SERIES 7 EXAM STUFY TIPS - SERIES 7 COVERED OPTION STRATEGY EXAMPLES - SERIES 7 HELP

Being able to understand and conceptualize Covered Call Options is important to do well on the Series 7 exam. 

The first point to understand is the underlying strategy. That strategy is normally to generate income from selling (or shorting or writing) the call option on a stock you own. Covered call writing is normally when a holder of the stock expects little to no movement or some modest downward price decrease where the income received by writing the call helps hedge the stock decrease. 

COVERED CALL EXAMPLE  

A person owns 100 Shares of DFR stock at a price of $90. The holder based on the stocks price history expects stability over the next 2 months. So if we mark the date as Feb 10th, the investor decides to Write (or short/sell) 1 DFR APR 95 CALL for a $500 premium. The premium is the income. 

Standard options expire monthly and call options get exercised or increase in value when the underlying stock increases. If the stock does not increase or at least does not hit 95, the option may expire worthless. The investor will keep the $500 premium. That is profit. If this is successful, the investor has also lowered his overall cost for the stock, which is now at $85 a share. 

Let's review the layout and see what the overall maximum gain, maximum loss and breakeven would be. 

BUY 1 DFR @90

SHORT 1 DFR 95 CALL@5

The breakeven is the cost layout per share of the stock and premium received, which is 85

The Maximum loss is the same as the breakeven point in total money spent, which is $8500. If the stock declines to zero (worthless), the option does not protect that potential stock loss, so the $9000 spent is all at risk. If we minus the $500 received, the maximum loss is clearly $8500. 

The Maximum gain also has to do with the stock profit potential. Always focus on the stock with stock and option pairings. The stock is where most of the money is invested and is the main position. The Stock is a hedge. 

The Maximum gain is the stock rising up until the strike price of the option. When you sell or write covered calls, you obligated to deliver (or sell) 100 shares of the stock at that strike price (95). So the difference in those prices is $500 (90 to 95) plus the $500 premium received which then equals $1000 

For more helpful articles and tips, visit American Investment Training for Investing articles 

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HOW TO GET YOUR SERIES 63 LICENSE - HOW TO STUDY AND SIT FOR THE SERIES 63 EXAM - SERIES TEST

The Series 63 is a state licensing exam 

The Series 63 covers the principles and rules relating to ethical business practices in the securities industry. The test is intended to provide a basis understanding of uniformed state law and regulations related to the securities industry.

The Uniform Securities Agent Law Exam is a 65 multiple-choice test covering the topics listed in the Series 63 study guide. It is a 65 question exam with 60 of the questions counting toward the final score. 5 of the questions are experimental questions that may or may not appear on graded tests in the future. 

STUDY TIME

Most applicants find a week or even 2-3 days is enough to prepare and study for the Series 63 exam. It is largely memorization and understanding of rules and regulations. There is little or no math involved, unlike the Series 7 or Series 6 which will have some calculations on cost and price of securities. 

SPONSORSHIP

No Sponsor is needed the take the Series 63 or other NASAA exams. This is different than FINRA Broker exams which do require Brokerage Firm Sponsorship.

COURSE OPTIONS

American Investment Training provides online and course book training to pass the Series 63 Exam. 

COURSE FEATURES

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HOW TO TAKE AND PASS THE SERIES 65 EXAM - BECOME A RIA INVESTMENT ADVISER SERIES 65 HOW TO SIT NO SPONSORSHIP SERIES 65

HOW TO TAKE THE SERIES 65 EXAM - GET LICENSED SERIES 65 RIA

The Series 65 is the license that is needed to be a Registered Investment Adviser. The Uniform Investment Adviser Law Examination consists of 130 questions plus 10 pretest questions covering the materials outlined in the following study outline. Applicants are allowed 180 minutes to complete the examination. 72% is the passing grade needed to pass the Series 65 exam.

NO SPONSORSHIP FROM A FIRM IS REQUIRED TO SIT FOR THE EXAM

The Series 65 Exam consists of 130 graded multiple choice questions. Each person has 180 minutes to compete the test. To pass the Series 65, you must get a 72% passing score. There is not sponsorship required to take the Registered Investment Adviser License Exam.

The Exam covers Topics Including:

Economic factors and concepts - U.S Dollar inflation, economic indicators and reports and trade deficits

Types of risk - economic, market, inflation risk etc. 

