pool of money and we can expect interest rates to continue rising as a result. In the meantime, it’s still a great time to borrow money and we should all take advantage of it while it lasts.

The majority of casual investors buy and sell stocks.  If they are bearish on a stock, some will even short-sell stock.  But relatively few investors fully understand and take advantage of trading options. 

With stocks, you own a small piece of a company.  However, with options, you purchase the right to buy or sell underlying stock.  There are two basic types of options – calls and puts.  When you purchase a call option, you buy the right to purchase a stock at a specific price before a specific date.  When purchasing put options, you buy the right to sell a stock at a specific price before a specific date.  Like stocks, you can both buy and sell options. 

Traders consider buying call options when they are bullish on an underlying stock.  As the stock rises, call options, in general, also rise.  There are, though, some important differences between buying an underlying stock and its call options.  First, options are cheaper than buying the underlying stock.  If you a share of XYZ is $100, it may cost you the same to control 1000 shares with options.

Options are cheaper because they have a strike price and an expiration date.  The strike price of a call option is the price at which you have the right to purchase the stock.  If the price of an underlying stock is above the strike price, the call option is considered “in-the-money.”  If the price of the stock is below the strike price, the call option is “out-of-the-money” while it is “at-the-money” if the stock is the same price as the strike price.  Call options that are in-the-money have inherent value.  For example, let’s say the price of stock XYZ increased to $105.  You, however, own a call option with a strike price of $100.  You thus have the option to buy XYZ at $100 while selling it for $105.  This in-the-money call option thus as an inherent value of $5.  Call options that are at-the-money do not have any inherent value.  For instance, it would not be worth it to exercise a call option with a strike price of $15 because you cannot sell it for a profit.  Call options that are out-of-the-money actually have a negative inherent value since the stock would have to rise just to get to the strike price.  The farther the stock price is from the strike price, the lower the inherent value. 

The expiration date is the time until which you have to exercise your option.  Because options expire, they have a time value.  As the expiration draws nearer, the time value of call options decrease because there is less time for the underlying stock to increase in value.  A call option that expires in a year will therefore have much greater time value than a call option that expires in a week.  The price of options are roughly calculated by:

                  Option price = inherent value + time value

There are several exit strategies with call options.  If you do nothing and let an option expire, call options that are at-the-money or out-of-the-money will become worthless – they will have no inherent or time value.  However, if a call option is in-the-money at expiration, you can exercise your option for a profit.  Many option trading companies will automatically exercise options that are in-the-money at expiration for you. 

Most option traders, however, have no intention of ever owning the underlying stock.  Traders often sell their options well before expiration.  Call options, in general, increase in value with the underlying stock.  Thus, if a stock rises, you can usually sell a corresponding call option at a profit. 

This can be beneficial because it leverages your capital.  Let’s say you have $1000 to invest.  If a share of XYZ costs $100, you can buy 10 shares.  However, a call option of XYZ, with a strike price of $100, costs only $10.  You can thus alternatively purchase 100 call options of XYZ.  If shares of XYZ go to $105 at expiration, owning the stock would give you a profit of $50.  Owning the options, however, would give you a profit of roughly $500.  The risk in call options, however, is that this increase in price needs to occur before the expiration date. 

