Options as a Strategic Investment » Market

Alternative Investments in a Bear Market

admin — Sat, 23 Jan 2010 21:09:34 +0000

Treasury Bills, Commercial Paper, Corporate Bonds, Certificate of Deposits and Repurchase Agreements. Collectively are referred to as Money Market Instruments.

Money market instruments are short term debt obligations generally regarded as low risk, low to medium return investment for the holder. They are essentially IOUs issued by governments, financial institutions and large corporations. These instruments are very liquid and considered extraordinarily safe. Because they are extremely conservative, money market securities offer significantly lower risks than most other securities. They have maturities ranging from one day to one year.

Treasury bills

Treasury bills are issued by the Central banks such as the Bank of England or government treasury departments. The Treasury sells bills at regularly scheduled auctions to refinance government projects and obligations. It also helps to finance current government deficits.

Commercial Paper

Commercial Paper is short-term loan that is issued by a corporation use for financing accounts receivable and inventories. Commercial Papers have higher denominations as compared to the Treasury Bills and the Certificate of Deposit. The maturity period of Commercial Papers is a maximum of 9 months. They are very safe since the financial situation of the corporation can be anticipated over a few months.

Corporate Bonds

A corporate bond is an IOU issued by a public company, such as BT, ICI or Marks & Spencer. When you invest in a corporate bond, you are lending money to the company. In return you will receive interest at a fixed rate and the promise that your capital will be repaid at a certain date in the future.

Certificate of Deposit

A certificate of deposit (CD) is a time deposit with a bank. CDs are generally issued by commercial banks but they can be bought through brokerages. They bear a specific maturity date (from three months to five years), a specified interest rate, and can be issued in any denomination, much like bonds. CDs offer a slightly higher yield than Treasury Bills because of the slightly higher risk for a bank but, overall, the likelihood that a large bank will go broke is pretty slim. (Northern Rock Plc being the exception of course).

Repurchase Agreements

The Repo or the repurchase agreement is used by the government security holder when he sells the security to a lender and promises to repurchase from him overnight. Hence the Repos have terms raging from 1 night to 30 days. They are very safe due to government backing. Due to this short turnaround time, these agreements are the most liquid of all money market investments, they are very similar to bank deposit accounts, and many corporations arrange for their banks to transfer excess cash to such funds automatically.

Its is however important to note that Although securities purchased on the money market carry less risk than long-term debt, they are still not entirely risk free. After all, as we all know banks do sometimes fail, and the fortunes of companies can change rather rapidly. But it has to be said that the range of possible outcomes is less for short-term investments than for conventional equity and fixed income investments.

Changes Coming To The Djia?

admin — Mon, 04 Jan 2010 09:14:25 +0000

Are changes coming soon to the Dow Jones Industrial Average Components?By my reckoning, there currently are 5 DJIA Components of the 30 total trading under $10/share: Alcoa (AA), Bank of America (BAC), Citigroup (C), General Electric (GE), and General Motors (GM). Are changes to the Index imminent, and what are likely replacements?In my view, it would be highly unlikely that GE would be removed from the DJIA, as it is the ONLY of the original 12 companies from 1896 that is still in the Index. This is also why we have written in the past on the important effect of GE’s stock performance on overall market psychology — to some degree, it really is THE bellweather of bellweathers, regardless of the fact that somehow over the years GE basically became a finance/investment company with an industrial side business (this benefited their bottom line for many, many years but now is adding potential risk and downside pressure).It also seems unlikely that AA would be removed, and I’m sure that Dow Jones would dread at removing GM … but if the stock goes to 0, what are they to do but replace it? BAC and C seem likeliest that at least one will be soon removed. According to various sources, if GM, BAC, and C all dropped to zero at this point, the DJIA would only lose about 70 points. However, I would assume if one or more does go ‘worthless”, it will HAVE to be replaced eventually to keep the Dow at 30 stocks.The last changes to the DJIA were September 22, 2008, with Kraft Foods (KFT) replacing American International Group (AIG) and February 19, 2008 when Chevron (CVX) and Bank of America (BAC) replacing Altria Group (MO) and Honeywell (HON).Let’s look at some of the top market capitilization names currently to see what are potential DJIA additions in 2009. China Mobile (CHL) or another Chinese company would actually be somewhat logical due to the changing demographics of world economics, but this Index covers American companies only so that is a definite NO … unless that rule is altered in the future. Could Warren Buffett’s Berkshire-Hathaway (BRK-A) be a possibility? I would say that is also very unlikely due to the fact that BRK is basically a holding company/index/mutual fund in itself, with holdings in a wide variety of sectors.Now to some more likely possibilities in the over $25 Billion Market Cap list:In the Biotech/Pharma/Healthcare/Medical sectors, we have Genentech (DNA), Abbott Labs (ABT), Amgen (AMGN), Bristol-Myers (BMY), Eli Lilly (LLY) and even Medtronic (MDT) … in my view the Index may want to increase its Biotechnology exposure, as it has little outside of its Pharmaceutical names.There also are several giant Technology names that many are speculating could be added to the DJIA, including Google (GOOG), Cisco Systems (CSCO), Apple (AAPL), Oracle (ORCL) Qualcomm (QCOM) and Amazon (AMZN). But note that the DJIA has historically been hesistant on adding tech names. Other +$25 Billion Market Cap names that jump out to me as possible additions include Visa (V), Monsanto (MON), Goldman Sachs (GS) and United Parcel Services (UPS). These are a bit more of the traditional type companies that Dow Jones generally prefers.Bottom line, if the DJIA is basically forced to make 3 moves, a logical conclusion I could see would be 1 Biotechnology name, 1 Technology name, and 1 of the more traditional names mentioned above. However this is a tight, concentrated index that traditionally has remained fairly conservative and attempts to stick somewhat to the “Industrial” part of the name — so they may go with no Technology or Biotechnology — but on the other hand, it also needs to be relevant as a privately owned investment product and a market bellweather. Moby Waller,BigTrends.com