Investment Product types and characteristics - Such as Government, municipal and corporate bonds and how their price and yield work along with marketability

Equity products - common, preferred stock, variable annuity - characteristics, risk and suitability

Ethics and laws dealing with customers and investment products and management - Fees, costs and unlawful representations concerning registrations, including conflicts of interest and other fiduciary issues  

SERIES 65 STUDY COURSE

Pass the SERIES 65 using our complete study program. The course includes a full study manual, updated online test questions, video, glossary of terms. study calendar and more! 

Once you register for the course, you will access to:

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Selling Call Options with long (owned) Stock Shares - Covered Call Writing

Selling or shorting call options that are uncovered is a dangerous strategy in the stock trading markets. Shorting option contracts that are NOT covered requires that a person to deliver (sell) shares of stock to the call holder at a set price. If the writer (seller) does not own the stock, there is an unlimited loss potential - since the stock can rise to an infinite amount.

Owning or long the stock "covers" the option. If the option is exercised, the stock is used to fulfill the obligation on the contract.

Covered Call Strategy Example

Long 100 Shares @$60
Short 1 Feb 65 Call for $300

The Maximum gain, loss and break-even are all tied to the stock performance and the premium received on the option.

The break even is 57. The stock is owned at 60, but the investor received a $300 premium which lowers the overall cost to $5700

The Maximum loss is that total outlay of money. $5700. The $6000 of stock could decline to zero, but the $300 would be retained.

The Maximum gain is the difference between the purchase price and the strike (sell) price on the contract.  That difference is $500 + $300 for the premium received for a total maximum gain of $800.

Calculating Earnings Per Share - EPS Formula Calculation

Earnings per share is the allocation of a company's net income to each outstanding common share of stock. Earnings per share is used by Wall Street & other stock market analysts to measure the profitability of a company versus another company in the same industry, plus is a way of evaluating quarterly financial results of the company. The formula for calculating Earnings per Share is:

EPS = (Net Income - Dividends on Preferred Stock) / Average Outstanding Shares

Average outstanding shares is also known as the Weighted Average number of shares because since a company's outstanding shares on the stock market change all the time, we like to use an average that represents a fair number of shares throughout the year. Some companies use the outstanding number of shares at the end of one period in order to simplify their calculations.

Calculate Earnings per Share

Here's a hypothetical example. ZZZ Corp. has a net income of $50 million for the year ended December 31st, 2010 and has 20 million shares outstanding on the New York Stock Exchange (NYSE). The company does not have any preferred shares outstanding so it does not have to pay out any preferred dividends. What is the Earnings per Share?

EPS = (Net Income - Dividends on Preferred Stock) / Average Outstanding Shares

EPS = ($50 million - $0) / 20 million shares

EPS = $2.50

Analyst Estimates on EPS

Most large cap organizations in the United States have several Wall Street analysts that closely follow the company's earnings and business operations in order to forecast an earnings per share number. Analysts following a company like to issue EPS estimates for for the most recent quarter, the next quarter, the current fiscal year and the next fiscal year. The average of all analysts' estimates are tabulated and a final EPS estimate is released on the financial media. Other information that comes along with EPS estimates is:

i) Number of Analysts - This indicates the number of analysts that have provided estimates for this company and are closely monitoring the business.

ii) High/Low Estimates - This provides estimates of the low end of the EPS versus the high end; generally the closer these estimates are together, the more confident you can be of the earnings estimate.

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Earnings Per Share - Stock Value through EPS

 Earnings Per Share, And Price/Earnings Ratio - Two Tools For Determining Stock Viability

There is far more to owning a stock than its share price, even if it's the share price that gets all the coverage in the financial press. A share price only shows the price to buy the stock, or how much you can theoretically sell it for, but it does little to convey how much value is retained from holding the stock for the long term.

The key to determining long term value in a stock is it's price/earnings ratio. Price/earnings is, in essence, the price of a share, divided by the earnings per share. Earnings per share is calculated by dividing the total profits (less operating expenses, and preferred stock dividends) by the number of outstanding shares in circulation.

When looking at price/earnings ratio, a handy rule of thumb is to try to calculate how many years of earnings would one share have to accumulate to match the price it was originally purchased at. In most companies, this results in a ratio ranging from 10 to 15, with a few undervalued stocks hitting 7 to 8 years. One of the hallmarks of the dot-com boom was the absurdly high price/earnings ratios - some shares of stock were selling at P/E ratios of 100 or more, during the '90s.

One thing to be aware of is that there are multiple ways of calculating earnings per share; they all boil down to set asides of funds that are paid out before earnings are divided up between shares. If you have any questions about how earnings per share are calculated for a stock you hold, ask your broker for more information.

