PayPal - Importance Of Risk-Defined Option Trading

Posted on by Noah Kiedrowski

Options trading can provide a meaningful addition to one's portfolio when used in a disciplined manner. When used as a component of an overall portfolio approach, generating consistent monthly income while defining risk, leveraging a minimal amount of capital, and maximizing return on capital can be achieved. Options can enable smooth and consistent portfolio appreciation without guessing which way the market will move. An options-based portfolio can provide durability and resiliency to drive portfolio results with substantially less risk via a holistic beta-controlled manner. When engaging in options trading, specific rules must be followed, and one of the most important rules is to structure every option trade in a risk-defined (put spreads, call spreads, iron condors, etc.) manner.

PayPal (PYPL) was a recent example where the stock witnessed a massive meltdown from an ill-advised acquisition target (Pinterest) coupled with quarterly earnings that were deemed dismal. These two events culminated into a 35% slide from a 52-week high of $310 down to ~$200 post-earnings. Hence the importance of risk-defining all options trades to limit any downward stock movement beyond your protection strike. Risk-defined options trading prevents any losses beyond a specific strike price, avoids the assignment of shares, does not require a significant amount of capital, and does not potentially result in unrealized losses while soaking up capital with any share assignments.

Risk-Defined Options Trading

Risk-defined option trades are straightforward. Below is a theoretical example deploying a put spread on a stock that currently trades at $100 per share. Continue reading "PayPal - Importance Of Risk-Defined Option Trading" →

5 Week Winning Streak Ends

Posted on by The INO.com Team

The DOW rose 179.08 points or +0.50%, to close at 36,100.31. The S&P 500 gained +0.72% at close at 4,682.85, and the NASDAQ rallied, gaining +1.0% or 156.68 points to end the day at 15,860.96.

However, all three major indexes closed the week lower after the hottest inflation report in 30 years. The DOW fell -0.6%, the S&P 500 dipped -0.3%, and the NASDAQ eased -0.7% on the week. Despite the week's losses, the three major indexes are still within striking distance of their record highs. The S&P 500 is up more than 24% in 2021. Continue reading "5 Week Winning Streak Ends" →

ETF Investors Should Know Their Tesla Exposure

Posted on by Matt Thalman

Shares of the electric car manufacturer Tesla (TSLA) have undergone a meteoritical rise over the past few years, a move that very few investors have ever seen or experienced. Since late October 2019, Tesla has been up more than 1,680%, compared to the Vanguard S&P 500 ETF (VOO), which is up just 59% over the same timeframe. The move Tesla has made is nothing but incredible, and congratulations to all those investors who had the foresight and fortune to have owned Tesla stock, either directly or through, and some sort of fund and have benefited from the move.

However, as with all investments, what goes up, can come down. And Tesla has undoubtedly seen this story play out over time as a publicly-traded company. Several times throughout its time, including this week, it has seen massive pullbacks and corrections, of course only to go even higher longer term. But that doesn't mean another move lower, like the 36% drop during a six-week period earlier in 2021, should be dismissed by investors.

Both long and short-term focused investors need to understand that stocks of even the best companies move higher and then lower, only to move higher again. And understanding this movement and knowing what the risk of an investment is and the potential return an investment has, is extremely important can help you invest smarter. Continue reading "ETF Investors Should Know Their Tesla Exposure" →

What's Next For The Fed?

Posted on by George Yacik

Now that the Federal Reserve has formally announced its taper plans, what can we expect next?

The Taper

First of all, let’s not go into panic mode because the Fed is suddenly reducing its asset purchases. In the statement following its November 2-3 meeting, the Fed said it would “begin reducing the monthly pace of its net asset purchases by $10 billion for Treasury securities and $5 billion for agency mortgage-backed securities.” In the scheme of Fed purchases, that’s practically nothing, you won’t even feel it. Indeed, in the very next sentence, the Fed also announced the converse of that, namely that starting this month, it “will increase its holdings of Treasury securities by at least $70 billion per month and of agency mortgage-backed securities by at least $35 billion per month. Beginning in December, the Committee will increase its holdings of Treasury securities by at least $60 billion per month and of agency mortgage-backed securities by at least $30 billion per month.”

Note the operative word, Increase. So yes, it’s accurate to say that the Fed is reducing its asset purchases, but it’s not going away, far from it. It’s still buying a ton of securities. Remember that the Fed’s balance sheet currently totals $8.5 trillion and still growing. Now, the Fed did add that “it is prepared to adjust the pace of purchases if warranted by changes in the economic outlook,” which most market participants take to mean that the Fed is more likely to speed up, not slow down, the pace of purchases, given the current robust state of the economy. That’s a good thing and long overdue. Continue reading "What's Next For The Fed?" →

The New Bitcoin ETF BITO: What You Need To Know Right Now!

Posted on by Wayne Burritt

I haven’t anticipated the launch of a security quite as much as the first Bitcoin Exchange Traded Fund (ETF), ProShares Bitcoin Strategy ETF (BITO). And when it finally hit two weeks ago, it was a ton hotter than even the most fervent enthusiasts expected.

But before you take a dive into this ETF, make sure to listen up for a sec. BITO is not all rainbows and unicorns.

What Is An Exchange-Traded Fund?

Before we get into the nitty-gritty surrounding BITO from ProShares, let’s take a step back and revisit what an ETF is under the hood.

An ETF is a type of security that tracks an index, asset, sector, or another asset. They can be designed to track a wide and diverse collection of assets or a narrower basket. They can also be created to track investment strategies.

In fact, if it’s an asset or index out there, there’s likely an ETF that can track it and let you invest in it. Continue reading "The New Bitcoin ETF BITO: What You Need To Know Right Now!" →