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Individual Stocks & Options

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The Fund Trading System is a useful tool
to help you Trade Stocks and Options
 
 
We focus primarily on Exchange Traded Funds and Mutual Funds because they take less time to successfully manage than stocks and options.
 
Our research shows, just like Funds, the stock portfolios that perform the best over time tend to focus on minimizing losses.
 
It’s the law of mathematics; nothing is more difficult than recovering from a large loss of capital.
 
Therefore, the same trading methods we apply to Funds using the Fund Trading System can also work for individual stocks and options.
 
    Institutional Traders Continue to Move toward ETF Index Funds!
   
Individual stocks and options have much greater volatility and therefore more risk than trading Funds; because they often lack the diversification which allow Funds to react slower to unexpected negative information.
 
It is this slower reaction time of Funds that allow their trends to be more predictable.
 
An example would be the impact on Microsoft stock if an SEC investigation was announced or an earnings forecast was missed. A 10% or 15% loss in one day may be expected. At the same time the Nasdaq 100 would be cushioned by the other 99 stocks in the Index.
 
This would also act as a leading indicator for the Nasdaq 100 Index, giving you time to change your position. Remember, the technology stock crash of 2000 started this way. Microsoft collapsed first, the Trading System indicators started to indicate sell positions, which allowed the smart money to sell or short the Nasdaq 100 Index before it took a drastic downturn.
 
 
 
   Institutional Traders Influence 75% of the Market Movement
 
This highlights the fact that about 75% of the change to a stock’s price is due to the overall market direction or trend.
 
These trends are most often created by the Institutional Traders. The Market Trend Trading System alerts you to these changes with a Buy or Sell Signal of the underlying Index, allowing you to take advantage of the trend.
 
 
Stocks and Options will track well with the three major U.S. Indexes that we report on.
  
 
Technology Stocks: Predominantly Track with the Nasdaq 100
Large Cap Stocks:    Predominantly Track with the S&P 500
Small Cap Stocks:      Predominantly Track with the Russell 2000
 
Buy the stocks that correlate well with these indexes and you can use the Fund Trading System to improve your returns.
 
The Fund Trading Stock Trading Strategy uses your own Stock picks that move similar or correlate to the Nasdaq 100, Russell 2000 or S&P 500. You will trade when you receive a Fund Trading Buy or Sell Signal
 
 
 
Fund Managers continue to shift toward Exchange Traded Index Funds for their portfolios whereas individual investors are more likely to trade individual stocks.
 
Consistent with the Fund Trading philosophy of bringing the knowledge of the Institutional Trader to you, we will review how to trade Index Options 
 
Stock Options
 
Stock Options have some additional advantages over buying individual stocks making them a great trading vehicle in the hands of an experienced trader.
 
Stock Options work especially well with the Fund Trading System when used to purchase Index Options that correlate directly with the Indexes we report on. It’s the same idea as buying ETFs or Mutual Funds but instead you will be using Options as the Index trading vehicle.
 
Options have the potential to outperform Stocks, ETFs and Mutual Funds due to the high leverage they offer. But because Options are complex, they require more effort to fully understand, along with constant attention to achieve the best returns.
 
The FundTrading Strategy for Options can be applied to a brokerage account as well as an IRA account, assuming your broker’s own regulations allow IRA Option trading.
 
It is very important with Options to use money management practices to prevent large losses of principle.
 
A sound diversified strategy may place 80% of your principle in Stock and Bond Funds and allocate 10% to 20% of your principle to trade higher risk securities, such as individual Stocks and Options. Because the value of an Option has a high risk of declining to zero, you should not risk more than 2% of your total principle on any individual trade.
 
This may seem low but studies point to this amount as giving you the staying power to absorb a number of losses before having some successful trades. It is also important to buy different types of Options to increase your odds of success and to protect your principle.
 
 
 
       Options Offer High Leverage with the Potential for High Returns!

Options are popular because they offer great leverage, while limiting risk to the dollar amount invested.
 
Options also offer the versatility to select a strategy that reflects your tolerance for risk. Options are sold in units of 100 shares, often for a few dollars a share. You can profit from a change in price leveraged by the 100 shares you purchased. The most you would loose in this example is the few hundred dollars it cost to buy the Option. It sounds like a good deal, but the risk of loosing the principal is high, even if the dollar amount is not large.
 
This is a brief review of Options that work best with the Fund Trading System.
 
If you are new to Options trading it is very important to work with your broker until you have a full understanding of how to use them. Even if you are trading with a discount broker, they will help you with your trades. Do not be afraid to ask for help. Mastering Options trading can be an exciting form of trading Index Funds with the possibility of very high returns.
 
 
 
        “Stock Index Options Work Best with the Fund Trading System”

With the Fund Trading System we recommend Options based on the three Indexes we report on, the Nasdaq 100, Russell 2000 and the S&P 500. Our list of Option Terms and the Example pertains to buying Options based on these three stock Indexes. This type of Option is called a Stock Index Option or Index Option.

Index Options which are Cash-Settled Options grant the right to either buy or sell a specified amount of an Index at a set price before it's Expiration Date.

The entity that writes or creates the Option is the Option Writer. Our strategy is based on Option Buying, not on Option Writing. When you buy an Option you become an Option Holder.
 
Please visit the How To Trade / Individual Stocks and Options Section for the list of Option Terms and their description along with a step by step example of how to trade Options.
 
Always keep in mind that Options may change price quickly and they need to be watched constantly to protect your principal and to produce the best returns.
  
  

   Additional Resources:

  • · Chicago Board of Options Exchange:

             http://www.cboe.com/learncenter/cboeeducation/indexoe.html

 
 
Please visit the How To Trade Section for members only  for help in developing your complete Fund Trading Strategy.
 
 
 
 
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