Foreclosure Investing – a Smart Strategy

admin — Sun, 27 Dec 2009 10:14:04 +0000

Foreclosure investing is a form of real estate investment. It is one of the best investment options as far as returns on investments are concerned. Foreclosure investment opportunities are normally created when homeowners default on monthly installment payments and the bank confiscates their property. The property is then sold at a foreclosure auction. Foreclosure investment opportunities are also available when a homeowner tries to sell the property directly to the ready buyers, before the foreclosure is announced. Information about such auctions is readily available on the Internet. You can use the information to invest in properties that have the potential to maximize your investment returns, in the next few years.
It is a buyer’s market
The foreclosure investment market is often called a buyer’s market because buyers are in a better position to negotiate the price of the property and other related terms and conditions in a deal. A homeowner, who has not made timely payment towards a mortgage loan, is usually aware of the fact that the property will be confiscated and he will not be able to profit from the sale proceeds. To avoid foreclosure, homeowners try to sell their property and use the proceeds for applying for new mortgage loans or buying new properties. Generally, owners who want to avoid the impending foreclosure have only 60 to 90 days to sell the property, before it is evaluated at a public trustee sale. According to certain state laws, homeowners are even given the option to reclaim their property within 360 days. Homeowners, who do not use this option, if available, will not be able to stop the lenders from foreclosing the properties and eventually selling them at a public auction.
Cheap and low risk investment option
Investing in foreclosure properties is probably the cheapest way of maximizing your investment returns. If you conduct a thorough research, you can easily identify and buy properties at very reasonable prices. In the past, there have been properties that were sold at discounts as high as sixty to eighty cents to a dollar. The foreclosure investment market is considered a low risk one, since land is a scarce resource. The value of the land will definitely rise, even if the real estate market witnesses a downtrend.
Other benefits
There is no dearth of foreclosure properties in the market. In order to buy a foreclosure property, you may not even have to apply for a bank loan. You just need to identify a suitable buyer, who is willing to pay the right price. Foreclosure properties are either sold at auctions or the buyer sells it directly.
As compared to the regular real estate market, the foreclosure properties market has a fewer investors. This makes it a lot easier to find and buy properties below the existent market rates. It is anticipated that the foreclosure properties market is set to grow at a steady pace in the next few years. The investment thus made is worth all the initial effort and patience applied. The foreclosure investment market offers real value on the money spent and re-evaluation of the property always reveals that the price paid was well below the existent market value.

