Foreign Demand May Jeopardize Uranium Supply for U.S. Utilities

We discussed with Jeff Combs, the Ux Consulting president, from which countries future uranium supplies may come, and who is going after those supplies more aggressively. He warns about the risks and rewards of Kazakhstan and Mongolia, looks to Africa for supplies, and talks about Russia expansion.
uranium, energy, mining, nuclear energy, China, India, Canada, Australia, France, utilities, commodities, electricity, uranium mining, Athabasca Basin
We discussed with the Ux Consulting president from which countries future uranium supplies may come, and who is going after those supplies more aggressively. He warns about the risks and rewards of Kazakhstan and Mongolia, looks to Africa for supplies, and talks about Russia expansion.

StockInterview: How do domestic uranium prospects rate in the eyes of U.S. and foreign utilities?

Jeff Combs: I don’t think that utilities expect the U.S. to be a major supplier of uranium. What youe seeing with China and other countries, where nuclear power is growing, is that theye definitely looking to secure supplies. The Chinese are going to Kazakhstan and also Australia, where there are a lot of uranium reserves, a lot of potential for growth. I think there some potential for growth in the U.S. But if you had a fast growing nuclear power program, I don’t think the U.S. is the first place I’d look. I believe that you can look for some opportunities in the U.S. But in general, the U.S. utilities are basically in competition with some of these newer entrants into the market for available supplies. Those are primarily outside of the U.S., as U.S. utilities also depend on imports for most of their supplies.

StockInterview: It appears many countries are racing to secure uranium supplies outside their borders.

Jeff Combs: Even Russia, which was a major exporter of uranium in the 1990s, is looking to secure additional supply sources, first to Kazakhstan, Kyrgyzstan, and Uzbekistan, former republics of the of Soviet Union, but also to Africa. Russia has an extremely ambitious reactor expansion program, as well as a desire to greatly increase its exports of reactors to countries like China and India. As it stands now, most of the growth in nuclear power is expected to take place in China, India, Russia, as well as Korea and Japan to a certain extent. All these countries are really looking outside their borders for uranium supplies that are going to sustain them for quite a long period in the future. None of them are blessed with very rich and extensive uranium deposits.

StockInterview: Is Russian President Vladimir Putin trying to create something on the order of a Wal-Mart Super Center for the nuclear fuel cycle?

Jeff Combs: Well, you see them doing a joint venture in Kazakhstan. Theye trying to do something with Kyrgyzstan. Theye definitely looking at how they can shore up their supply through imports, in addition to investing a billion dollars in their own internal production. In this respect, they are trying to draw from their old supply chain arrangements. This is to meet their internal needs, as well as the needs of countries to which they have traditionally supplied reactors and the fuel to run these reactors. As Russia looks to expand its reactor sales to countries that don’t have established fuel cycles, they want to be able to supply them with fuel ?possibly even lease them the fuel. This means that they have to be prepared to take back the spent fuel. This is due at least in some measure to nonproliferation concerns, in that you don’t want these new entrants building enrichment or reprocessing plants. While Russia has enrichment capacity and the ability to expand this capacity, they also need uranium to be able to supply these countries with enriched uranium. This is why theye currently focusing on the uranium side of the equation.

StockInterview: Let talk about some of the target countries, where those with the more ambitious nuclear energy programs will want to secure uranium.

Jeff Combs: We have recently done a series of reports, looking at countries where major production is taking place, or could take place. Of course we’ve done them on Canada, Australia, Namibia, South Africa, Kazakhstan, and Uzbekistan. I think the next country might be Mongolia because of the exploration and development activity that is taking place there. Mongolia mining laws are very favorable to foreign companies. Mongolia is also located in that part of the world where the bulk of nuclear power expansion is taking place. The problem in Mongolia now is the lack of infrastructure ?the location of the exploration sites relative to roads and rail lines, and the ability to connect to the electricity grid and water lines.

StockInterview: There has been so much press and chatter about Kazakhstan. Is there substance in these commentaries, or is it mainly hype?

Jeff Combs: They’ve got a lot of uranium resources and reserves. They’ve also got a commitment to expanding production there and a pretty big customer in China. The hype might be related more as to whether they can do it as quickly as they say, as opposed to whether they can eventually get to the levels theye talking about. One of the things that will slow them down is the infrastructure, including the skilled work force, needed to expand at that rate. They have increased production. They definitely will continue to increase production, but perhaps not at the rates they are advertising. They’ve produced a lot in the past, in the old Soviet Union days. I think they can get back up to those production levels, but it going to take some time.

StockInterview: What will be required to get things going in Kazakhstan?

