American Investment Training

Tuesday, March 5, 2019

Understanding Butterfly Options Spreads - Options Strategies

Butterfly Spread - Churning Out Consistent Monthly Income
By David Harms

A extraordinary trade for option investors who believe that the stock or index/ETF they are working with will be range bound for the next 2 or 3 weeks to a month or so of time is referred to as the butterfly spread.

This theta positive option trading system generates revenue for the trader when the main underlying or index/ETF on which it is being traded stays trading within a somewhat contained range on the graph - or - when the trading vehicle winds up on expiration day at or close to the sold strikes of the trade.

An illustration of this option strategy is as follows: Buy 2 contracts of QQQQ 44 call. Sell 4 contracts of QQQQ 46 call. Buy 2 contracts of QQQQ 48 call. This is a 'classic' butterfly spread position - a 3 legged option strategy trade.

Butterfly spreads produce fantastic trades for income traders due to the fact the short strike (the strikes that are being sold) supply favorable premiums to the trader up front due to the fact they are being sold 'at the money' - or very 'near the money'.

While it is a fact that regular butterfly spreads are executed for a debit (rather than a credit like what the iron butterfly strategy trade gives off) - nevertheless - even so - it is the short strikes that we are selling that will decay over the time left to expiration and hand over to the trader gains.

The butterfly trading strategy is considered a 'delta neutral' option trading strategy. Investors who use this technique anticipate that the underlying will continue to be in the general location on its chart from where it was located when the spread trade was initiated to begin with. Unless the investor is attempting to place - or planning to place a directional based trade, the strikes of butterfly spreads are normally sold at the money - meanwhile the longs of the butterfly are sold away from from the short strikes usually at an equal distance and range apart on either side.

The Butterfly Strategy, when traded accurately, can be an extremely enjoyable and financially rewarding way to trade the marketplace to generate regular and consistent profits.

David Harms teaches various Butterfly Spread Trading Strategies and Techniques at the following blog: Butterfly Spread


Sunday, February 10, 2019

Bond Yield Curve Article - Bond Investors and Interest Rate Yield Curve

What Is a Bond Yield Curve and How Do Investors Use Them?

By Preston G Pysh  

The more advanced you become in stock and bond investing, the more familiar you'll become with a thing called a bond yield curve. This graph is probably one of the only tools you might find that can aide in predicting market trends. Since interest rates are ultimately controlled by the Federal Reserve (FED), tracking the way that the FED adjusts these rates can really help your investing approach.

The yield curve is broken down into two axis'. The x-axis is the term of the federal bill, note, and bond. While the y-axis is the corresponding yield for each of those securities. In order to show how all the investments are inter-related, a line is drawn between them on the graph. If you'd like to see what a yield curve looks like, simply google the term and you'll see a multitude of examples.

You see, the FED is completely reactionary. If the market goes down and jobless rates increase, they increase the supply of money so interest rates decrease. Inversely, if the market is booming and employment is very high, the FED gradually raises interest rates in order to prevent a future market bubble. This cycle, which some argue is the result of the FED itself (and I kind of agree), is something that will continue to occur in the future as long as we have a central bank for the country.

So how can you take advantage of this behavior as a stock and bond investor? Well for starters, let's talk about bonds. We know that the market value of a bond is directly related to interest rates. If we look at a current bond yield curve in 2012, you'll see a positively sloped graph that depicts the yield on long term bonds much higher than short term notes and bills. This is important because it's the FEDs way of saying, "Hey we don't think these low interest rates are going to last for a long period of time. In fact, over a 30 year period we think the average yield will be X (insert the yield from the intersection of the 30 year bond and line on the chart)" Knowing that the market value of a bond decreases when interest rates increase, we can rest assure that buying bonds in 2012 is probably a very poor financial decision.

With respect to stocks, we know when the yield curve is positively slopped, short term interest rates are low and it probably means it's a great time to be purchasing common shares.

Although this article only provides a very quick and ruff way to examine yield curves, active investors should really try to learn more about this wonderful tool.

If you would like to watch a 15 minute YouTube video on how bond yield curves work, be sure to click on this link. This takes you to a wonderful site that shows you how to access bond yield curves and applies the information to previous market conditions.

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Tuesday, December 18, 2018

Series 7 Training Course - Series 7 License Prep - FINRA Series Exam Training

The Series 7 is the FINRA license to become a general securities representative. Our study prep, online course with printable topics and final exams are designed for you to pass the Series 7 the first time! Our study material has been produced for over 30 years.

Online Training and Series 7 Classes (virtual and live) are available. Along with a Pass Guarantee Course.

All study prep courses are updated and come with full support. Our training course covers all of the topics that are needed to pass the Series 7 exam.

Prerequisites: None
Exam Format: 250 multiple-choice questions (with 10 additional experimental questions)
Exam Duration: 3 hours for each part
Part 1: 125 questions (with 5 additional experimental questions)
Part 2: 125 questions (with 5 additional experimental questions)

Monday, November 26, 2018

Understanding Bonds

By Lyn Bell

In simple financial terms a bond is a debt instrument. A borrower who is the issuer of the bond seeks to raise money from investors. The borrower may be a government, municipality or corporate, and the investors are the lenders. In return for the loan of funds the borrowers promise to repay the debt on a specific date in the future and to pay interest either along the way or at maturity.

Although this sounds simple enough, there are certain things that a bond investor needs to know before putting money into the bond market. There are some important terms to be aware of when purchasing a bond and these include par value, maturity date, and coupon rate.

