RAPID FORTUNE TRADING ACADEMY
Rapid Fortune Trading Academy web pages for basic financial information and to have more refreshing knowledge about trading and investments. We urge all the traders, do your homework before you take any risk, When you trade your first goal should be not to lose your capital, with the hope of making a Rapid Fortune.
HAVE A PROFITABLE TRADING DAY!
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ADVICE TO DAY TRADERS
Here are some useful hints to our day traders. You can incorporate some of our advice into your basic day trading strategy.
1. Don’t ever buy a stock or option without doing your homework. Before you buy always check news and quick research.
2. Don’t ever buy or sell market orders. Always buy and sell with limit price.
3. Always buy high volatile and high volume stocks so you can liquidate quickly. Buy high sell higher.
4.Day trade hot stocks and very volatile stocks. When a stock is cooling down don’t trade for a while. Also don’ t forget when something is to hot you are too late.
5. Don’t chase stock or options. Just buy at ask price. When you want to sell it, sell it at bid. Don’t forget for want of 1/8, a kingdom is lost. Trade at day order only, not good till canceled.
6. Always day trade with 50% of your capital, stay at 50% cash in the beginning; later trade 70%, keep 30% cash. Don’t forget your capital is more important than profit, protect and minimize your risk.
7. Be patient. Control your emotions and be ready to change with market conditions and stock movement.
8. Always maximize your profit but don’t get greedy.
9. Don’t keep stock portfolios in your hand unless you have to when you do your day trading.
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TRADING DISIPLINE
Patience:
The first thing you must learn in Wall Street is patience. Good things come to those who wait, be it low buy prices or high sell prices. Sometimes if you had only waited, you could have sold higher or bought lower. But for day trading, when you want to buy or sell, you have to make your move very fast. Don’t forget that buying or selling too soon is better than too late.
Willing to Change:
When you are wrong, don’t try to justify a bad trade by convincing yourself it will turn into a good trade. If the stock is moving in the wrong direction sell it and take a loss. Then you can buy it back when it is at a lower price. Be professional enough to spot your mistakes, think of it as insurance for day trading. Don’t buy stock average down, but when the stock average is up. To preserve your capital is more important then making big bucks. If you miss out on some profits, it’s okay. You can always find other stocks to buy. However, if you lose your trading capital, the ball game is over for you.
Emotions:
The stock market is very good at playing on your emotions. In order to be a good trader, you must do your homework and be focused. Don’t panic sell and don’t buy on hysteria. Be a cool hunter. Target your prey, aim straight at it, then buy and sell to make your kill.
Your Goals:
Before you invest in stock, set yourself goals. For what reasons do you want to trade? Long term, short term or day trading? How much profit do you want? Knowing what exactly you have in mind for your trading will help you focus and pick the right stocks to fit your purpose. Then you can start trading securities and options. With good trading strategies you will minimize your risks and maximize you profitability.
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TRADING PRINCIPLES
Hot Stocks:
Hot stocks move very fast. When stock has hot product, hot news, hot earning or analysts rating, day trade for good profit. Don’t be too greedy. After you buy hot stock put limit order to sell because hot stocks swing big. But nothing lasts forever; remember that when something is too hot you are too late.
Buying Stocks:
Before you buy any stock make sure you do your homework. You must research; check the news and review analyst ratings. Before market open and after hours trading make sure you fully know the facts of why stock is moving than when everything looks good make your move, long or short. Always day buy with limit order for stock at prices you’d love to own the stock at.
Market Orders:
Don’t use them unless you have to and never place a market order for a stock or index option at the opening of the market. It is unadvisable to order when a stock is making new ground fast (such as during a positive mention on CNBC). Putting in a market order in the first 15 minutes of the market is a sure way of paying the highest possible price for your stock because as all the built up orders from the previous day go through, it lifts the stock prices for a few minutes. You can be pretty sure that your order will be executed at the high of the day this way. Usually the opening of the day will be the high of the day. Keep in mind sometimes it can be a good time to sell during this time.