Jeff Combs: It appears they’ve been able to attract capital. A large part of it is just the time is takes to build the infrastructure, including training workers. You can have all of the investment in the world, but it still takes time to get things done, especially if the infrastructure isn’t well developed in the first place. If you look at Kazakhstan on the map, it is very close or adjacent to Russia, China, and India, where the major part of nuclear growth is occurring. I don’t think there will be any shortage of demand for their output.

StockInterview: Where does Japan fit into the current uranium bull market?

Jeff Combs: Japan is definitely a factor in the market. Their growth might not be as rapid as it once was, or once was expected to be. With Japan you have a country that does not really have any indigenous uranium resources to speak of. They really need to import uranium. To facilitate this and to secure future supplies, Japan has historically developed different supply relationships around the world, both by taking positions in uranium mines and by nurturing long-term relationships with producers. I think that it likely the case that this recent price rise caught them somewhat off guard, but recently Japanese utilities have put more effort into shoring up their supply options.

StockInterview: There are countries, which get little media coverage, such as Namibia. How does this country rate?

Jeff Combs: I think Namibia will definitely have an important role in supplying uranium. I don’t think it going to have the expansion potential of Canada, Australia, or Kazakhstan, but I think South Africa, Niger and Namibia are going to be an important component for uranium supply in the future.

StockInterview: You mentioned Niger, which was the world third largest uranium producer, and has now fallen to number four, behind Kazakhstan.

Jeff Combs: The funny thing about Niger is that in a way it sort of fallen off the radar screen. It produces, but it just doesn’t get the press as other places. If the price increases, it really changes how people look at all these different projects going forward and a lot of things, which might not have been looked at 20 years ago or so, are being reinvestigated. Obviously, there is uranium in Niger. It quite important to the economy there. As I said, they haven’t really been on the radar screen as much as a lot of other regions in the world. Perhaps this is because production there has been controlled by the French for a long time. There are some Canadian companies exploring in Niger now. Since this activity is fairly recent, it won’t likely bear any fruit for five to ten years down the road.

StockInterview: Do you foresee realistic nuclear energy expansion in other parts of the world, such as the Middle East?

Jeff Combs: Frankly, I haven’t focused on that very much. I know that Turkey is looking to do something. At some point, I think you would see more nuclear power in the Middle East just because the oil supplies aren’t going to last indefinitely. We do a headline news service, and it packed full of stories on different countries that are looking at nuclear power. It seems like there is a new country added to the list every day. I know, for instance, that Vietnam is looking pretty seriously at nuclear power. It would not be surprising there would be interest in the Middle East. There is a lot of focus on the problems associated with Iran. Overall, I’m a believer that if you have more nuclear power, then youe going to have fewer problems with energy and more economic development, higher standards of living, and that going to be a big positive that will outweigh the negatives in situations like Iran.

StockInterview: Speaking of Iran, what is Washington sentiment toward nuclear energy, aside from the Bush Administration endorsement?

Jeff Combs: I think there is a growing recognition, even among Democrats, that you need nuclear power as part of the energy mix. Youe not going to get there just by renewable energy sources. With the environmental and overall energy challenges wee facing now, with higher and higher natural gas and oil prices. From the U.S. standpoint the vulnerability with respect to secure energy supplies, I think there is a growing recognition that nuclear power is part of the solution, and this thinking extends outside of the Bush administration. I’ve talked to people, and they believe that even if a Democratic administration came in that you really wouldn’t necessarily put a damper on nuclear power.

StockInterview: What about the Hillary Clinton Factor, if she becomes the next U.S. President?

Jeff Combs: I haven’t really asked her for her views on nuclear power recently. I think the story for nuclear power is not so much what happens in the United States, which certainly could add more reactors. The rest of the world probably looks to what the U.S. does to a certain extent. I think the real growth in nuclear power, and what likely to drive the market in the future, is on the part of the developing countries in the eastern part of the world. These would be China, India, Korea and Russia, where economies are growing a lot more quickly, not the really mature economies like in the U.S. and Europe. Although I would expect to see some growth there as well. In this respect, having a Democratic president would not derail what happening in nuclear power or the uranium market. As mentioned earlier, I think that you see a more general acceptance of nuclear power across party lines, in Europe as well as the U.S., although there are still some factions that are virulently anti-nuclear.

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Day Trading Online in the UK

If you know the slightest thing about the English economy, then you will know that England has maintained a strong, stable currency for centuries, even through wars and times of economic distress.
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It is one of the strongest currencies in the world, but the whole economy is not as powerful. It fluctuates up and down, along with trends in privately and publicly-owned companies. England’s economy has experienced some very high points, but has also experienced some low points as well.

No matter where you live, you must carefully consider your options before you try to earn a return on your investment; and England is no exception to that rule. But some people in the UK still like to take a risk with their money and one of these risks is day trading online.

