The price you pay for buying (or receive for selling) an option is often referred to as the “premium.” The premium of an option can be divided into two parts: intrinsic and extrinsic value.

Intrinsic Value:

Intrinsic value or IV can be defined as the amount an option is in-the-money. The deeper in-the-money the option, the more IV it possesses. For a call option, the formula to calculate IV is: stock price minus strike price. For a put option, the formula is: strike price minus stock price. Let’s practice calculating IV on stock XYZ, currently trading at $50. Suppose the 45 calls are trading at $7.50. To calculate how much IV is in this call option, we would plug the stock price (50) and strike price (45) into the aforementioned formula: 50-45= 5. Thus the 45 strike call has $5 of intrinsic value. This should be quite intuitive as the option is indeed $5 in-the-money. Now let’s look at a put option by calculating the amount of IV in the 60-strike put, currently trading at $11.75. Once again just plug the stock price (50) and the strike price (60) into the put IV formula: 60-50 =10. There is $10 of intrinsic value in the 60 put because it is $10 in-the-money.

Continue reading "I’m starting to learn more about option pricing. Can you elaborate on the difference between intrinsic and extrinsic value?" »

Posted 10:01 AM | Permalink | Comments (0)

Myth #3: Inexpensive Options are Cheap Options

The inexpensiveness of the options may be alluring inexperienced traders into thinking they are cheap, thus an obvious buy. The reality is just because an option is inexpensive, it doesn’t mean it’s cheap.

For example, on April 26, BAC was trading around $9.40 and the May 12.50 calls were trading at $.37. There’s no doubt that $.37 for an option is inexpensive, but is it cheap? Well, let's look at the facts. We have a mere three weeks to expiration and BAC would have to rise to $12.87 just for you to breakeven (assuming you hold to expiration). That’s a 37 percent move in a very short period of time. This suggests that the 12.50 calls are trading at a very high-implied volatility, as an option trading for $.37 that far out-of-the-money with three weeks left would have to be. Under a lower-volatility scenario, those 12.50 calls may only be trading around $.05. So the bottom line is you can’t look at an options price to determine if it’s cheap. You have to take into account its strike price, time to expiration, and current levels of implied volatility. Oftentimes when implied volatility is pumped up too high, inexpensive out-of-the-money options can rise to unjustifiably high prices.

Continue reading "Option Myths Debunked!" »

Posted 01:44 PM | Permalink | Comments (0)

In this two-part series, the most common option myths will be explored and debunked. By better understanding the fallacy of these myths, you will be prepared to use options properly!

Myth #1: It’s cheaper to let options expire worthless.

While I’m not really sure how pervasive this myth is, a few traders have certainly been duped into letting an option expire before realizing that doing so is not always cheaper.

The first problem with making blanket statements about options, such as the aforementioned myth, is there are so many different types of strategies and scenarios that it's quite near impossible to state that one technique is better all the time. Are there scenarios in which allowing an option to expire is cheaper? Sure, but there are many more scenarios in which allowing an option to expire is more expensive.

Continue reading "Option Myths Debunked! Part 1" »

Posted 10:03 AM | Permalink | Comments (0)

Economic growth or contraction plays a critical role in the trends of the market place general. As defined by Investopedia.com, Economic growth is an increase in the capacity of an economy to produce goods and services, compared from one period of time to another. Economic growth can be measured in nominal terms, which include inflation, or in real terms, which are adjusted for inflation.

Monitoring, or keeping our finger on the pulse of the market, can play a very important role in the trading decisions we make and in the strategies that we may choose to implement. In this time of increased uncertainty and economic downturn, it becomes more critical than ever to have our ear to the ground, to know what is happening, and moreover, why it is happening.

Continue reading "Economic Reports: The Pulse of the Market" »

Posted 06:09 PM | Permalink | Comments (0)

“Bulls make money, bears make money, pigs get slaughtered!”

This market adage has become increasingly popular in recent years, as it’s been a favorite mantra used by a famous—and to some, infamous—market pundit, who often bellows, “Bulls make money, bears make money, pigs get slaughtered!” after which, he hammers a button that emits squeals like a hog’s. Entertainment aside, there is value in understanding why pigs get slaughtered, and in learning how to avoid becoming someone else’s side of bacon.

Continue reading "Survive the Slaughter" »

Posted 12:13 PM | Permalink | Comments (0)

By Robert Penney

Order combinations can be very complex and confusing to the first-time trader, and one of the first hurdles to overcome when placing a trade in the stock market, virtual or otherwise, is knowing the different order types and how they are used to enter and exit trades. The goal of this article is to present the necessary information to help prepare you to begin placing orders on the exchanges.