The key to earnings per share is that by holding a share of a company, you are, in theory, holding a piece of a corporation with a retained value, and you aren't speculating on the price going up indefinitely. One method of maximizing a good PE ratio stock with a stable price is to invest in a dividend purchasing plan - in essence, you're telling the company to reinvest your dividends into new shares of the stock.

BECOME AN INDEPENDENT STOCKBROKER or ADVISOR

Call Option Basics - Long Positions - Buying Contracts Calls on Stocks

 Call Option Trading 

An investor who feels the market will rise on a stock, index, sector or other, may wish to purchase call contract options. 

If SRX Stock is expected to rise (from the investor's point of view), he could purchase a call option will rise in value during it's life if the stock does in fact rise. The value will depend on how high the market rises, and the time left on the contract. All Options have monthly expirations, so time is absolutely part of the strategy, and the risk.

Current market value of SRX is $63. The investor anticipated a jump in price over the next 14 days, but he does not want to spend additional funds to own the shares outright. A cheaper alternative (capital wise) would be to buy call contracts. 

A position scenario could be as the following:

SRX Current Market Value or CMV is $63

Buys 1 SRX SEP 65 Call for a $400 premium per contract.

If SRX begins to increase, the value of the contract will go up. The contract itself allows the buyer to lock in a price of 65 per share until September.  If SRX moves to say $72, the investor can still buy the stock for $65. The contract itself can also be traded. So, if the market doe move to $72, the contract could be worth $1000. The investor could sell the contract and make a profit of $600 from his original investment of $400.  

The risk is the stock remains flat or goes down and the contract expires worthless. The maximum loss would be the $400 invested. The maximum gain is unlimited or unknown for the upside since the owner can lock in a buy price of $63 and the stock could shoot up to anything. The break even is 69. Call (or strike price) of 65 + 4 ($400 premium)

 

Article - A Fundamental Analysis Balance Sheet - Analyzing Balance Sheets

The following is a helpful article on understanding balance sheet basics for FINRA Broker exams, including the Series 7 Exam.

A company's balance sheet is a record of its assets and liabilities. Basically, if we look at how much the assets are worth and deduct the total value of the liabilities, we will arrive at the net worth of the company. Net worth or the book value of the company is also known as shareholders' equity.

Under assets, first, we see Current Assets. Current Assets are cash and other assets which can be converted into cash within a very short time. Usually, they are listed in the balance sheet in order of liquidity with cash being the first item as it is the most liquid. Secondly, we have Non-current Assets. These are assets which cannot be converted into cash within a very short time.

One thing that value investors look out for is how much cash and cash equivalents a company has. Having a lot of cash is usually a sign of strength. The company will have the ability to seize business opportunities and will be able to go over rough patches in the business cycle relatively intact.

Next on the list is inventory or the goods which are in the company's warehouse which it sells to customers. In business, we say that we cannot do business with an empty wagon. Our wagon has to be stocked and that's our inventory. However, we do not want our wagon to be overstocked as well. Goods also run the risk of becoming obsolete in many cases.

Accounts Receivables is next. When the company sells goods to its customers, very often, the customers are given credit terms. In businesses which have a strong retail bias, this might be a very small amount if it exists at all since they collect cash for all their sales. We want to keep an eye on this because if most of a company's Current Assets are in Accounts Receivables, we have to question the financial health of its customers and how long does it usually take before payments are made.

Prepaid Expenses or payment in advance is next. I like this because it shows that customers are willing to pay in advance before they receive the goods. It shows that the company's products are in demand and, probably, cannot be replicated or very difficult to replicate by its competitors. The company has a competitive advantage.

Next, we move on to Non-current Assets. Companies might own properties, vehicles and production equipment. Vehicles and production equipment will depreciate in time and the value we see in this line is the total value at the time the balance sheet was prepared minus depreciation.

Then, we have goodwill. This is something which has been discussed in the case of Healthway Medical. This number appears when a company buys over another company at a price above the latter's book value. The value above the book value ends up as goodwill in the former's balance sheet.

This is followed by other intangible assets which cover copyrights, patents, trademarks and so on. Only intangible assets bought from another company can be reflected in a company's balance sheet.

Both goodwill and other intangible assets must be amortized over time if they have a finite life. If they are not depreciating in value over time, then, they need not be amortized.