Day trading online involves the process of buying and selling shares over the Internet at short notice. Day trading online has been seen by many as a way to get rich quick, but that isn’t the half of it. Statistics show that online day traders are having a rough ride, with 70% of online day traders losing money. So if you are looking at getting into the world of online day trading, then you should know the risks that are attached to the service.

But when you are in the world of online day trading then you will get some excellent services given to you. One of these services is a chat room, where you can talk to other buyers and sellers. This is a good way to find out what the next big time company might be, but you have to know if this person is “share ramping,” which is the process of talking up the shares artificially. So you have to take the risk of guessing if this person is correct or not and if the information hasn’t been authorized.

These days, online trading websites are somewhat risky and can be dangerous. But if you are a professional when it comes to buying and selling shares, then you will know all about the risks and you can make yourself a tidy profit. Day trading online should not be used by beginners, but more used by people that are heavily experienced in the stock market world.

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Forex Trading Demystified

Forex involves the trading of currencies. It is the largest financial market in the world and has an estimated daily turnover of 1.9 trillion dollars. This turnover is larger than all the worlds?stock market on any given day.
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Forex involves the trading of currencies. It is the largest financial market in the world and has an estimated daily turnover of 1.9 trillion dollars. This turnover is larger than all the worlds?stock market on any given day.

The forex market does not have a fixed exchange. The forex market is considered an over-the-counter (OTC) market. The forex market is completely electronic and trades are executed over the phone or on the Internet. Until 10 years ago the forex market was the preserve of large financial institutions. Now an ever-increasing amount of individual traders thanks to the advent of the Internet and an increasing amount of online forex brokers are trading forex.

Currencies are always traded in pairs. A typical pair would be EUR/USD (Euro over US dollars). The first currency is the base. The second currency is the counter currency. The pair can be viewed, as the amount of the secondary currency that is needed to buy 1 unit of the first currency. If you were to buy the above pair you would buy Euro and simultaneously selling US dollars. If the pair were sold the reverse would happen you would sell the Euro and buy the US dollar. This might sound confusing but simply think of the pair as one item and you are buying or selling one item. If you think the Euro will go up against the US dollar you buy the EUR/USD pair. If you think the EUR will decrease against the US dollar you sell the EUR/USD pair.

When you see forex quotes you will see two numbers. If we use the EUR/USD as an example you might see 1.2350/1.2355 the first number 1.2350 is the bid price and is the price traders are prepared to buy euros against the US dollar. The second number 1.2355 is the offer price and is the price traders are prepared to sell the EURO against the US dollar. The difference between the bid and the offer price is the called the spread. The spread for the major currencies is usually 3 to 5 pips (explained later).

The most common increment of currencies is the pip. If the EUR/USD moves from 1.2350 to 1.2351 that is one pip. A pip is the last decimal point of quotation. Most currencies quoted to 4 decimal points. The exception is the Yen, which is quoted to 2 decimal points eg 139.41. The term pip is just forex lingo so if a forex trader says the EURO has gone up 20 pips against the US dollar add 20 points to decimal part of EUR/USD pair.

Forex is traditionally traded in lots also referred to as contracts. The standard size for a lot is $100,000. In the last few a mini lot size of 10,000 dollars has been introduced and this has become increasing popular. Forex trading is leveraged with most forex brokers offering 1% margins. This means you can control one standard lot of $100000 with $1000. Typically you would need a minium of $2500 to open a standard size forex account.

A mini account can be opened with $300 with most forex brokers. To trade a one mini lot you need a margin of $100, which in turn controls $10000. If the currency goes up 1% and if you traded one mini lot of $10000 you would make $100 dollars or 100% of your original margin. Forex trading is a very lucrative market to get into and it is suggested that traders new to forex trading trade a mini account for an extended amount of time. Trading a mini account is a low cost entry to the forex market, as only $300 is required to open an account. You can still make money while you become more experienced in forex trading. You can trade one mini lot until you have made your first $100 dollars then start trading 2 mini lots. As you gain more experience you can trade standard sized lots.

Forex trading is becoming increasing popular with traders of other financial products. It can be traded in amounts a lot smaller than other financial products, which makes learning forex trading safer than other markets. Forex trading can be a very lucrative market, which no trader can dismiss.

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Exposed: The World Best Kept Uranium Secret

The Republic of Niger is the world’s fourth largest uranium producer, nearly monopolized by Cogema. Two newcomers recently obtain concessions to explore for uranium in properties adjacent to Cogema. Will they become a serious uranium producer in Niger?
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Perhaps the White House flap as to whether or not Saddam Hussein government tried to buy uranium ore from the country of Niger was the best publicity Niger has had about its uranium production for more than two decades. How many geologists know that the Republic of Niger ranks fourth, behind Canada, Australia and Kazakhstan, in terms of the quantity of uranium annually produced worldwide?

