Category: General

Interview with a "Silver Man"

Posted on by The INO.com Team

Earlier this week I had the chance to talk to David Morgan from Silver-Investor.com and ask him some questions about the futures markets and silver. Here's David's bio and below you'll see my mini interview!

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Trader's Blog: David Good morning! How are things?

David: Things are well, just got back from vacation and am looking forward to getting my nose back into the silver that's for sure.

Trader's Blog: David let me get right to it here....Can you give us a brief overview of how the futures markets operate?

David: Until very recently the futures market has been operated the same way basically from the inception.  It’s what’s called an open outcry market.  Guys jam literally into a ring.  It’s a round section with tiers going up from the floor, like a cone.  The levels represent different months. This same layout is for different commodities; a wheat pit, a corn pit or ring as referred to in New York.  Now most futures contracts trade electronically.

What takes place is an auction method, and the futures price is set by this method.  This method actually sets the spot price.  The spot price is called the cash market.

Now, once that price is set, that doesn’t necessarily mean that you can buy silver or gold at that price that’s set in that pit.  You can buy it for that price plus a few other fees, such as a delivery charge and transportation, but basically you will pay the price set.

I want to be very clear; there are times that the silver market and other markets go into what is called backwardation, where you actually have to pay more for immediate delivery of the real product than you can purchase the same commodity for in a future delivery month. This is a sign of a tight supply situation and usually does not last for much more than a few days.

Conversely, in the past we have seen the opposite. If we go back to the 1980 high of January 21, 1980 – the peak in precious metals in real terms, not nominal terms the price of silver in the physical realm was less than the futures price. I was in Los Angeles at the time, and even though silver in the futures market was over $50.00 the ounce, in the futures exchange, on the spot market, closing that day, the actual price that you could sell your silver physically for all over Los Angeles, every dealer that I checked with  – was $35.00 the ounce.

So the dealer community bid it back $15.00 from the actual futures price.  I want people to be aware of the facts and this was at the high and a very fast moving market.  I’m really trying to be objective here.  Now, the way we’re going in the silver market and the gold market right now is that anyone that really understands these markets are willing to go to the futures markets and take physical delivery.

I do expect these premiums to close up, meaning, that what you have to pay your local coin dealer for silver being greater than the spot month is going to narrow so that if you have to pay, as an example, $14.00 for one ounce of silver at your coin dealer, and the futures price is 10, those two will come together at some point in the future.

I wrote an article about that recently; if you haven’t read my Web site, you might go there, Silver-Investor.com. It’s called Silver Arbitrage; where I explain these arbitrage opportunities, usually don’t last for a very long time.

Trader's Blog: Okay.   I guess what I’m driving at is reading the Internet that some say big interests are depressing the price through Comex.  I don’t understand how they succeed in that and why they don’t just lose money and go out of business and why the price doesn’t just reach its natural equilibrium due to supply and demand rather than this manipulation?

Continue reading interview

Option Trading – Calendar Spreads & Time Decay

Posted on by The INO.com Team

From David Riveria from Delta Neutral Trading comes a lesson on Option Trading...Calender Spreads and Time Decay. Learn more about David and his site Delta Neutral Trading.

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When traders speak of putting on calendar spreads, they normally refer to buying the further month options and selling the closer month option. While I can not argue with this, it is not best for all options.

I am going to be general in this article because prices change and I don’t want to cause confusion.

For out of the money options, you might want to consider doing the opposite. Buy the close month and sell the further month. This is because the theta is advantageous to you if you are buying the front month. The further the months are from each other, the more you have an advantage. Also, figure out the price per day of the option. Which option costs more and which is cheaper per day. You can find options that are equal distance away in strike from the futures but one option is 3 times cheaper per day than the other.

For the at the money options, the regular calendar spreads are the way to go. For strike prices that are far out of the money, the reverse calendar spread is better. One reason is the theta advantage. Another is the price per day.

So keep your eyes open for out of the money options and check their price per day and theta and compare them to different months. If you are looking at different months, make sure that the month you are thinking of selling, is the same amount of strike prices away or more from the underlying, as the one you sell. Meaning, if you buy an option that is 5 strikes away from the underlying, the one you sell, should be at least 5 strike prices away from the underlying. This is so if there is a big move, both options will be in the money at roughly the same time.

David Rivera has traded commodities and options for one of the largest cash trading firms in the world. He has written a course on futures options techniques.

You can find out more about this concept at: Delta Neutral Trading

Put Another Notch In The Win Column

Posted on by lindsay

The Trader’s Blog poll participants have done it again. It seems that every time we put up a poll… our results are dead on accurate. Since we started the Trader’s Blog as a way to interact with INO.com and MarketClub visitors, we have been so impressed at the track record of our correct poll votes. You’ve correctly predicted the fall in stock, the rise in gold, $100 a barrel for crude, the current recession, the democratic nomination and the topping out of crude oil. So… it’s not a surprise to say that you picked the President elect over 9 months ago.