To simplify, let’s group all orders into two types: the market order and the limit order. As complex as the market and brokerage windows might appear, there are only two order types that are filled at the exchanges. The way those two orders are placed and triggered is what complicates things.

Continue reading "Order Types" »

Posted 01:35 PM | Permalink | Comments (0)

By Joe Inman

I am amazed at the number of people who continually try to devise an electronic method of trading so they do not have to think. Professionals will usually do well with them, so why don’t these proprietary indicators and trading systems usually work for the novice trader? The biggest problem I find is that they are so wrapped up in finding ways for someone to think for them that they never take the time to learn to trade properly. They want the computer to do the trading for them.

Continue reading "Trading Systems 101" »

Posted 12:50 PM | Permalink | Comments (0)

Are You a Serious Trader?

By Tim Justice

Trading is considered a business for a professional. But not all people who trade the markets treat it as a business. Do you want to know if you are a serious trader? Here is a simple litmus test: Can you tell me the entry date, price, size, total profit and loss, exit date, and the reason behind why you made your last five trades? If the answer is no then you have a lot of room for improvement in getting organized.

Continue reading "Trading Journal" »

Posted 11:58 AM | Permalink | Comments (0)

By Noah Davidson

"Analysis Paralysis." As an active trader, you have encountered that phrase before, and probably experienced paralysis by analysis first hand. Perhaps you have spent a quiet evening at home pouring over chart after chart until you found that perfect technical setup. You did all of the things you have been trained to do — checked the news, earnings, and fundamentals and put the stock into your watch list. Then did just that — WATCHED. Instead of patting yourself on the back for making another great trade, you wound up kicking yourself for failing to pull the trigger.

Continue reading "Triggers - Trader's Call to Action" »

Posted 04:06 PM | Permalink | Comments (0)

Getting Started By Joe Inman

The greatest hurdle beginning traders have to overcome is feeling at a loss when it comes to knowing how to get started. It is important to realize that, in reality, you have already started on your journey to becoming a successful trader. You have probably read many books and magazine articles on the subject, you may have gone to seminars, and hopefully, you have taken Wealth Intelligence courses to increase your knowledge and confidence.

Continue reading "The Art of Successful Trading" »

Posted 02:20 PM | Permalink | Comments (0)

LEAPS Covered Write:
An Alternative to the Covered Call

By Tyler Craig

The covered-call strategy provides an efficient way to make money in a neutral-to-mildly bullish environment. The two critical advantages to this strategy are its ability to produce monthly income and provide some downside protection. However, two of the biggest drawbacks to a covered call are that it is a more capital-intensive trade, and it does not have as high of a return on investment (ROI) in comparison to other option strategies. Before a trader can write a covered call, he must first buy 100 shares of stock and, as you can imagine, this can get quite expensive. Some of the students I have taught shy away from this strategy for that reason. Fortunately, there is an alternative-option strategy, which not only has a greater ROI, but is also a lot cheaper. Let me introduce you to the LEAPS covered write.

Continue reading "Stock Trading: LEAPS Covered Write" »

Posted 04:14 PM | Permalink | Comments (1)

Developing a Playbook:

The 5 T’s of Trading

By Tyler Craig

Is it realistic to expect consistent returns from your trading if you have an inconsistent, unsystematic approach? Of course not. Most traders would concede the fact that developing a trading plan is essential to becoming a successful, savvy trader. However, while most accept this, few choose to actually take the time to develop a plan.

We are all familiar with the cliché, “those who fail to plan, plan to fail.” Nowhere is that more apparent than in the financial markets. Some face the struggle of knowing the best way to structure a trading plan. To help Wealth Intelligence Academy students alleviate this struggle, we developed a trading plan in the advanced trading camp, the Master Trader™.

Continue reading "Stock Education: 5 T's of Stock Trading" »

Posted 10:23 AM | Permalink | Comments (0)

As of September 19, 2008, the Securities and Exchange Commission (SEC), acting with the U.K. Financial Services Authority, has temporarily prohibited short sales of the securities of 799 financial institutions for 10 business days. The temporary prohibition is scheduled to end Thursday October 2, 2008 at 11:59 pm Eastern Daylight Time.

It should be noted that the SEC may extend the prohibition beyond 10 business days if it is deemed necessary in the public interest and for the protection of investors. At this time, the SEC has stated that it will not extend the order for more than 30 calendar days in total duration.