Named after the river which runs through it, Niger produces nearly four times the uranium currently mined in the United States. More uranium is mined in Niger than in Russia, South Africa, India, China, Brazil, Ukraine Namibia or Uzbekistan. In fact, if you added up the total amount of uranium mined in South Africa, China, India, Brazil, Czech Republic and the Ukraine for 2004, Niger would trump the combined production of those six countries. Until Dr. Jon North came along, uranium mining was pretty much monopolized by Cogema and a consortium that includes Spanish and Japanese interests.

“This is the fourth largest uranium producer in the world,?raved an excited Dr. North into his cell phone during our taped interview. “Niger has never had an entrepreneurial and nimble junior mining company ever explore for uranium. And this is the first one.?North was talking about Northwestern Mineral Ventures (TSX: NWT; OTC BB: NWTMF). “Imagine if Australia, Canada and Kazakhstan having never had a junior company looking for uranium. It absolutely absurd to even consider the concept.?
The Republic of Niger supplies about 9 percent of the world annual production to meet the growing need for uranium to fuel the world nuclear reactors. According to the IAEA-NEA Red Book of 2003, the sub-Saharan Niger ranked #4 behind Australia, Kazakhstan and Canada for total uranium reserves. In the 2005 update, it fell to seventh place. It may be that this country is under-explored. In 1981, Niger produced a peak of 4366 tonnes of uranium. As with others, mining production plummeted with the spot price of uranium during the 1980s and 1990s. The slump hit the country hard because Niger depends upon uranium for more than 30 percent of its exports, more than $100 million. Five percent of the country tax revenues come from uranium mining.

Dr. North discussed how he came to obtain concessions for both his company, North Atlantic Resources (TSX: NAC) and Northwestern Mineral Ventures, in which he serves as a director and helps guide geological colleague and president Marek Kreczmer. “I traveled around the Sahara Desert twice on field trips with a local Niger geologist before I decided to apply for permits. When I did this in 2004 with the minister of mines, he said to me, ‘You know, youe the first person to ever do this, and the only people who have done this are energy companies or governments.?So, I told him I would like to apply for two permits.?North obtained two for Northwestern Mineral Ventures and another for North Atlantic Resources.

Salt Tectonics the Key to Uranium in Niger

North explained, “We selected the projects based on the geologic ingredients that we felt were important in the control and distribution in the uranium, such as, but not limited to, northwest trending fault corridors, northeast trending fault corridors, and inliers of stratigraphy that are popping up through younger parts of the stratigraphy.?According to North, the salt structures are the key to finding uranium in the Republic of Niger. “The northeast and northwest faults, and the inlier there, are all salt-related structures,?North remarked. An inlier is an area or formation of older rocks completely surrounded by younger layers. “For decades, the oilfield people have understood, emphasized and completed research on salt, the deposition and then the movement of salt through stratigraphic sequences,?North pointed out.

Salt is very common but it doesn’t last very long in stratigraphy and it escapes, North explained. “When it escapes, it forms walls and diapirs (an anticlinal fold where the salt has pierced through the more brittle overlying rock).?Oil exploration geologists pay attention to these because they tend to form permeability barriers to oil and gas deposits. North is interested in them for a different reason, “We noticed that the salt diapirs, where they escaped through the sequence in Niger, coincided with the distribution of uranium deposits.?
Uranium in the Republic of Niger is mined by open pit because of the sandstones. “These are redox deposits,?North noted. “They tend to be associated with reduced layers and structures, such as the former salt diapirs and faults in the stratigraphy. At the time, we didn’t really understand why we were doing that. We just knew there was an association with uranium deposits and these structures in Niger.?
That appears to have made Dr. North job a walk in the park, or in this case, a walk in the desert. How do you inexpensively explore concessions of 2,000 square kilometers each? That about 24 miles and 30 miles each, both in the desert. “If you do the target selection carefully, and you stick to the salt diapirs, those really narrow down the search,?North revealed. “When we do our first multi sensor mag and radiometric survey, which will happen in the next couple of months, we will map out those structures and features, and look for radiometric anomalies associated with them. When we have that data, we’ll have at least 50 drill targets on those projects.?There appear to be no scarcity of drill targets on the concessions.

Without that data, North believed he could have picked out ten high quality drill targets, just from the geology map. “They show up as circular bull eyes on geology maps,?North noted excitedly. “In the desert they show up as low hills. Theye topographic anomalies where you have about maybe 50 meters of relief. It just a low rise because the desert is flat as piss on a plate.?North explained that you can drive anywhere by pointing your vehicle and stepping on the gas. “The only things in your way are these very low hills, and those hills are related to either faults or inliers (exposed older rocks surrounded by younger rocks).?Initial targeting comes straight from a topography map.