Long Term Investments are next. This shows any investments a company might have made which have durations of longer than a year. We will have to dwell on this a bit more to see what kind of investments have been made here as and when it occurs. It will differ from case to case but generally, we want to see that these are investments which generate higher returns for the company.

An important ratio we use in fundamental analysis is Return on Assets (ROA). This is a measure of the level of efficiency in which a company utilises its total assets. If we take net earnings and divide this by total assets, we get a figure in percentage terms. The higher the better.

We move on to Liabilities and just like Assets, there are Current and Non-current forms. First off under Current Liabilities, we have Accounts Payable which is money owed to suppliers for goods and services provided.

Then, we have Short Term Debt or Debt which is due. If a company has a lot of Short Term Debt, this could be dangerous in times when credit is suddenly difficult to come by.

To calculate the financial health of a company, analysts employ the Current Ratio which divides the total Current Assets by the total Current Liabilities. So, you can imagine that if you have more of the former and less of the latter, it's a good thing. A more stringent ratio is the Quick Ratio and it measures a company's ability to meet its short term obligations using its Current Assets minus Inventory. Any ratio value of more than 1 is good.

Under Non-current Liabilities, we have Long Term Debts and so on. I guess the important thing to say here is that very strong and long established companies which generate healthy cash flow usually have very little debt.

I think it is common sense that we want to see as little debt as possible in a company's balance sheet but debt is sometimes a necessary evil. So, we have to evaluate debt on a case by case basis.

I hope this quick introduction to what is a Balance Sheet and how to use certain ratios to determine the health of a company is useful.

I'm just another person trying for a secure financial future in an uncertain world. Creating a stream of reliable passive income is a primary objective for me.

By Alvin Koh

http://singaporeanstocksinvestor.blogspot.com/

http://singaporeanstocksinvestor.blogspot.com/2010/02/fundamental-analysis-balance-sheet.html

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

EARN LARGE PROFITS FROM FOREX TRADING - HIGH PROFIT FOREX TRADING

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.

Article Source: http://EzineArticles.com/expert/Preston_G_Pysh/1381442

https://www.americaninvestmenttraining.com/

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)

SERIES 7 COURSE OPTIONS HERE

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....

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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. 

FULL SUPPORT IS INCLUDED

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SERIES 99 COURSE

Bond Market Interest Rates - Effect On Stock Market

Rising Bond Rates Impact on the Stock Market

By JG Chambers 

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.

Contact:

LinkedIn: https://www.linkedin.com/pub/jack-chambers/b6/534/144

Google +: https://plus.google.com/u/0/110724217126651597496/posts

New FINRA, NFA and NASAA Training Courses online - Series 7 - Series 65 - Series 3 and more

American Investment Training has updated their Broker Exam Training Center by partnering with Kaplan Financial!  

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Series 53 Training Course - Municipal Securities Principal Exam Training Series 53

Pass the Series 53 the first time with American Investment Training and Kaplan Financial. 

The Series 53 training course provides the best methods and techniques to pass the exam on your first try. This course package is ideal for self-directed individuals who have a proven record of success when studying without the guidance of an instructor. 

Plan your exam preparation by building a customizable study calendar based on your study time frame and exam date. Begin your study for the Series 53 test with units in the License Exam Manual for a comprehensive overview covering all aspects of the exam. Practice Questions in areas of weakness by taking custom quizzes after each unit with the Securities Pro™ QBank. Finally, test your knowledge with our Practice Exam for a final review before the actual exam.

• Complete the exams online or print them out to study on the go.
• Review your performance on previously taken exams.
• Track time spent on a question and/or exam.
• Search for specific questions based on keyword, question ID, or notes.
• Create personal notes and bookmarks on questions for future reference.
• Build weighted mock exams to provide a comprehensive test review of all material.

SERIES 53 COURSE MATERIALS

Stock and Option Hedging Strategies - Stock and covered call writing for Series 7 Exam Study

Covered call writing with an existing long stock position is a popular hedging strategy that investors and brokers-in-training should know. It is an income strategy, and it lowers your cost on your main (long stock position) because of the premium you receive for selling (shorting/writing) the contract. 

Let's look at a covered call with Stock Example

Mr. Bonds owns 100 shares of HPK at $72 a share. HPK has been fairly stagnant recently, trading between 71 and 74. It has yet to breakthrough $75, but Mr. Bonds feels the stock has great potential to rise considerably in 3-6 months, so he does not want to sell it. How can he profit from this prediction?   One way is to sell (write) a call option contract on HPK to receive income. These contracts have monthly expiration dates, with the longer term expirations costing more money. 