Daily Volume:
Don’t day trade in thinly traded markets or on stocks that have very low volume. You may find you can’t get out of the market as timely as you think.
Selling Stocks:
Selling is actually the most difficult part of trading in many ways. If you are trading a stock or option, then decide what price you want to sell your position as soon as you buy it, using day orders to sell at a limit price. Once you own them, since many times a stock will move up for just seconds when stock reaches your price they will execute your trade.
Selling Short:
We do not recommend this strategy. If you really want to do it always buy a call option equal to the shares you sold short. Unexpected news, buyouts, rumors or short cover can hurt you. We highly recommend to buy put options for short selling strategy.
Buying on Margin:
When you buy stocks on margin for margin able securities you can buy 4 X your money (day traders required $25,000 or margin able securities maintenance in their account), the amount of stocks you buy with margin or you can use 50% of portfolio for margin borrowing. (Note: stocks under $5.00 and IPOs under 30 days are not margin able)
IPOs:
More IPO’s trade down from their initial offering than go up. Buying IPO’s on their initial (or close to) offerings is very risky. Watch them and try to buy them when they trade below their original offering prices (not the prices they came to market at). When the IPO is good and gets hit with heavy profit taking, it can be a great buy and return to normal levels quickly.
MORE INFORMATION ABOUT OPTIONS
What is an Option?
An option is the right either to buy or to sell a specified amount or value of a particular underlying interest at a fixed exercise price by exercising the option before its specified expiration date. An option, which gives a right to buy, is a call option, and an option, which gives a right to sell, is a put option. Calls and puts are distinct types of options, and the buying or selling of one type does not involve the other.
Example: An option to buy 100 shares of common stock of the XYZ Corporation at a specified exercise price would be an XYZ call option. An option to sell 100 shares of common stock of the XYZ Corporation at a specified exercise price would be an XYZ put option.
There are two different kinds of options - physical delivery options and cash settled options. A physical delivery option gives its owner the right to receive physical delivery (if it is a call), or to make physical delivery (if it is put), of the underlying interest when the option is exercised. A cash settled option gives its owner the right to receive a cash payment based on the difference between a determined values of the underlying interest at the time the option is exercised and the fixed exercise price of the option. A cash settled call conveys the right to receive a cash payment if the determined value of the underlying interest at exercise - this value is known as the exercise settlement value - exceeds the exercise price of the option, and a cash settled put conveys the right to receive a cash payment if the exercise settlement value is less than the exercise price of the option.
Each options market selects the underlying interests on which options are traded on that market. Options are currently available covering four types of underlying interests: equity securities, stock indexes, government debt securities, and foreign currencies. Options on other types of underlying interests may become available in the future.
Option Holder; Option Writer:
The option holder is the person who buys the right conveyed by the option.
Example: The holder of a physical delivery XYZ Corporation stock at the specified exercise price upon exercise prior to the expiration of the option. The holder of a physical delivery XYZ put option has the right to sell shares of XYZ Corp. at the specified exercise price upon exercise prior to the expiration of the option. The holder of a cash settled option has the right to receive an amount of cash equal to the cash settlement amount (described below) upon exercise prior to the expiration of the option.
The option writer is obligated - if and when assigned an exercise - to perform according to the terms of the option. The option writer is sometimes referred to as the option seller. An option writer is sometimes referred to as the option seller. An option writer who has been assigned an exercise is known as an assigned writer.
If a physical delivery put option is exercised, the assigned writer must purchase the required number of shares at the specified exercise price regardless of their current market price. If a cash settled option is exercised, the assigned writer must pay the cash settlement amount.
Exercise Price:
In the case of a physical delivery option, the exercise price (which is sometimes called the "strike price") is the price at which the option holder has the right either to purchase or to sell the underlying interest.
Expiration Date:
This is the date on which the option expires. If an option has not been exercised prior to its expiration, it ceases to exist - that is, the option holder no longer has any rights, and the option no longer has any value. The options market on which the series trades fixes the expiration dates for the various options series. Readers should learn the expiration date of each option they wish to buy or write.