For more information about trading options, visit DayTradingModels.com

Buying securities or currencies is somewhat like buying an automobile.
The decision to buy something is relatively easy.
What, specifically, to buy is an altogether different problem. Before you drive your new car home, you have to choose a certain make, a certain model, certain upholstery, a certain color scheme.
You decide between six cylinders and eight, between regular shift and automatic transmission, and say yes or no to white walls, radio, heater, and a dozen other optional extras.
So with securities. Although there are only two major categories-bonds and stocks-to select from, the variations and refinements and optional extras are as numerous as they are confusing.
For many investors, one factor may be sufficient reason to determine a choice. The man of modest means will very likely find corporate bonds at $1,000 apiece too steep and their 3 per cent interest payment too small for what he is trying to achieve.
A wealthier investor might be fascinated by the potential in common stock but find that he would obtain a greater yield from tax-exempt municipals. All investors, however, will do well to become familiar with the various kinds of securities represented in corporate capital structures in order to understand their effect on each other and their bearing on the choice he eventually makes for himself.
The corporation is an entity marvelously adapted to the requirements of all parties involved. It developed in response to the needs of the business community for funds over and beyond its own resources to enable it to build, expand, and grow.
The basic, one-celled form of business life is the individual entrepreneur-the store owner who merchandises goods, the artisan supplying services, the small manufacturer-whose capital needs are met out of savings or through a modest bank loan.
Somewhat more complex is the partnership, the pooling of the resources of several individuals to share in a joint venture. Presumably the credit of the group is somewhat stronger than that of the individual. The partners also assume responsibility for management of their company, participate in all profits accruing, and are legally liable for all debts outstanding.
As long as firms remain relatively small, either type of organization is adequate. As opportunities for expansion present themselves, however, when new plant and equipment are required, when greater amounts of raw materials must be stockpiled, and branch offices and distributors underwritten, and personnel increased, the individual and the partners are hard pressed. Their surplus generally is too small, their normal lines of credit too limited to do the job.
Enlargement of the partnership is no answer. Outside investors willing to take on the mutual responsibilities of partnership, or to immobilize their funds in a partnership agreement, are hard to come by. In any event, the range of financial needs at this stage usually is so great that only by increasing the partnership to ridiculous proportions could they be met.
The solution? A public stock corporation. Ownership thereby is spread among as many hundreds or thousands of people as are willing to buy in, their proportional part of the firm being represented by the amount of stock or number of shares they hold. Their reward is likewise a proportional share of their firm’s profits.
Their control is exercised through the board of directors they elect. And because their stock is a standardized, known quantity-and because there are stock exchanges they can readily withdraw from the company and sell their piece of ownership to someone else.
The corporation, once established and in being, is an impersonal thing of indeterminate duration. Directors and officers may come and go, investors may buy in and sell out, but the corporation has a momentum and life force which may enable it to run on indefinitely.
With the Forex picking one currency against another is also similar, but you have the benefit of using Forex software to help you nowadays which can sometimes be downloaded free.

A good example of long term astute trading is Warren Buffet who is now 78 years young. He is currently worth an estimated cool $52 billion give or take a million.

And he has achieved that by essentially looking for quality, well-managed companies that are undervalued by the market. And he is prepared to wait for the right moment as we have seen recently.

Probably one of his most ignored mantras is: “Don’t get rich quick.”Hence the name of this article.

What lessons can we learn from this Master Trader?

A classic move which resulted in his latest spending spree which was only last September when during the current credit crisis, Buffet purchased options to invest US5 billion in the bank holding company Goldman Sachs.

Buffet has been quoted as saying, “We’ve done business with them for years, with Goldman, and the price was right, the terms were right, the people were right. I decided to write a check.”

Only this week Warren Buffet has invested a further $3bn in General Electric plus He announced only yesterday that Berkshire Hathaway had bought a stake in Hong Kong listed BYB Company, its shares have already jumped 42%.

Obviously Buffet had researched each Company minutely, firstly examining their value, then the risk factors involved and no doubt checking their future profit potential as well.

Buffet plainly has set criteria in place before he invests into anything. Some of this criteria is important and worth remembering, writing down and putting it into practice.

Buffet says it best: “The first rule of investing is don’t lose money; the second rule is don’t forget Rule No. 1.”

Buffet understood this math foible: If you start with a dollar and lose 50 percent of your money, you’ll be left with 50 cents. But then it takes a 100 percent return just to get back to your original dollar. So it’s best not to lose your money in the first place.

Some of the other things that He is well known to check out are as follows:-

Buffet checks out the ROE (Returns on Equity) of the possible future investment. ROE is calculated by taking a company’s net income and dividing it by shareholders’ equity. By this He knows that it measures profits as a percentage of what the investors actually own, and it also reveals how efficiently a company’s profits are growing.

He has been known to look for companies with around a return on equity of at least 15 percent on average but this is open to debate as there are no hard and fast rules on this one.

He also looks at the future activities of the Company and tries to calculate the future value of a company’s expected future cash flows. It’s his way of assessing a company’s intrinsic value. Then Buffet looks for companies selling at a deep discount to that value.

If you just take a good look in today’s market you will see good Blue Chip stocks going for a premium discount.

He is also looking for companies with long-term competitive advantages that make this future forecasting safer and less risky.

Buffet therefore obviously is an ardent advocate of “Buy in Gloom” and then hangs onto them for the long term.

If you had invested only $1,000 that’s $7,760 in today’s dollars with Warren Buffet back in 1956 and never cashed them in. They would be worth a tidy $30.6 million at the end of 2007.That is what you call long term investing.

Buffet is very patient prepared to wait till the right investment comes along. He is in no hurry; this is plainly obvious from the size of his portfolio. Judge this by the size of average manager of the value stock fund who spreads his or her investments among on average 146 different stocks.