He decides to initiate writing a covered call. It is called "covered" because he owns the stock that the call options is based on. If the call options is exercised, Mr. Bond will have to deliver (sell) his 100 shares to the call holder at a specific price set in the contract. This is called the strike price. If the call option does not get exercised and expires worthless - Mr. Bond keeps the premium he received for selling the option, and retains ownership in the stock. This is the best case scenario for an investor who writes call options on a long stock position. 

It is best explained by laying out a complete position - and the hedge. 

LONG 100 SHARES HPK@ $72 

SHORT 1 HPK JUL 75 CALL@3

Breakdown of the call option contract:

Each option contract represents 100 shares of stock. They also expire monthly. So this one expires in July. Whatever decision the investor makes, he must decide before the contract expires towards the end of July. Each contract carries a "premium" based on 100 shares. This contract is $300. That amount is what the buyer would pay to own the contract, and what the seller (writer) receives for shorting the contract. Each person betting on different directions of the stock. 

For Mr. Bond, he is shorting the call option hoping the stock stays stable and the option is expires. He keeps the $300 premium, which now lowers his cost on his stock to 69. He can continue to write calls periodically, and if he is successful - his cost (and break even) can be lowered even more. So YES!, you can make money on a sleepy stock. 

The maximum GAIN on this strategy (while both positions stay) is $600. If the stock rises enough to trigger the option, the investor MUST sell the shares at 75. He paid 72, and he also collected $300. 3 points on the stock and 3 on the premium = $600

What is the downside?  There always is a downside.....

The main downside is the stock itself drops big, and the contract expires.You lose in share price on your stock, and the contract is now gone. The lesser risk is the stock rises before July which triggers the option, and Mr. Bond has to sell his stock at 75. He still makes money, but if the stock continues to shoot up - the investor will miss out on it, as he no longer owns the stock itself. 

The Maximum LOSS is $6900.  If the stock drops to ZERO, the share value can all be lost - the $300 premium which he always keeps. 

The Breakeven is 69.  The breakeven on these positions is always the cost of the stock minus the premium received. He is profitable until the stock hits 69.

The best case scenario is the stock stays stable or within a thin trading range, the premium is kept, the option expires, and then at a later date - the stock jumps up strong for unlimited gains in the future.

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Finra Licenses - Series 7, Series 65 and more. License Summaries - Test Questions and Series online course info

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Summary of Series Exams and Courses:

SERIES 6

The Series 6 exam - the Investment Company and Variable Contracts Products Representative Qualification Examination (IR) - evaluates an entry-level representative's proficiency to perform duties as an investment company and variable contracts products representative. This exam comprises 100 scored questions with an additional 5 unscored "pretest" questions. Applicants have two-hours and 15-minutes to complete the exam. The passing score is 70%.

SERIES 7

The Series 7 exam - the General Securities Representative Qualification Examination (GS) - evaluates an entry-level registered representative's proficiency to perform duties as a general securities representative. This exam comprises 250 scored questions with an additional 10 unscored "pretest" questions. Applicants have six-hours to complete the exam - conducted in two three-hour sessions comprising 130 questions per session. The passing score is 72%. The Series 66 or 63 and 65 exam(s) typically follow this exam.

SERIES 9

The Series 9 exam — the General Securities Sales Supervisor Qualification Examination — evaluates a registered representative's proficiency and knowledge of securities industry rules and particular statutory provisions applicable to supervising sales activities of options at a branch office. 

This exam comprises 55 scored questions with an additional five unscored "pretest" questions. Applicants have one-hour and 30-minutes to complete the exam. The passing score is 70%. 

SERIES 10

This exam comprises 145-scored questions with an additional 10-unscored "pretest" questions. Eligible representatives have 4-hours to complete the exam with a passing score of 70%. The Series 7 (or foreign equivalent) is a prerequisite for this examination. The Series 7 licensed representative must be associated with and sponsored by a FINRA member firm for eligibility to take the Series 10 or 9 exams. Along with the Series 9, the Series 10 exam is required to qualify for the Series 8 branch manager license. Either exam may be taken first, sequence does not matter

SERIES 24

The exam measures the degree to which each candidate possesses the knowledge needed to perform the critical functions of a general securities principal, including the rules and statutory provisions applicable to the supervisory management of a general securities broker-dealer. The Series 24 consists of 150 scored questions and an additional 10 unscored pretest questions. Candidates are given three hours and 45 minutes to complete the exam. The passing score is 70 percent.