A Vote of Confidence on Current Progress

But what about the availability of drill rigs for this project? North conceded there is a global shortage. But he shot back, “There a drilling company in West Africa called West African Drilling services ?and surprise! surprise! ?I’ve been working with them for the past four years.?North has already discussed moving a rig in with them. “Quite honestly, it not a big issue,?he said. Neither is labor or the cost of drilling. “We pay an all-inclusive cost of approximately US$150/meter,?North told us. “Labor costs are very low, about one-third the cost of North America. We use all local people because that what we do in Mali. There are lots of highly trained, skilled geologists in Niger.?
Clearly, Northwest Mineral Ventures is excited. “We are very pleased to be one of the first North American companies to acquire exploration permits in Niger ?a country that has not been explored using modern techniques and has, until now, been one of the world’s best-kept uranium secrets,?Northwestern’s Chairman and CEO Kabir Ahmed told Reuters in wire service story published in March.

Northwestern Mineral President Marek Krezcmer, who has been a geologist for more than thirty years, seventeen of which were spent exploring in Africa, was also enthused about the company prospects in Niger, “We know there is uranium mineralization on the surface, based on the work which was done by Jon North. I think we can succeed. Wee going to find uranium.?Kreczmer is familiar with geology in Africa and doing business on this continent. “I’ve worked in Tanzania, Zambia, Swaziland, Ethiopia and Eritrea,?said Kreczmer. He was optimistic about developing Northwestern Mineral Venture uranium concessions, “Our business plan there is to discover mineralization, and (have) probably someone like Cogema become a partner of choice.?
At Cogema seven open pit uranium mines which feed the Arlitt mill, the grades have run 0.3 percent with 2003 production at 1126 tonnes. At the two open pit uranium mines which feed the Akouta mill, grades have run at between 0.4 and 0.5 percent with 2003 production at 2017 tonnes. Krezcmer explained that Northwestern exploration licenses are valid for a period of nine years, three-year licenses which are renewable three times. The country mining act, according to Krezcmer allows Northwestern to apply for a mining license, which can be granted for between 25 and 70 years.

We were concerned with any political situations, but both North and Kreczmer assured us the country is stable. “When I first went to Niger in November 2004, and that was during the last election, it honestly looked like a lot of fun. Everybody had a little piece of rag tied around their wrist or tied to the antenna of their car to represent their political affiliation.? Kreczmer added, “My experience working in Africa is that because this country relies so heavily on foreign aid, the World Bank has great influence.?

The Republic of Niger has North vote on confidence. He has worked for the past few years as Chief Executive of North Atlantic Resources, which hopes to develop its Kantela gold property in Mali. Niger and Mali and demographically and geographical identical, he told us. North feels Niger is going to become more aggressive in developing its uranium properties. He talked about how the President of Niger told his minister of mines, “Get out there and advertise Niger as being open for business. We want people to come in here and invest. We want to give them mineral rights, and we want them to do what Mali is doing.?From the looks of it, the first to jump on the Niger bandwagon were Northwestern Minerals and North Atlantic Resources, but they won’t be the last.

“My experience with Niger is that it a peaceful, democratic country with no civil unrest. Let put it this way. They have less civil unrest than France.?Ironically, French is one of the country official languages. “You gotta be fair, right??asked North. “The French recently stormed the Bastille in France, and they didn’t do anything like that in Niger.?
Just how exhilarated is Dr. Jon North? “The excitement in the market is we do the airborne survey,?he enthused. “We find some radiometric anomalies that correlated within inliers. We show the model. If that doesn’t excite people, then I don’t think their hearts are beating.?