He also advocates keeping Cash on hand just in case it is needed, for you never know when the next bargain investment is going to come along.

He’s understands something that a lot of people don’t appreciate. Having large amounts of cash doesn’t have to hurt your performance. Cash can be a strategic asset.” Cash currently represents more than 18 percent of Berkshire Hathaway’s investment allocation.

It goes without saying that Buffet is a great believer in Diversification.

So in a nutshell is it definitely worth following in the footsteps of Warren Buffet? Even following just some of his rules could increase your chances of share trading success.

From time to time I come across age pensioners whose life is now miserable because they’ve found themselves with what is to them, overwhelming credit card and other debt. On a pension, unless they leave themselves short, they often find that can’t make the repayments.

When talking to me, some of them have broken down and cried when they have realized that, with dignity, bankruptcy can cancel this debt and release them from this dreadful position.

They mostly don’t know that their bankruptcy will last for only 3 years.

They all say that they didn’t know that as a bankrupt, by law they can (each) earn a minimum $758.80 a week net, that’s after tax, that’s weekly spending money, before any of it can be taken off them by their bankruptcy trustee.

Mostly, to a man or woman they tell me that they don’t earn that much anyway. But it’s true, it’s the law, and it changes (upward) every March and September.

A single age pensioner receiving a maximum pension of $537.70 per fortnight, which is $268.80 per week, is way below this $758.80 per week figure.

As a couple they can receive $449.10 age pension per fortnight, so that’s 224.55 each per week, still way below the $758.80 each figure, and keep the lot.

What this means is that if an age pensioner (who rents) goes bankrupt, they can stop paying their debts like credit card and most other loans like that forever, and so keep the full amount of their pension to buy food, and to live on.

If you’ve got property like a house or a car I’ll come to that shortly.

Most however feel that that’s not right, that they were brought up in the era where you had to pay your debts. But that era also required the banks and other lenders to act more responsibly in deciding who to lend money to, and how much, than is the case today.

There seems to be a lack of balance in responsibility now.

If you feel that despite everything you don’t want to go bankrupt, well, bankruptcy law has attempted to provide a solution there too. In reality the solution is generally out of the reach of people living off an age pension, and maybe a few extra dollars too.

In bankruptcy law terms, these solutions are either called a Debt Agreement Proposal, or there’s a Personal Insolvency Agreement. For age pensioners, both could be a bit expensive to set up. They also mostly seem to keep you still saddled with your debt, and a repayment regime spreading over a number of years, and coming out of your pension still.

In addition, with the Personal Insolvency Agreement procedures, (but not a bankruptcy) the fact that you’re attempting to come to some arrangement to pay off your debt like this has to be advertised in both a local and national newspaper.

I can’t see many pensioners, or anybody else for that matter, wanting to be shamed in this way, nor do I think that they should be.

Furthermore, with both of these scenarios, if the wheels fall off again and something pops up which makes it difficult or impossible to keep up the repayments, as they’re more likely to do as we get older, then you’re in trouble again.

If you don’t want to go bankrupt, then with these other two options, there’s then a bit of a routine and procedure that the law sets out to happen, to try and get your repayments frozen again for a while, or reduced. More cost for you, and they don’t go away.

I think that a better answer is for you, after you go bankrupt, is to voluntarily just set aside what you can, and when you can, and then just chip away at the debt, if you want to (but by law you don’t have to), at your own pace, and in your own time. Look at as being a bit like the old saying “a dollar down and a dollar a week”.

Nobody can make you do this though, as bankruptcy cancels the sort of debt that I’m talking about.

In an overwhelmingly majority of cases, bankruptcy lasts for 3 years, and in that time, or at the end of it, by law, you don’t have to pay back this debt again, ever. Some shady debt collectors may tell you that you do (and there’s a few around like that), but that’s not right.

Another great relief for age pensioners is that their bankruptcy is not advertised in the media anywhere. It’s very private. If you bankrupt yourself then you don’t have to go to Court either.

Your bankruptcy is recorded with the commercial credit rating agencies for 7 years though, so you will find it hard, if not impossible, to get credit or a loan again from the normal banking sources in that time.

Bankruptcy will cancel your credit cards, but these days some banks offer Visa debit cards, which can only be used if you have money in your bank account to immediately cover the cost of what you buy when using one, but at least you have a Visa card again.

The government also records your bankruptcy status on a database called the National Insolvency Index, and its there for life, and some information is accessible to the public, for a fee. To pensioners, I can’t see that this would be an issue at all.

Most age pensioners are also very relieved to be told that even though they go bankrupt, they should be able to keep their car.