The par value (or face value) of a bond refers to the amount of money you will receive when the bond reaches its maturity. What confuses many people is that the par value is not the price of the bond but it is the value at maturity.

A bond's price fluctuates during its life in response to interest rates. A bond which trades at a price above the face value, it is said to be selling at a premium or at a discount when it sells below its face value. The maturity date is the date that the bond will reach its full value and you will receive your initial investment. As interest rates rise, the value of a bond decreases and if interest rates drop the value of the bond then becomes more sought after and the value rises. People are willing to pay the premium to get the higher interest rate.

The interest may be paid at maturity or at intervals during the term of the investment. Terms may be, six monthly, quarterly or other specified terms. The interest is known as the coupon rate and is normally a fixed rate throughout the life of the bond. The term coupon originates from the past when physical bonds were issued that had coupons attached to them. On the coupon date the bond holder would give the coupon to a bank in exchange for the interest payment.

The bond yield is basically the amount or percentage of return that an investor can anticipate receiving from a bond issue within a specified time period. Calculating the yield involves making use of current data regarding the current price of the bond as opposed to the price at the time of purchase. It also includes the current annual coupon associated with the bond and usually assumes that the buyer will hold the instrument for at least a term of one year.

The advantage of a bond is that they can be traded before maturity if cash is required, making them a liquid investment. Depending on the interest rates they will trade at par or at a premium and therefore it is possible to make a profit or loss on the sale. Holding to maturity does not affect the value of your investment as all things being equal you will get the money back that you deposited.

Bonds can be purchased using a broker or brokerage firm or your financial adviser. Most banks also have a money market department where bonds are transacted.

Lyn Bell has been in the finance industry for more than 30 years and is a Certified Financial Planner. She has helped many clients achieve their financial goals.

Become a Licensed Financial Broker - SERIES 7, SERIES 65 and many more....


Monday, November 5, 2018

Series 99 License - Series 99 Training Course Information

The FINRA® Series 99, Operations Professional Exam assesses the competency of an entry-level registered representative to perform their job as an operations professional and measures the degree to which each candidate possesses the knowledge needed to perform the critical functions of an operations professional, including client on-boarding; financial control; receipt and delivery of securities and funds and account transfers, and collection, maintenance, reinvestment and disbursements of funds.
Corequisites: Securities Industry Essentials (SIE) exam
Exam Format: 50 multiple-choice questions
Exam Duration: 1 hour, 30 minutes
Outline of Topics Covered (with % of topics covered on exam):
  • (F1) Knowledge Associated with the Securities Industry and Broker-dealer Operations 70%
  • (F2) Professional Conduct and Ethical Considerations 30%

The full Series 99 course is updated and available. This course is designed for self study prep and will enable you to pass the SERIES 99 Exam on the first try. 



Tuesday, October 23, 2018

Bond Market Interest Rates - Effect On Stock Market

Rising Bond Rates Impact on the Stock Market

The recent stock market sell-off prompted a herd mentality among many investors. Moving with the flow of the crowd, investors large and small sold enough shares to cause the Nasdaq to fall 4.1%, S&P 500 3.3%, and Dow close to 5%.

Bond yields had much to do with the sudden drop in the stock indexes and there are reasons bond rates can prompt a down turn in the equities markets.

The Federal Reserve began to move short-term interest rates higher over a year ago and signaled it would raise rates further to 2.5 percent in December 2018, 3.0 percent in 2019, and 3.5 percent in 2020. Short term prime rates are a primary reason for bond rates going up.

The Fed game plan to increase prime rates over time signaled the bond market to strengthen its yields. On October 9, the 10-year note yielded 3.25%, following indications from the Federal Reserve that more rate hikes are in the future.

Individual and institutional investors view rising interest rates as a signal to move dollars out of the equity market and into fixed income investments. Rising bond yields throw off more interest income and are safer alternatives compared to dividend income from stocks.

Bonds compete for investor dollars and investors will seek the highest investment income with the greatest margin of safety.

Both the Fed prime rate and resulting bond yield are also a reason for determining the U.S. economic outlook. Economic expansion or contraction will respond to the costs of borrowing money.

Higher bond yields force companies to spend more dollars for expansion projects, resulting in more debt on their balance sheets. Thus, companies often cut back in research, development, and capital expansion when borrowing costs increase.

Investors also become sensitive to business slow downs and follow these closely. Because investors view their stock ownership as part ownership in a company, any expectation of business contraction affects their decisions to hold stock.

Negative changes in company growth and expansion result in lower cash flow, less money to pay stock dividends, and less incentive for owning a company's stock. Thus, stock valuations drop along with share prices.

When the Federal Reserve consistently raises prime interest rates and bond yields follow, history reflects money flowing out of stock investments and into bonds. As rates have steadily risen this year, this pattern has followed. Money has clearly moved from stock funds into bond investments with stock share prices dropping in lock step.

For the personal investor with a long holding period, rising bond yields are not a cause for alarm. The investor with a portfolio of growth stocks will see falling stock valuations as corporate businesses contract. For the investor primarily holding dividend stocks, not only will share prices contract but continued dividend increases become a concern.

However, personal investors holding shares in good companies with track records of solid performance can weather adverse effects on the economy as it relates to rising bond yields. The message here is that the caliber of a company and strength of its management team is much more important in the long run than any impact bond yields may have on the economy.

I have been an active investor for over 35 years. With the exception of employer 403(b) retirement plans, my investments have always been self-directed. My preferred investment style would fall into value investing with dividend growth and income as a long term objective.



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Wednesday, October 17, 2018