Exercise:
If the holder of a physical delivery option wishes to buy (in the case of a call) or sell (in the case of a put) the underlying interest at the exercise price - or, in the case of a cash settled option, to receive the cash settlement amount - his option must be exercised. In order to exercise most options, option holders must give exercise instructions to their brokerage firm in accordance with the firm's procedures prior to the firm's exercise cut off time. Every option holder should understand this process and should learn his brokerage firm's procedures concerning exercise, and its exercise cut off time, for each option he may buy.
Although an option holder must assure that action is taken to exercise most options, capped options and certain cash settled options provide for automatic exercise in specified circumstances. Other options having automatic exercise provisions may be introduced for trading in the future.
Premium:
The premium is the price that the holder of an option pays and the writer of an option receives for the rights conveyed by the option. It is the price set by the holder and writer, or their brokers, in a transaction in an options market where the option is traded. It is not a standardized term of the option. It is simply and entirely a nonrefundable payment in full - from the option holder to the option writer - for the rights conveyed by the option.
Opening Transaction:
This is a purchase or sale transaction by which a person establishes or increases a position as either the holder or the writer of that option.
Closing Transaction:
This is a transaction in which, at some point prior to expiration, the option holder makes an offsetting sale of an identical option, or the option writer makes an offsetting purchase of an identical option. A closing transaction in an option reduces or cancels out an investor's previous position as the holder or the writer of that option.
Combinations, Spreads & Straddles:
Combination positions are positions in more than one option at the same time. Spreads and straddles are two types of combination position. A spread involves being both the buyer and writer of the same type of option (puts or calls) on the same underlying interest, with the options having different exercise prices and/or expiration dates. A straddle consists of purchasing or writing both a put and a call on the same underlying interest, with the options having the same exercise price and expiration date.
Long & Short:
If the writer of a physical delivery call option owns or acquires the amount of the underlying interest that is deliverable upon exercise of the call, he is said to be a covered call writer.
At The Money:
This term means that the current market value of the underlying interest is the same as the exercise price of the option.
In The Money:
A call option is said to be in the money if the current market value of the underlying interest is above the exercise price of the option. A put option is said to be in the money if the current market value of the underlying interest is below the exercise price of the option.
Out Of The Money:
If the exercise price of a call is above the current market value of the underlying interest, or if the exercise price of a put is below the current market value of the underlying interest, the option is said to be out of the money by that amount.
Intrinsic Value & Time Value:
It is sometimes useful to consider the premium of an option as consisting of two components: intrinsic value and time value. Intrinsic value reflects the amount, if any, by which an option is in the money. Time value is whatever the premium of the option is in addition to its intrinsic value. An American style option may ordinarily be expected to trade for no less than its intrinsic value prior to its expiration, although occasionally an American style option will trade at less than its intrinsic value. Because European style and capped options are not exercisable at all times, they are more likely than American style options to trade at less than their intrinsic value when they are not exercisable.
Automatic Exercise Value:
The automatic exercise value of a capped option is the price or level of the underlying interest determined in a manner fixed by the options market on which the option is traded for each trading day as of a specified time of that day.
Cash Settlement Amount:
This is the cash amount that the holder of a cash settled capped option is entitled to receive upon the exercise of the option. In the case of a capped option that has been automatically exercised, the cash settlement amount is equal to the cap interval times the multiplier for the option, even if the automatic exercise value on the day that the automatic exercise feature is triggered exceeds ( in the case of a call) or is less than (in the case of a put) the cap price. If the capped option is voluntarily exercised at expiration, the cash settlement amount is determined in the same manner as for other styles of cash settled options.
About Indexes:
An index is a measure of the prices of a group of securities or other interests. Although indexes have been developed to cover a variety of interests, such as stocks and other equity securities, debt securities and foreign currencies, and even to measure the cost of living, indexes on equity securities (which are called stock indexes) are among the most familiar, and they are the only indexes that underlie options trading at the date of this booklet. The following discussion refers only to stock indexes and stock index options.