As a bankrupt you can keep a car where your (net) equity in it is no more than $6,300, and that’s its wholesale value, not its card yard price. Age pensioners who are renters rarely have a late model car, so again, this is mostly never an issue.

If you are paying your car off and there’s a Bill of Sale on it, the $6.300 net equity means it’s the bit that you own as distinct from the bit that the bank or the finance company owns.

To get a guide on this, simply compare what you still owe on the Bill of Sale with what you think that a car dealer would offer you, in cash, not as a trade in, for it if you tried to sell it to them today.

The difference that’s theoretically left after you paid the finance company out, would represent the bit that you own. If it’s $6,300 or less, you should be ok.

If you’re paying your car off like this though, you’ve got to be up to date with the repayments when you go bankrupt, and stay up to date if you want to keep the car.

Also, as a bankrupt, nobody is likely to come to the house to take your household furniture and belongings away. There may be a few exceptions here if the bankruptcy trustee was advised that the bankrupt had something really valuable, like a Mona Lisa hanging on the wall. (That’s a bit of an exaggeration of course).

The government says that it can sell or take off you, during the 3 years of your bankruptcy, things like lottery wins or prizes of value (buy tickets in somebody else’s name), assets left to you in a will in that time, your interest in the family home, land, money in your bank accounts (but not your pension income dealt with earlier), shares etc, antiques or other saleable property which are “of value” (the crucial words here are “of value”).

This is rarely is an issue with people of age pension age who are considering bankruptcy. You’re pretty much left alone.

If the age pensioner owns a house then that’s a bit of a worry, as generally the person’s equity in the house means that they could get a loan to pay off the debts being discussed in this article. I’d try not to go bankrupt if I owned a home.

On the hunt for your next or maybe it’s your first credit card? Before jumping in at the deep and accepting the first one that happens to fall on your door mat, consider what you want your card to do for you; after all it’s your credit so make it work in your favour! Despite the credit quagmire that appears to have washed over the globe there are still vast numbers of companies vying for customers, especially on the credit card front. So date the companies, let them woo you with their wondrous offers before you decide who you want to commit to.One of the attractive aspects of a credit card always appears in bold and is used to advertise a card’s credentials. These of course are the perks and all the pretty notions that go alongside them. Whether it’s air miles or charity contributions there will be a perk that will grab your attention and it is this that the card company relies on to reel you in as a customer. Perks however are never as clear cut as they first appear for in order to truly benefit from them you are tied into a number of clauses, one important one is that of paying your entire balance in full by the due date. Realistically speaking this is not an option for most people making use of their credit card, after all the whole point of taking a card out was to spread the payments, surely if you had the ability to pay in full you would have done so from the outset, no?Another flaw of the heavily advertised perk system is the actual value of said perk, take air miles for instance, the more you spend the more miles you tally up, and when you cross a certain threshold you can exchange your miles for a real flight in real miles. Airmiles.co.uk have split the world into zones, zone 1 for example includes most UK destinations including Jersey, Amsterdam and Dublin and a flight to a destination in this zone will cost 750 air miles. In real money terms, you would need to spend a whopping £37,500 before you would be able to trade your money miles into real miles! Considering that is well above the average UK salary the likelihood of ever utilising this perk is slim to none!So if you did want to fly to Edinburgh which rests comfortable in zone 1 BA need only give you a week’s notice to fly on a Friday and return the following Monday, safe to say you will be travelling economy class. When you price-up such a trip you will note that it would only cost you £94, a miniscule amount in comparison to the £37,500. That said if you are already an international connoisseur and spend most of your money abroad then you will only need to spend a meagre £18,750! Considering the air mile accumulation scheme is amongst the most popular of the credit card perk you can see that it serves to benefit only the lender as you the individual are highly unlikely to ever take advantage of it. sad to say the very perk that pulled you in has proved to be pointless.Interestingly UK inhabitants readily exercise caution, if it sounds too good to be true most people will sniff and then run a mile however when it comes to money-matters all caution is thrown to the wind and people suddenly believe you can get something for nothing! With that in mind before you sign on the dotted line make sure you are doing it for all the right reasons, after all if you are given credit you WILL spend it, regardless of whether the perk comes to fruition or not.

I practice what I preach and I preach diversification.  The answer to keeping your financial head above water in this unpredictable market is all about diversification.  That doesn’t mean to spread your investment opportunities simply over a number of stocks or within a few commercial sectors.  It means to broaden your investment opportunities over a wide variety of investment vehicles.  What you ultimately invest in is entirely up to you but you must always be sure that you are involved in a number of investment mediums. 