Stop-Loss Trading Strategy

admin — Fri, 18 Dec 2009 21:30:44 +0000

Stop-loss trading strategy is one of the most popular topics among traders. There is no doubt about importance of this question. A trader may have ten winning trades in a row, still, one loss could wipe out whole earned profit if there were no strategy placed to protect the profit and limit losses. A selection of a stop-loss strategy looks simple from the first view. However, when it comes to a practical implementation, a lot of traders become confused by realizing that it is not as easy as it looks like and it could be even more complicated than generate trading signals. In many cases a good trading system could fail if a stop-loss strategy is not used correctly and a bad trading system could be profitable if a smart stop-loss strategy is used.A selection of stop-loss strategy is a complicated task mainly because it depends on many factors. Some of these factors are trader’s risk tolerance, selected trading vehicle, trading style, stock market behavior, etc…Risk Tolerance: There are different traders on the stock market. There are conservative and risky players, there are retired people and there are young traders. Everybody have different risk level and in many cases a stop-loss strategy depends on the personal preferences of a trader.Trading style: Different traders trade differently. One trader makes 5 trades during a single session and another trader makes only one trade a year. Respectfully, the first trader could be looking for tight stop-loss strategy while the second trader could be looking for flexible, less strict stop-loss.Trading Vehicle: You may trade stocks, options, futures and with any of these tools you would be looking for a different stop-loss. While a stock trader could be looking for constant stop-loss level, an options trader may select two dimensional stop-loss strategy (price and time: the longer you stay in position the tighter stop-loss become).Stock Market Behavior: The stock market changes constantly. Today you may see quiet peaceful up-trend; in month you could be in the volatile, scary decline. Depending on market volatility a trader may select different trading strategies: tighter during quiet markets and more risky during volatile periods.These are only a few factors that affect selection of a stop-loss trading strategy. Yet, they already show how complex this question is. Every trader should come to this question very seriously. There is not a lot of information about that and in many cases a trader has to learn and develop a stop-loss system by using his/her own trading experience.

Forex Options Trading – in the World of Forex Trading

admin — Sun, 29 Nov 2009 21:22:27 +0000

In the Forex World, Forex is the largest financial Foreign Exchange market in the world. Different from others market like stocks or commodity, The Forex open 24hours, Monday to Friday 24/5 weekly. And it has an average of 3.2 Trillions trade everyday. As for now, it is a good time to go into Forex market due to bad economy, as for the stock and commodity are bearish yet the US Dollar is bullish. This tends to lead to a very liquid market and is a desirable market to trade.

FX market does not have a fixed exchange. It is primarily traded through banks, brokers, dealers, financial institutions and private individuals. Trades are executed through phone and increasingly through the Internet. It is only in the last few years that the smaller investor has been able to gain access to this market. Previously, the large amounts of deposits required precluded the smaller investors. With the advent of the Internet and growing competition it is now easily in the reach of most investors.

With the advance system now days, you can trade Forex market with as low as US$200 with a leverage ratio of 1-200. Even with a free service of market charting information, updates and news. That’s why now days there’s more and more transaction in Forex market. Market also became very liquid also due to small investor that came in, in quantity which changes the market environment.

As you can see that person are introduced to the exciting world of Forex Trading in many ways: friends, current events, newspapers, television, and many others. For those of you who are new to Forex, the following guidelines cover the basics of currency trading. You even can start which a demo account which is a simulation of the live trading account data feed. The Broker will allow you to trial out using a simulation of $100,000 virtual money to trade live market.

In Forex Market, there’s always risk.. So a Stop-Loss is always a must in forex trading. With good strategy and discipline, you will success in Forex Trading. Trading is a mind game; you must change your mental attitude first from a normal person to that of a speculator. Almost all traders I have met, except a few successful ones who really made millions and billions trading in the market, simply waste all their time trying to learn the easiest part in perfection, like about how to read data and charts, and trying to perfect entry and exit skills, etc. Trading is a mind game and without having a right frame of mind, it is a losing game even before it starts. Training a trader’s mind is the first step for any successful trader but almost all new traders neglect that part and that explains why more than 95% of traders are a failure in the long run.