Stock indexes are compiled and published by various sources, including securities markets. An index may be designed to be representative of the stock market of a particular nation as a whole, of securities traded in a particular market, of a broad market sector (e.g., industrials), or of a particular industry (e.g., electronics). An index may be based on the prices of all, or only a sample, of the securities whose prices it is intended to represent. Indexes may be based on securities traded primarily in U.S. markets, securities traded primarily in a foreign market, or a combination of securities whose primary markets are in various countries.
A stock index like a cost of living index, is ordinarily expressed in relation to a "base" established when the index was originated.
Certain trading strategies involving purchases and sales of index options, index futures, options on index futures or portfolios of certain of the securities in an index can affect the value of the index, the prices of the index futures, and, therefore, the prices of the index options. These transactions and the resulting impact may occur at any time - and may accompany significant changes in the prices or volatilities of the stock and derivative markets - including at or shortly before an expiration. For example, traders holding positions in expiring index options or futures contracts hedged by positions in securities included in the index may attempt to liquidate their securities positions at or near the time for determining the final exercise settlement value of the options or futures contracts. The resulting orders to liquidate these trading strategies can have on index levels at or near expiration, and the possibility that the values of index option positions will be affected accordingly.
Readers who intend to trade index options should familiarize themselves with the basic features of the underlying indexes, including the general methods of calculation. Readers who are attempting to follow a precise and sophisticated strategy-involving index options may wish to inform themselves about the exact method for calculating each index involved. Information regarding the method of calculation of any index on which options are traded, including information concerning the standards used in adjusting the index, adding or deleting securities, and making similar changes, is generally available from the options market where the options are traded.
Margin Requirements:
Writers of options, other than certain covered call option writers and certain writers of cash secured puts (discussed below), must comply with applicable margin requirements.
In the stock market, margin refers to buying stock or selling stock short on credit. Margin customers are required to keep securities on deposit with their brokerage firms as collateral for their borrowings. But options, unlike stock, cannot be bought on credit under current regulations. In the options market, margin means the cash or securities required to be deposited by an option writer with his brokerage firm as collateral for the writer's obligation to buy or sell the underlying interest, or in the case of cash settled options to pay the cash settlement amount, if assigned an exercise. Minimum margin requirements are currently imposed by the Board of Governors of the Federal Reserve System, the options markets and other self-regulatory organizations, and higher margin requirements may by imposed - either generally or in individual cases - by the various brokerage firms.
Uncovered writers may have to meet calls for substantial additional margin in the event of adverse market movements. Even if a writer has enough equity in his account to avoid a margin call, increased margin requirements on his option positions will make that equity unavailable for other purposes.
If a holder of a physical delivery call option exercises and wishes to purchase the underlying interest on credit, the holder may be required to deposit margin with the holder's brokerage firm. Holders of physical delivery options on a foreign currency should be aware that, at the date of this booklet, foreign currency has no value for margin purposes except to the extent that credit has been extended on the same foreign currency.
Margin requirements are complex and are not the same for writers of options on different types of underlying interests. Margin requirements are subject to change, and may vary from brokerage firm to brokerage firm. Persons considering writing options (whether alone or as a part of options combinations, such as spreads or straddles) should determine the applicable margin requirements from their brokerage firms and be sure that they have sufficient liquid assets to meet those requirements in the event of adverse market movements.
Risks Of Option Holders:
An option holder runs the risk of losing the entire amount paid for the option in a relatively short period of time. This risk reflects the nature of an option as a wasting asset, which becomes worthless when it expires. An option holder who neither sells his option in the secondary market nor exercises it prior to its expiration will necessarily lose his entire investment in the option.