For instance, while a certain amount of your portfolio will, no doubt, be invested in the equity market, you should also be involved in other areas of opportunity like commodities, options, bonds, real estate, and you should also consider the Forex (foreign exchange) market.  The Forex offers you another method of diversifying your investment strategy to protect your financial future.  I advise you to consider the potential benefits of the Forex and invite you to learn all you can about this unique method of investing.  One way to learn is to get a copy of my best selling book, Forex Made Easy…6 Ways to Trade the Dollar.  I wrote the book to be very investor-friendly and it will help you understand the Forex market and how to trade it.  It’s actually very simple and that’s why I like it so much.  The way I trade the currency markets only involves the U.S. dollar against six other major world currencies. That’s it!  Not 40,000 or more stocks or mutual funds…just six currencies!  I like that kind of simplicity. 

Plus, if you are considering investing in the stock markets, you might want to consider issues that offer dividends with yields that exceed the 2.5% mark.  That’s probably much better than yield you can get at your local bank.  Check out companies that are showing brisk growth in such industries like the financial, energy or consumer sectors. Just do your homework and you’ll find something that will fit the mold and desired direction of your portfolio. 

Determine what types of investments make you most comfortable and which investments make you uneasy.  If you have trouble sleeping at night because you’re worried about your investments then you shouldn’t be there.  Educate yourself daily through various media sources available to you; books, magazines, the Internet, television and radio.  Go to workshops and perhaps consider taking a class at the local college.  Always practice trading on paper before you invest any of your hard earned dollars in anything you are not familiar with.  

Listen, these are some extremely volatile days.  It seems like the financial markets have tried to maintain some kind of balance but recently this hasn’t been all that successful on a global basis.  Political rhetoric, deep concerns about the world’s economy, the growing federal budget deficit, and the daily fears of terrorism around the world has taken its toll on all of us over the past couple of years but now is the time to rebuild.  You should always keep in mind that no matter what the Dow is doing, no matter how the NASDAQ is trading, there are always investment opportunities that are increasing in value.  Just remember to always practice the one method of cutting the odds of losing your valuable investment dollars.  Assure that your portfolio is as diversified as possible. 

A question I encounter often is, what are the correlations between your trading and other commodity trading advisors. More so…what makes you different.. Both are great questions..First in my opinion out of the thousands of commodity trading advisors, I would only consider diversified trend followers. This cuts out the options strategies that I have seen too often blow up. Next in all of my years… I have only seen one short term who can consistently grind out a positive return..( and I have invested with her). Most short term traders have not held up over the years. The next most important issue is risk.. How does the commodity trading advisor or trend follower define and manage risk. This cuts the playing field tremendously. Even some commodity trading advisors don’t understand the golden rule of risk per trade..risk per sector…open trade equity risk. It is not the return on investment.. it is the amount of risk needed to tolerate those returns.

So I would only compare us to other trend following diversified ( large basket of potential markets) that understand risk. More so… I would compare us to commodity trading advisors who trade multiple systems as there is no magic system. Even with all of this said…how are we comparable in our niche.. What is interesting is that in our niche, commodity trading advisors have similiar but different results. Put it this way..why do commodity trading advisors throughout the world in different offices seem to have similiar good periods and lackluster returns. For example last year was a great year for commodity trading advisors in our niche…and this year… nothing.. absolutely nothing is happening..The answer is quite simple… we are like fishermen.. if the fish don’t come..it does not matter how good our fishing poles are. Trend following can only be successful when there are trends. The reason there are correlations between commodity trading advisors is that the markets are open to those who are aware to take advantage of the trends.

Even with all of this said.. how does one explain the difference in the degrees of returns in the good times..and the drawdowns in the choppy periods…Very simple.. going back to basis… RISK. How much risk does a commodity trading advisor look to take on. Very simply..the bigger the risk per trade.. or sector allocation..or open trade equity allowable..the greater the return…but more importantly..the greater the draw down.

If you really want to succeed in commodity trading & futures trading. You have a choice…you can take the arduous path of learning for yourself or you can allocate to a professional commodity trading advisor in which you understand exactly how he/she trades…how he/she manages the risks inherent in trading and have the patience and discipline to stay with them at 4-5 years. More so I would suggest allocating no more than 5% ( even less) of your net worth to any idea…If you seek to compound your way to wealth… these are the tenants of potential success..

Andrew Abrahamwww.myinvestorsplace.com

Futures and commodity trading involve substantial risk.People can and do lose money trading.