SERIES 63

The Series 63 exam - the Uniform Securities Agent State Law - developed by NASAA and administered for NASAA by FINRA, evaluates an entry-level registered representative's proficiency in understanding the principles of state securities regulations reflected in the Uniform Securities Act with NASAA rule amendments prohibiting dishonest and unethical business practices. The exam provides state securities administrators a basis to evaluate an applicant's knowledge and understanding of state law and regulations. This exam is comprised of 60 scored questions and 5 unscored "pretest" questions. Applicants have one-hour and 15-minutes to complete the exam. The passing score is 72%. The Series 63 does not have any prerequisites and can be taken without being sponsored by a FINRA member firm. However, to transact securities business, an individual must also take and pass the Series 6 or Series 7 and be associated with and sponsored by a FINRA member firm.

SERIES 65

The Series 65 exam - the Uniform Investment Adviser Law - developed by NASAA and administered for NASAA by FINRA, evaluates an entry-level proficiency to provide investment advice to clients and in understanding the principles of state securities regulations reflected in the Uniform Securities Act with NASAA rule amendments prohibiting dishonest and unethical business practices. The exam provides state securities administrators with a basis to evaluate an applicant's knowledge and understanding of state law and regulations. This exam comprises 130 scored questions and 10 unscored "pretest" questions. Applicants have three-hours to complete the exam. The passing score is 72%.

SERIES 66

The Series 66 exam - the Uniform Combined State Law - developed by NASAA and administered for NASAA by FINRA, evaluates entry-level proficiency to provide investment advice and effect securities transactions for clients, as well as understanding the principles of state securities regulations reflected in the Uniform Securities Act with NASAA rule amendments prohibiting dishonest and unethical business practices. The exam provides state securities administrators with a basis to evaluate an applicant's knowledge and understanding of state law and regulations. This exam comprises 100 scored questions and 10 unscored "pretest" questions. Applicants have two-hours and 30-minutes to complete the exam. The passing score is 73%. The Series 7 is a co-requisite for this examination but either exam can be taken first and the Series 66 does not require FINRA member firm sponsorship. The Series 7 licensed representative, however, must be associated with and sponsored by a FINRA member firm.

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Understand Bond Yields for the Series 7 - Nominal, Current and Yield to Maturity

Most bonds are fixed income securities. They pay a stated rate of interest to par. That fixed rate is the nominal yield. The nominal yield does not change during the life of the bond. It is also known as the coupon rate. 

Bond Pricing vs. Yield

If a bond is purchased at a discount, par or at a premium, the nominal rate stays the same and the actual interest payments received are not changed as well. 

Nominal Yield Example

If a person buys a corporate bond at a price of $98.50 and the nominal rate is 3%, the investor is actually paying 985.00 per $1000 bond. They will be paid 3% on the par value $1000 per year, but since only 985.00 was invested and they are getting $1000 back at maturity (all bonds mature at par), their YTM will be higher than 3%. If a bond is held to the end, the yield to maturity is it's true rate of return - not the nominal yield.

Current interest rates will dictate where the nominal rate is set. There are also other factors that will determine it. These include:

• Maturity length and where the yield curve is
• Bond Rating - an issuer with a lower credit rating will have to offer a higher nominal yield or issue the bond as an OID - Original issue discount
• Interest Payment Frequency
• Type of bond - Municipal, Corporate or other
• Callable or non callable

Current Yield

A bond's current yield is not as important to an investor. It is not the actual interest rate received and it is not the overall yield to maturity. 

A bond's current yield can be found by dividing the coupon or nominal by the current market price of the security. It is not an overly important yield to investors - as it is always changing and is most important if someone is pricing the bond to sell. If an investor is holding the security to maturity - then the current yield is not a big concern.

A debt that is priced above par (premium) will have a lower current yield vs. the nominal. A 7% corporate debenture priced at $102 will have a current of 6.86% ($70 divided by $1020). Discounted bonds will have a higher current yield than it's coupon rate.

Yield To Maturity

To most investors, the yield to maturity is the most accurate and best measure of a bondholder's overall rate of return. 

YTM uses all the components of a bond investment to come up with a true overall yield on the security. The formula and calculation is based on the bond reaching maturity. As with most bonds, default is rare, so the real risk lies with the following:

• Is the bond callable?
• What price is it callable at?
• When are the call dates?
• Interest rates rise and bond is sold (result in loss in most cases)
• How long is the maturity? - A bond with a Yield of 4% for 2 years is usually better than a length of 10 years in a normal or upsloping yield curve.

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