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Choosing a Stockbroker

It is true that even though you can choose your own investments you must still use a stockbroker to execute the orders. You do not have to rely in their advice though it may be helpful.
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It is true that even though you can choose your own investments you must still use a stockbroker to execute the orders. You do not have to rely in their advice though it may be helpful. You can make your own selections but you will still require their services to invest. There was a time when you had no choice about the type of stockbroker to utilize. There was only one type of broker, the full service brokers, and they controlled the market. The commissions that they demanded for their services were very high but this was the industry standard. This contributed to the notion that the stock market and stock market investment were beyond the means of the average person and only for the very affluent.
The initial loss of control of the market by these full service brokerages occurred in 1975 and discount brokers emerged. They charged a fraction of the fees the full service brokers did and as such were a big hit on the market. They offered the same great services but were affordable to the average individual as the cost were significantly lower. Another great innovation was the introduction of the internet. This was a great innovation as there was greater trading efficiency as a result.
The overall effect of all the changes on the stock market was that individuals now had access to a ton of information that was never accessible to them previously. It is a debate however whether these avenues have in fact enhanced investments and made better investors. In the case of persons that do their homework and seek out the truth behind the hype the answer is a definitive yes. The investors out their can now choose the type of broker they require from the range available.
There are four categories of brokers. These are the discount/online broker, the discount broker that provides advice, the full service broker and the money manager. The discount/online broker is basically an order taker. They do not offer advice and will not tell you when to buy or sell a stock. There may be research available and other account management tools but the choice of investment in the stock market is entirely up to you.
The variation of the discount/online broker that assists customers is the nest type. They do not offer full consultation services but will have more research than order taking sites. They will offer newsletters and investing tips but most likely not recommend particular stocks. You are not totally on your own with this option but you will still need to do a lot in terms of deciding on the best stock investment.
The full service broker will provide recommendations on specific stocks and the broker will also access your financial situation to determine your needs and investment options. This service is suitable for the investor that does not have the interest or time in making their investment decisions.
The money manager is made for the investor with a hefty investment sum. This broker will handle only significant portfolios and will invest and manage the entire account for a percentage of the assets under investment. This option can be expensive but very worthwhile in the long run.
Whichever option that you choose make sure it suits your purpose and that you are covered by the Securities Investor Protection Corporation. Ask about backups and other options in case of technical problems and ensure that your broker has your best interest at heart.

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How to make money in the stock market

The very basic option trading strategy
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There are abundant of money in the stock market. However, not everybody can get the money out from there. Some people can gain a lot from the stock market but some has lost a lot of money there. It is very indecisive. Sometime at that moment, you loss money but after a few days, you may earn a profit and sometime is reverse. So, how should we do to get the money out from the stock market? Usually, there are two ways to get the money out from the stock market; that are investing and trading. The difference between trading and investing is trading involves buying and selling share, future or option within a short period of time; whereas investing is buying share, future or option and hold it for quite a long time, usually one year or more before selling it.

What is the difference between share, future and option? What we know is that option is much cheaper than the share and future, usually is tenfold lesser than the share price. So, if you have an amount of money that enough for you to buy 100 units share, you can use that amount of money to buy 1000 units option. And the return of investment is almost the same between share and option. Therefore, you will earn around tenfold if you buy option rather than share or future. However, the disadvantage is that if you lose on that trade, you will lose almost tenfold also. When we trade option, the amount of money that we can profit and lose is almost same as if we trade share. However, we need a lot of money to buy share compared to buy option. This causes the percentage of the profit and loss for buying option is much higher than share. The example is like when you buy $10 for one unit of share and $1 for one unit of option. When the share price drops for $0.10, the percent drop for buying share is 1% but for buying option, the percent loss is 10%. That why the percentage of the profit and loss for buying option is huge compared to buying share even though the share price fluctuates in a small amount.

Due to the high profit and loss when buying option, trading or investing option is just like gambling. It is quite normal that the return of investment is more than 100%. But it is also quite normal that you could lose all your money in the investment or trading. In order that you can earn more than lose, you need to know some basic option trading strategy and technical analysis. Option is different from the share. Option has time value; whereas, share does not have time value. The value of one share will not depreciate due to the passage of the time. It is only affected by the supply and demand and also the company performance. However, option value will depreciate when the time has passed. When the time reaches to the option expiration date, there is no more time value for that option. That why, you need to use strategy to trade option, in order that you can minimize the loss and maximize the profit.

The very basic two option trading strategies are bullish call spread and bearish put spread. Bullish call spread is used when the stock price is anticipated to rise in the coming months; while, bearish put spread is used when the stock price is anticipated to drop in the coming months. Steps that are involved in this strategy are buying in the money option and selling out of the money option. In the money option is the option that has time value and intrinsic value; whereas, out of the money option only has time value. When the stock price moves to the positive side (generated money side), in the money option will generate profit and the out of the money option will cause loss. However, the minus of the profit and the loss is the net profit that has generated from this strategy. When the stock price moves over the out of the money strike price, the profit will become maximized. Continuously moving of the stock price to the positive side will not generate any profit. In this situation, we will close both positions to take the profit out from the market.

If the stock price moves to negative side (opposite side that cause loss), in the money option value will depreciate and the out of the money option will generate profit. However, the profit, which is generated from the out of the money, is limited to the price that you have sold. The subtraction between out of the money profit and in the money loss is a negative value. This is because the profit that is generated from the out of the money option is less than the loss that is caused by in the money option. Out of the money option profit is limited in this strategy and in the money option loss is unlimited. If the stock price continuously moves to the negative side, you may lose all of your capital. So, what is the difference from buying naked option and buying option using spread strategy? The difference is that you may lose more money if you buy naked option and lose less money if you buy spread. This is because you do not generate any profit when you just buy naked option; whereas, profit is generated from the out of the money option if the stock price moves to the negative side. The disadvantage of the spread is that the commission, which is charged by the broker firm, is double compared to the naked option. This is because, naked option only involves one position; whereas, spread involves two positions. Each position will be charged with commission separately.