The fact that options become valueless upon expiration means that an option holder must not only be right about the direction of an anticipated price change in the underlying interest, but hi must also be right about when the price change will occur. If the price of the underlying interest does not change in the anticipated direction before the option expires to an extent sufficient to cover the cost of the option, the investor may lose all or a significant part of his investment in the option. This contrasts with an investor who purchases the underlying interest directly and may continue to hold his investment, notwithstanding its failure to change in price as anticipated, in the hope of waiting out an adverse price move and eventually realizing a profit.
The significance of the risk to an option holder depends in large part upon the extent to which he utilizes the leverage of options to control a larger quantity of the underlying interest than he could have purchased directly with the same investment amount.
Risk Of Option Writers:
An option writer may be assigned an exercise at any time during the period the option is exercisable. Starting with the day it is purchased, an American style option is subject to being exercised by the option holder at any time until the option expires. This means that the option writer is subject to being assigned an exercise at any time after he has written the option until the option expires or until he has closed out his position in a closing transaction. By contrast, the writer of a European style or capped option is subject to assignment only when the option is exercisable or, in the case of a capped option, when the automatic exercise value of the underlying interest hits the cap price.
If an option that is exercisable is in the money, the option writer can anticipate that the option will be exercised, especially as expiration approaches. Once he is assigned an exercise, the assigned writer must deliver (in the case of a call) or purchase (in the case of a put) the underlying interest (or pay the amount in the case of an in the money cash settled option). The consequences of being assigned an exercise depend upon whether the writer of a call is covered or uncovered.
The writer of a covered call forgoes the opportunity to benefit from an increase in the value of the underlying interest above the option price, but continues to bear the risk of a decline in the value of the underlying interest. Unlike a holder of the underlying interest who has not written a call against it, the covered call writer has (in exchange for the premium) given up the opportunity to profit from an increase in the value of the underlying interest above the exercise price. If he is assigned an exercise, the net proceeds that he realizes from the sale of the underlying interest pursuant to the exercise could be substantially below its prevailing market price.
Special Risks Of Index Options:
Writers of cash settled index call options cannot provide in advance for their potential settlement obligations by acquiring and holding the underlying interest. A call writer can offset some of the risk of his writing position by holding a diversified portfolio of securities similar to those on which the underlying index is based. However, except where the underlying index is a specialized one based on relatively few securities, most investors cannot, as a practical matter, acquire and hold a portfolio containing exactly the same securities in the same proportions as the underlying index. Most writers of cash settled index calls who also hold positions in securities will therefore bear the risk that the market prices of those securities will not increase as much as the index.
Even if the writer of a cash settled index call option could assemble a securities portfolio that exactly reproduced the composition of the underlying index, the writer still would not be fully covered from a risk standpoint because of the "timing risk" inherent in writing cash settled options.
The timing risk discussed in the preceding paragraph makes spread positions and certain other multiple option strategies involving cash settled American style index options substantially riskier than similar strategies involving physical delivery options.
Readers intending to use index options to hedge against the market risk entailed in investing in individual securities should recognize the complexities of utilizing index options in this manner.
Just as holders and writers of stock options bear the risk that transactions in the underlying security may be erroneously reported, holders and writers of index options bear the risk that the reported current index level may be in error.
A holder of cash settled index option who exercises it before the exercise settlement value of the index for that day is available runs the risk that the level of the underlying index may subsequently change.
Cash settled index options whose exercise settlement values are based on the opening prices of the constituent securities are not traded on the last scheduled trading day for those securities prior to the option expiration date.
Current index levels will ordinarily continue to be reported even when trading is delayed or interrupted in some or all of the constituent securities of the index or when the reporting of transactions in those securities has been delayed.
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HOW TO TRADE
BUYING & SELLING EQUITIES:
Here is the some of the basics of trading “Buying and Selling Equities “. Every trader must know all these trading basics before they replace an order. Two things a trader must have before trading: 1) Knowledge 2) Money. Lets start to learn how to trade:
Basics of Placing Equity Order:
When you are placing an equity order you need to know the followings:
1.Whether your order is Buy, Sell, Sell Short or Buy to Cover.
