Back-end loads are a sales commission levied by some load funds when an investor sells mutual fund shares. These back-end loads typically are structured as a contingent deferred sales charge (CDSC), which often start at 5% or 6% of money withdrawn within a year of buying the fund and then decline by a percentage point or so each year until they disappear. Back-end loads usually are set to compensate the distributor for marketing and selling the fund, especially to protect anticipated annual flows of 12b-1 fees. However, back-end loads may also be used to dissuade short-term traders; funds may set a high back-end load for money withdrawn within a very short time frame and then revert to the more general schedule of yearly declining load amounts referenced above. Read the rest of this entry »
What if a stock has run out of steam and we’re anticipating a period of consolidation or lower volatility for a period of time? What if we have identified a range-bound stock and we want to take advantage of this price pattern behavior? We can achieve this by trading low-risk, high-reward options strategies! The two strategies we’ll discuss in this chapter are the Butterfly and the Condor, both of which produce profits provided the price remains within a certain price range, determined by the Exercise prices we select.
Butterflies
The Butterfly involves the following steps (you can use all calls or all puts with the Butterfly—you cannot mix the two):
Butterfly with Calls
Step 1 Buy 1 lower strike (ITM) call
Step 2 Sell 2 middle strike ATM calls
Step 3 Buy 1 higher strike (OTM) call
There are two key points here:
- The ratio between buying the ITM call, selling the ATM calls, and buying the OTM call is 1:2:1.
- The distance between the three adjacent strikes must be equal, with the middle strike being ATM or as close to ATM as possible.
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Trends happen, and those who spot them as they’re just emerging them well and get off at precisely the right time make a great deal of money. As I’ve indicated, this is a very difficult thing to do. Unless you’re a professional observer of the markets with outstanding insights and great powers of observation, you’ll likely come upon the trend too late. The problem: It doesn’t seem too late. You’re bombarded with news stories about the rise of energy stocks or how blue chips are back or how the cell phone industry is about to introduce a new technology that will create huge profits in the industry.
Because of the Internet and multimedia communication devices, these trends are dramatized to the point that we feel we should be taking advantage of them, and that if we’re not, we’re missing the boat. I have documented in a number of chapters how the tech mania that swept the country devastated portfolios of people who didn’t see that the bubble was going to burst. When you’re in the midst of a buying frenzy and every day the media documents how much tech stocks have risen, it’s very difficult to gain perspective and see that the trend has crested and a major correction is imminent. Read the rest of this entry »