Besides, the purpose of selling out of the money option in the spread strategy is to minimize the loss of the time value of the in the money option. Actually, both in and out the money option time value would depreciate when the time has passed. Because we do not own the out of the money option; therefore, we can keep the money that we have received from selling that option. When the time value of this out of the money option has depreciated, we used lower price to buy back the option. So, we sell at high price and buy back at low price; therefore, we earn money. The money that we have earned usually is enough to cover the loss of the time value from the in the money option. However, you still lose the intrinsic value of option if the stock price moves to the negative direction.

So, bullish call and bearish put spreads are two of the very basic option trading strategies. However, it is not guaranteed 100 % win from the stock market. You still need to learn to predict the stock price direction accurately using technical, fundamental and news analysis.

Alexander Chong

Author of “Workable Option Trading Strategies?

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Investment Strategy: The Investor’s Creed

The Stock Market is a dynamic place where investors can consistently make reasonable returns on their capital if they comply with the basic principles of the endeavor AND if they don’t measure their progress too frequently with irrelevant measuring devices. Five simple concepts of Asset Allocation, Investment Strategy, and Psychology are summed up quite nicely in the “The Investor’s Creed”.
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Fascinating, isn’t it, this stock market of ours, with its unpredictability, promise, and unscripted daily drama! But individual investors are even more interesting. We’ve become the product of a media driven culture that must have reasons, predictability, blame, scapegoats, and even that four-letter word, certainty. We are a culture of investors where hindsight is rapidly replacing the reality-based foresight that once was flowing in our now real-time veins… just like downhill racing, grouse hunting, and Super Bowls.

The Stock Market is a dynamic place where investors can consistently make reasonable returns on their capital if they comply with the basic principles of the endeavor AND if they don’t measure their progress too frequently with irrelevant measuring devices. The classic investment strategy is so simple and so trite that most investors dismiss it routinely and move on in their search for the holy investment grail(s): a stock market that only rises and a bond market capable of paying higher interest rates at stable or higher prices! Just not going to happen?

This is mythology, not investing. Investors who grasp the realities of these wonderful marketplaces recognize the opportunities and embrace them with an understanding that goes beyond the media hype and side show performance enhancement barkers. Simply put, when investment grade securities rise in price [As they are now, with the DJIA finally putting together a successful attack on the 11,000 barrier], Take Your Profits, because that’s the purpose of investing in the stock market! On the flip side (and there has always been a flip side, more commonly dreaded as a “correction”), replenish your portfolio inventory with investment grade securities. Yes, even some that you may have just sold days or weeks ago during the rally. This is much more than an oversimplification; it is a long-term (a year or two is not long term.) strategy that succeeds… cycle, after cycle, after cycle. Sounds an awful lot like Buy Low/Sell High doesn’t it? Obviously, Wall Street can’t let you know that it is quite so simple!

[Note that Dow Jones 11,000 was last breached during the infancy of this century, and that the last All Time High in this much too widely followed average occurred late in 1999. When the DJIA banner is repositioned on that historical peak of 11,700 or so, it will represent no less than six years of zero growth in this, the most respected, of all Market Indicators! Would the media strip the gold medal from this Stock Market Icon if it knew that during these same years: (1) There have been significantly more stocks rising in price on a daily basis than moving lower. In fact, more than two-thirds of the last 68 months have been positive. (2) Since April 2000, there have been 120 more positive days in NYSE issue breadth than negative days. (3) 250% more NYSE stocks established new high price levels than new lows. (4) We are working on our sixth consecutive year of positive issue breadth!]

So understand that your portfolio statement values will rise and fall throughout time, and rather than rejoice or cry, you should be taking actions that will enhance your “Working Capital” and the ability of your portfolio to accomplish your long term goals and objectives. Through the simple application of a few easy to memorize rules, you can plot a course to an investment portfolio that regularly achieves higher highs and (much more importantly), higher lows! Left to its own devices, like the DJIA for example, an unmanaged portfolio is likely to have long periods of unproductive sideways motion. You can ill afford to travel six years at a break even pace, and it is foolish, even irresponsible, to expect any unmanaged or passively directed approach to be in sync with your personal financial needs.