2.Number of Shares you want.
3.Symbol of Security or Name of the Stock.
4.Whether a Market Order or a Limit Order at a Specific price.
5.If a Limit Order Specify a Day Order or Good Till Canceled.
6.Other Restrictions, such as All or None or Fill or Kill
RAPID TRADER'S ADVICE:
1.Never sell short! if you must buy call option for insurance. We recommend buying put options strategy.
2.Never buy or sell market orders unless you have to.
3.Always buy or sell Day Order with Limit Price.
4.Before you do any trading always do your homework.
5.If you think you made a mistake do not be afraid of taking a loss because your capital is more important than profit.
6.Never forget all of these and more.
BUYING & SELLING OPTIONS:
Here is the some of the basics of trading “Buying and Selling Options “. Every trader must know all these trading basics before they replace an order. Two things a trader must have before trading: 1) Knowledge 2) Money (trading capital). Lets start to learn how to trade Options:
When you are placing an Option order you need to know the following information:
1.Whether your order is Buy, Sell, Spread, Straddle or etc.
2.Whether your order is Call(s) or Put(s)
3.Number of Contract you are Trading.
4.Name of underling Stock.
5.Expiration month(s).
6.Strike Price(s).
7.Whether Market Order or Limit Order, at a Specific Price.
8.If a Limit Order, specify Day Order or Good Till Canceled.
9.Other Restrictions, such as All or None.
Note: Options expire 3rd Friday of each month
OPTION TRADING STRATEGIES:
Options are highly versatile and can be used in variety of investment situations. The following examples demonstrate just a few ways you might apply Option Trading Strategies to pursue different investment objectives.
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Investment Goal: Increase the over all return on a stock you hold in your Portfolio.
Strategy: (Write Covered Calls) Among the most conservatives of option strategies, writing covered calls allows you to collect premium income against your long stock position and potentially to increase the overall return on your position. In the event that you are assigned, you can deliver the shares you already own. DISADVANTAGES. If stock continues to rise you risk missing participation in award movement in the stock. Also, aside from the premium you receive. You are not protected from any downward movement in the stock.
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Investment Goal: Protect a profitable long stock position in your portfolio against significant declines.
Strategy: (Buy protective puts) Buying protective puts allows you to “Lock in” a minimum selling price on a stock you are purchasing or already own, until the puts expiration date. If your stock declines, you can then exercise your put to sell your stock at the predetermined price. This is an insurance against your stock. DISADVANTAGES. If the stock moves upward you loose your cost of premium plus commission.
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Investment Goal: Postpone your decision to buy stock at is current market price.
Strategy: (Buy Calls) You can buy calls on the stock and lock in a price at which you would like to purchase it up until the expiration date. Your maximum risk is cost of your premium.
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Investment Goal: Buy a stock below its current market price.
Strategy: (Write puts) If you think a stock is good buy at a price lower than its current market price, you can write a put on it with a strike price lower then the market price of stock. If the stock declines, you may be assigned, in which case you have to acquire the stock at the strike price. And the premium you received will, in effect, reduce the cost of your stock purchase. If the stock is not put to you, the premium is yours to keep. If you do not wish to own stock outright, you can write puts on a short stock position. Then if you are assigned, you can use the put stock to cover your short position.
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Investment Goal: Participate in stock in price or market movement with a minimal capital investment.
Strategy: (Buy calls or puts) If you are bullish on a stock, you can buy calls on the stock for much less then it would cost to you to buy stock outright. Similarly, if you are bearish on a stock you can buy a put for much less then it would cost to short the stock. If the stock advances or declines as you predict prior to your contract’s expiration, you can achieve a potentially unlimited gain on calls and a substantial aid on puts. If it doesn’t, your risk is limited to the cost of premium. There are options up to the 3 years of time limit, which called “LEAPS”. Similarly, if you are bullish or bearish on general markets or sectors you can buy calls and puts on indexes. Which is a cash settlement.
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