Strategic Window in Dynamic Market

admin — Sat, 28 Nov 2009 21:07:53 +0000

What is a Strategic Window?The term strategic window is the limited periods during which the “fit” between the key requirements of a market and the particular competencies of a firm competing in that market is at an optimum. In this paper we will use VXL Instrument’s case to elaborate the concept.What is VXL’s Business?VXL Instruments is enabling companies around the world build a flexible, secure, manageable and cost-efficient IT infrastructure. Its range of thin client devices helps enterprises beat the cycle of desktop obsolescence, free internal resources from non-productive functions, and save millions of dollars that is spent in securing systems. The thin client is a server-centric computing model in which the application software, data, and CPU power resides on a network server rather than on the client computer.VXL Instruments won “Highest IT-Hardware Exporter Award in Non-SSI category” for year 2006-2007.VXL’s DilemmaVXL Instruments is leading manufacturer of thin client devices and commands 11% share in global market. Its major chunk of sales comes from export to US and EU. The company is trying to explore new market in India for its thin client devices. Competitors like Wyse and HP offer diverse range of product not only in west but also in India. Therefore, it’s high time that company starts thinking about Indian market.How to market TC in India?Company’s products like TC23xx and TC73xx are reliable and cost-effective. The (thin client) TC can help in eradicating various pain in server based computing. It is very useful in case of SME’s (Small and medium scale enterprises) where computing requirements are pretty specific. In case of sectors like hospitality, we need to explore various value unlocking features so that they can charge a premium. The major challenges are following:1. How to provide maximum utility without making product too much complex?2. How to convince existing clients to change from fat clients to thin clients?3. How to market TC in India?Actually the answer of third question will give us a frame work for finding the answers for first two questions.I will consider VXL a minimum risk taking company. It’s more product centric than customer centric. Therefore, its products are world class but market penetration is not that impressive. Presently, VXL markets its products through client interaction and third party distributors like Priya Limited. This approach reduces marketing expenses but the approach has its own limitations.In 2005, Mumbai-based distributor Priya Ltd invested $2 million (around Rs 10 crore) in equity in VXL Instruments. The investment was part of the trade finance arrangement that gave VXL $9 million (around Rs 45 crore) aimed at funding its growth.VXL chalked out expansion plans and a growth strategy with a view to increase its market share of thin client to 25 percent by 2007-2008. It has made inroad in different verticals like ERP, Health, Telecom, Education and Banking with client list including SAP Belgium, Birmingham City Hospital UK, DOT India, British Telecom, IIM Lucknow, IIT Roorkie, Haga Bank Jakarta and HDFC India etc. But presently its market share is much below its target.Product Awareness & Customer PerceptionWe can roughly divide the customers into two categories:* Techno Savvy Customers with financial Muscle: These type of customers, already know about the products (TC) and we need to convince them that thin client is a better option over Fat client. For example Velankani group’s upcoming 5-Star hotel in Electronic City, Bangalore. The Velankani’s are in IT and infrastructure and they are aware about technology and its implementation. According to Mr. R. Shiva Kumar (Manager Information System, Velankani), these types of customers should better be approached when the product is in its embryonic stage. Once they acquire fat clients (FC) for their project, they won’t be interested in TC due to switch over cost. Here we need to market TC as a device which will not only reduce the total cost of ownership but also provide simple solution for all comfort requirements.* Less Techno Savvy with Medium Range Investment Capabilities: These types of customers don’t have their own IT department. They generally play safe and go for the fat client technology being used by other players in their segment. More over they consider their computing needs are minimal and don’t find IT investments much attractive. Here, we need to educate them about various advantage of server based computing and advantage of TC over FC. These types of firms should be approached for providing total solution.Market RedefinitionFrequently, as markets evolve, the fundamental definition of the market changes in ways which increasingly disqualify some competitors while providing opportunity for the others. The trend towards marketing “system” of products as opposed to individual piece of equipments provides many examples of this phenomenon. We will discuss this point with the help of Docutel case.Docutel: This manufacturer of automatic teller machine (ATM’s) supplied virtually all the ATM’s in US up to late 1974. In early 1975, Docutel found itself losing its market share to large computer companies such as Burroughs, Honeywell, and IBM as these manufacturers began to look at the banks’ total EFTS (Electronic Fund Transfer System) needs. They offered the bank a package of equipment representing a complete system of which the ATM was only a component. In essence their success can be attributed to the fact that they redefined the market in a way that increasingly appeared to disqualify Docutel as a potential supplier.ConclusionMarket redefinition is not only limited to the banking industry; similar trends are underway in scientific instrumentation (Steel, Cement, and Aluminium Industries), process control equipments (Siemens, Vesuvius and SMS redefined the market); the machine tool industry, office & household equipment (VXL is already a player) and electronic control gear as some of the other examples. In each case, manufacturers basing their approach on the marketing of individual hardware items are seeing their “strategic window” closing as computer systems producers move in to take advantage of emerging opportunities. HP has capitalized sufficient TC market by virtue of some aggressive M&A. In India companies like HCL Technologies and Satyam are planning to enter in TC market as a total solution provider. Wipro is also exploring opportunities in SME. We can expect Wipro to venture in this segment, in near future.As the competition grows SME’s are also becoming lean. Most of firms are following make-to-order philosophy of manufacturing. All these need free flow of materials, information and finances imperative. As the practices are changing, many new applications of networking technology have evolved. Here, we can see a scope for VXL being a consultancy provider and not a mere product manufacturer.References:* http://www.vxl.net* The Windows Embedded Family: An Integrated, Scalable Platform for Building Thin Client Devices(Microsoft)* Strategic Window: Derek F. Abell(Journal of Marketing)