You can read the original blog post recapping the results by clicking here.

OK, now enough political talk. We all need a break I'm sure.

Best,

Lindsay Thompson
Director of New Business Development
INO.com & MarketClub.com

Greed - The Ugly Duckling of Investing

Posted on by The INO.com Team

Let's stay focused everyone! The election is over and the economy is still at the front of our minds and our wallets. Today I've asked Branden Moskwa B.ASBE founding Partner, Tradeopolis.com to come and give us some help and a look into greed!

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Ah, yes, that evil five letter word can get one into a some hot water when it comes to investing in the stock market now can't it? I'm sure we've all been there, at one time or another, where the evil has overcome and we think; hold on for a just a little bit longer and I can make even more money than I could if I sold right now. Greed can be defined as an excessive desire to acquire or possess more than what one needs or deserves, especially with respect to material wealth. Yes, that sounds just about right, certainly relates to stock market investing now doesn't it?

Keeping Greed out of Your Investing

We all have our own investment strategies, I'm not here to tell you what works best and what sucks wind, but one thing I do know, if your investing strategy involves greed you will probably 'lose' more often than you 'win'. It's certainly not always an easy thing, to keep greed out of your investments, especially when you're in a stock that's on a nice uphill ride. Any prudent investment approach should contain some form of an exit strategy, simply put how you plan on getting out of (selling) the stock you hold. This would be one way to avoid greed, have a set price at which you intend on selling the stock, walk away with the money in your pocket and move on to the next investment. Not always as easy as it sounds though is it? Prior to buying into a stock you should have some sort of idea at what price you would like to sell it, hopefully you don't have to hold it for 10 years in order for it to reach that price. Sometimes you buy into it and if you timed it just right, you start to see the price go up sooner rather than later. When you start counting the dollars you are making seems to be when the exit strategy flies out the window and greed comes creeping in. I mean, gee, who knew when you bought it that the stock was going to rise so high, so fast, why sell now when you could make so much more money? It would be downright silly to get out now when you could clearly make much more cash if you held on to it. Somewhere deep within your being, there should be something rejecting this argument, and reminding you of your exit strategy and how you've gone past the price you told yourself you were going to be out of that stock and onto the next one.

Take your profits when you can

Discipline is a big factor when investing in the stock market. By employing some self-discipline you can keep your head about your initial investment strategy and keep greed from banging down the door. If the stock you invested in has made a nice move, and you have made the money you hoped to make off of it, then get out of it while the getting is good. If it seems as though the price is going to continue to increase, then why not take out your original investment plus a small profit (if possible) and leave the rest. At least you wouldn't be losing any money by taking your profits when they are presented to you. You could have the best of both worlds if you chose to employ this strategy, you made your money (or at least didn't lose any) and if the stock goes to the moon you'll be laughing all the way to the bank, or at least to your next investment. The other option, let greed take the wheel, you could make way more money if you don't take any profits and let the whole thing ride up the hill. Sure, you could stand to make a lot more off of your investments and I'm sure many people do, but the problem with this approach, where is the top? And when it reaches the top is it going to stay there for a while or come crashing down at record speed? What if it reaches this peak while you're on vacation, or sick and can't get to your computer to make the all important trade? It's amazing how fast all those profits can disappear and you are no further ahead then when you first invested in the stock.

The main point to all this? Greed has a home and a mother, just like the ugly duckling, just perhaps not in stock market investing. Obviously, investment strategies vary from person to person, and if you find one that works, and greed is a big factor, well, kudos to you, personally, I've never gained off my greediness, it's always hurt me more than helped me. Anyways, now back to my point. No one can predict with 100% certainty (no one I've ever heard of anyways) what is going to happen with a particular stock or the stock market in general. If you are able to keep your head about your investments and keep greed out, you could stand to make some tidy profits so that you can keep investing, employing your investment strategy and hopefully making some decent money at the whole thing.

Branden Moskwa B.ASBE founding Parter, Tradeopolis.com

October Trader's Blog Contest Winner

Posted on by lindsay

There were 79 eligible entries for the October Trader's Blog Contest. Thank you for everyone who participated. I think that sharing your views of the market and certain specific aspects are a great help for all traders.

The lucky winner of 6 seminars from our INO TV digital library was comment number 66, Ray from the United States who said, "I like the candlestick formation and what they can tell me about the buyers and sellers as well as whether we are in an oversold area or not."

Congrats Ray, your discs will be shipped out today. Don't forget to enter our November Trader's Blog Contest sponsored by INO TV, where the question is, "What is your worst broker experience, if any?"

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Best,

The INO TV Team