Five simple concepts of Asset Allocation, Investment Strategy, and Psychology are summed up quite nicely in what I call “The Investor’s Creed”:

(1) My intention is to be fully invested in accordance with my planned equity/fixed income asset allocation. (2) On the other hand, every security I own is for sale, and every security I own generates some form of cash flow that cannot be reinvested immediately. (3) I am happy when my cash position is nearly 0% because all of my money is then working as hard as it possibly can to meet my objectives. (4) But, I am ecstatic when my cash position approaches 100% because that means I’ve sold everything at a profit, and that I am in a position to (5) take advantage of any new investment opportunities (that fit my guidelines) as soon as I become aware of them.

If you are managing your portfolio properly, your cash position has been rising lately, as you take profits on the securities you purchased when prices were falling just a few months ago?and (this is a big and) you could well be chock full of cash well before the market blows the whistle on its advance! Yes, if you are going about the investment process properly, you will be swimming in cash at about the same time Wall Street discovers the rally and starts encouraging people to weight their portfolios more heavily into stocks; the number of IPOs coming to market starts to rise exponentially; morning drive radio DJ’s start to laugh about their stock market successes; and all of your friends start to talk about their new investment guru or the 30% gains in their growth Mutual Funds. What are you doing in cash!

This is what I call “smart” cash, because it represents realized profits, interest, and dividends that are just catching a breather on the bench after a scoring drive. As the gains compound at money market rates, the disciplined coach looks for sure signs of investor greed in the market place: fixed income prices fall as speculators abandon their long term goals and reach for the new investment stars that are sure to propel equity prices ever higher, boring investment grade equities fall in price as well because it now clear [for the scadieighth (sic) time] that the market will never fall again?particularly NASDAQ, which could double and still not be where it was six years ago. And the beat goes on, cycle after cycle, generation after generation. What do you think; will today’s coaches be any smarter than those of the late nineties? Have they learned that it is the very strength of a rising market that proves to be its greatest weakness!

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Bear Market, Bull Market or Dead-cat Bounce…It Matters Little to the Stalwart Penny Stock

Over the last eight weeks [June, 2006] I’ve been spending a lot of time reading articles describing the current market conditions…trying to figure if it really affects penny stock investors. Are we in a bull market…are we wading into a bear market. Or is the recent rally just a dead-cat bounce?
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Over the last eight weeks [June, 2006] I’ve been spending a lot of time reading articles describing the current market conditions…trying to figure if it really affects penny stock investors.

Are we in a bull market…are we wading into a bear market. Or is the recent rally just a dead-cat bounce?

The dead cat bounce refers to a short-term recovery in a declining trend. There’s a (relatively) old saying in investing: even a dead cat will bounce if it’s dropped from high enough.

No matter how you slice it…I’m not sure it even matters to penny stock investors like you and me.

For example…stocks surged in Japan this week as reports showed growth in manufacturing and exports. Markets rose across Asia as investors were encouraged by Wednesday’s gains on Wall Street.

Strong earnings reports from two bellwether stocks gave penny stock investors hope that rising interest rates wouldn’t kill profits. The recent sell-off, said one economist was “just turbulence.”

The turbulence, it seems, is continuing on this side of the pond. U.S. stocks traded flat to lower Thursday as the market took a breather as higher oil prices and downbeat economic data curbed Wall Street’s momentum. So, what are we to believe, is the market heading up…or heading down?

How does the market look in general terms? As far as stocks are concerned, the S&P index is up just 0.3 percent for the year, the Dow is up 3.4 percent and the NASDAQ is down 2.9 percent. Not sparkling data.

But for penny stock investors, the recent roller coaster ride that many seasoned blue chip investors are reeling over, is just par for the course. We know that a penny stock is often volatile and just as unpredictable.

While a penny stock may be more vibrant when the market is upbeat, in general, a penny stock marches to its own tune. Why? Few investors venture into the field of penny stocks because they are either unwilling or unable to do the work required to accurately predict what these shares may do.

By their nature, it is nearly impossible to know what price a penny stock share should be trading at, and conventional financial ratios and industry comparisons are rarely effective measures for realizing a penny stock’s value. Large one-day percentage gains and losses are not an uncommon occurrence for penny stock investors.

So really, bull, bear or cat…it’s just another day at the computer screen for penny stock investors. The work may be fun…but it’s not easy. Of the 14,000 public companies in the U.S., about 3,300 are considered penny stocks that trade on the OTC Bulletin Board operated by the NASDAQ.

Their visibility is low, chances are you’ve never heard of their CEO and I doubt they have any institutional following. And while they’re highly speculative, the more promising ones have a targeted business plans, and solid positions in niche markets. And for now, they’re flying under the radar of Wall Street

So what do you do in an unpredictable market like the one we’re in? Continue applying the same principles you’ve always used when searching for that untapped penny stock. And enjoy the volatility.

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