If you need further clarification and information on this issue, visit http://www.sec.gov/news/press/2008/2008-211.htm

Posted 09:57 AM | Permalink | Comments (0)

The Art of Successful Trading

By Joe Inman

Trading is considered by many to be the most dangerous event short of war, and like the old saying goes “he who is well prepared has won half the battle.” You are going up against the best and brightest Wall Street has to offer and sometimes it feels they all have one goal, which is to take your money. If this is true, what can you do to survive and prosper in such a demanding profession? First, you must commit to yourself that your goal is not merely to trade but to trade successfully. Successful traders are patient and let the market come to them. It is not in their nature to force a trade. They realize it is better to do nothing unless there is something that should be done. All too often, those who are new to trading will commit the costly sin of overtrading. This occurs most often out of the fear that if they miss this trade opportunity, they may not get another one. Experienced traders realize it is better to miss a trade rather than get into one that only has a marginal chance of success.

Continue reading "Stock Education: The Art of Successful Trading" »

Posted 01:39 PM | Permalink | Comments (0)

Surviving a Bear Market

By Lance Garvin

Whether you are a seasoned investor or just getting started, the question “What do I do in a bear market?” will most likely arise. Some of you may have heard that money can be made in any type of market environment—up, down, or sideways. In this article, I want to briefly talk about a few options you have in a down market that will help you protect your money. Some of them can even make money.

Continue reading "Stock Education: Surviving a Bear Market" »

Posted 08:08 AM | Permalink | Comments (0)

Forbes.com iConference: All-Weather Portfolio Strategies

On May 22, 2008 Forbes.com will hold its first-ever virtual investor conference that is designed to help investors navigate the current turbulent market environment.

Prospering during times of uncertainty takes more than just patience and investor fortitude, it requires smart, actionable investment advice. This day-long online event begins at 10:00 a.m. and goes to 6:00 p.m., and will feature Steve Forbes and an all star panel of investment advisors and experts, including Robert Kiyosaki. The event is free to all investors and is accessible via any Web-connected computer.

In addition to speakers and discussions, you can visit an exhibit hall with booths and information about the sponsors. There is also a resource center, opportunities to network, receive advice through chat rooms and message boards and the opportunity to win prizes just for attending!

Steve Forbes and Robert Kiyosaki will present Stocks, Politics and the Economy: Prudent Strategies for Turbulent Times at 10:15 a.m. to 11:15 a.m.

Click here for more information and to register for this valuable free event.

Posted 08:15 AM | Permalink | Comments (0)

Yesterday’s Bound & Gagged comic strip showed doctors in an operating room with surgeons holding their instruments and one doing a WebMD search on “quadruple bypass.”

The internet has become a resource for all kinds of information, but it’s no substitute for comprehensive training. If you really could find everything you need to know about wealth-building and real estate investing doing searches on the internet, everyone with a computer and modem would be wealthy.

Of course, there are some tremendous training programs available online and Wealth Intelligence Academy offers a growing number of them. These aren’t just reading a few articles—they’re serious, structured programs taught live over a period of time.

Continue reading "How much can you learn on the internet?" »

Posted 02:54 PM | Permalink | Comments (0)

In his book, Millionaire Real Estate Mentor, Russ Whitney wrote: “Don’t take financial advice from poor people.” Makes sense, doesn’t it?

So how do the very rich invest their wealth and what can that teach you? Private equity and hedge funds are not the vehicle of choice for many high net worth investors. For details, read Fortune reporter Katie Benner’s article, “How the very rich invest their wealth.”

Jackie

Posted 08:30 AM | Permalink | Comments (0)

If you have an e-mail account, you get them.

Unsolicited e-mails touting the next red-hot stock, always couched in language that might make the unwary believe that this tip is just for them.

Laura Frieder of Purdue University's Krannert School of Management, has one word of advice: Delete.

Continue reading "Beware of spammed stock-touting schemes, warns Purdue University professor" »

Posted 03:03 PM | Permalink | Comments (0)

This blog focuses more on real estate than other types of investing, but Wealth Intelligence Academy also teaches stock trading and other financial and asset protection strategies.

One of our students has set up a blog detailing his experience with our training and coaching. In his post, “Discipline, Patience, and Timing,” he offers a candid assessment on what happens when an investor doesn’t follow his own rules. It’s interesting reading. Enjoy.

Jackie
Chief Blogger
Wealth Intelligence Academy

Posted 10:55 AM | Permalink | Comments (1)