FAQs
We have been asked many questions
at FinancialPicks. Enough questions to write a book. We have compiled a list of the most
Frequently Asked Questions below (If you want to
find info on a certain term, just use your browser's SEARCH option, then type in a key
word. Ctrl-F on Explorer):
How do I
start a brokerage account?
What do all those
terms like "short" mean (newbies...read this)?
What is margin?
What are options?
What are
index options?
What are index
funds?
What are index
futures?
What's the
deal with your guarantee?
Why would
you sell your system if it's so good?
Are you
really going to raise the price?
Will existing members' prices rise?
Can you just trade for me through a broker?
What
exchanges do you trade on?
Can
I trade if I live in another country?
How
am I notified about what to buy and sell?
How long
are most of your stock plays held?
How long
are your option picks held?
How much money should I start with?
How often are the
signals issued?
When should I start making
money?
Can I receive a discount for prepaying 6 or 12 months?
How do I add additional email addresses?
How do I cancel service?
I want to recommend this service to people I know. Is there anything in it for me?
What if I miss a signal...can I buy it now?
How do I start up a
brokerage account?
The best way we have found to
start up a brokerage account is to go with a company that is internet based. The reason
for this is simple: low commission costs. Many deep discount brokers charge as little as
$0.01 per share, and as low as $1 minimums. Note:you are charged commission
for both buying and selling. All you need to do is apply
online then sign a few documents.
The best broker these days appears to be interactivebrokers.com
They all charge fairly
low commission, and their interface systems are pretty easy to use. Remember to check all
the fees that a broker charges. Limits and stops might cost you more to do. Some
brokerages do not even let you do limit orders on NASDAQ stocks. If you're going to do
option trading, make sure you know about their risks since they do expire. Setting up your
account on margin is usually a good idea since it will effectively double your buying
power. Your broker will not let a margin account dip below 35% equity, so make sure to set
stop losses on your trades.
Note: Check down farther
if you do not know what options,limits,margin, or stops are.
What is Margin?
Margin basically doubles your
trading dollars with stocks and index funds. A 5% gain turns into a 10% gain if you use
some of that extra trading money. If you have a bad trading system, you will lose money
twice as fast. If you have a good system, you will make money twice as quick. Most
brokerages need $2000 to initially start up a margin account.
New margin rules: The SEC mandates that
if you are a "pattern daytrader", you must have $25,000 in your
account. The definition of a pattern daytrader is not very specific, so you
might want to talk to your broker about this.
What
do all those terms like 'SHORT' mean?
We have compiled a list of
terms you should definitely know. Further down are some more factoids that should be known
if you trade options.
ASK: This term refers
to the price at which the everyday Joe must buy a stock or option. The ASK will often
times be higher than the last value a stock or option was traded for.
BID: This is the price
that you sell a stock or option at. It will usually be lower than the last traded price,
and lower than the ASK.
EPS: Earnings per
share. For example, if a company has a million shares and it makes five million, the
earnings per share will be $5.
LAST: The last price a
stock was traded at. Usually between the bid and ask.
LIMITS: A limit is used
to define at what price a stock or option should be bought or sold. For example, A buy
limit set at $20 on a stock would wait until the stock drops down to $20 to buy in. A sell
limit can be used to trigger a sell at a price higher than what it is now. A sell limit
could be used to trigger a sell at a higher price while you were even on vacation!
MARKET ORDER: Whenever
you buy or sell a stock or option at market, you are putting your order out to the general
trading market. This means that your order will be filled for whatever the market is
currently at. The good thing out market orders is that they are generally filled very
quickly. The bad thing is that you might get the stock or option for a price you did not
want.
PE Ratio: The price to
earnings ratio. If the earnings per share is $1 and the price of the stock is $25, then
the PE Ratio is 25. A PE Ratio is usually high on those stocks that are growing rapidly,
while those that are slowing have lower PE Ratios.
SHORTS:
No, not the piece of clothing you wear when it is hot. When a stock is shorted, you are
basically betting that the stock is going down. For example, you notice that YHOO is going
down after shooting up like a rocket. If you short the stock when it is at $100, then cash
out when it hits $90, you just made 10% on your money. Note:
You must have enough funds to cover the stock at that high price you short it at. The
money you use will usually be charged margin interest by your broker. Also, the rules
state that there must be an uptick in the stock before it can be shorted.
Cover: In order to
close a short position, you must cover it...hopefully at a lower price.
STOPS: A stop is
generally used to prevent you from losing too much money. For example, if you purchase 100
shares of XYZ for $100 per share, you might want to set a stop at $94. That way, if you
are not around and there is suddenly bad news about XYZ, your order to sell all your
shares at market will occur when the stock hits $94 or lower. The problem with this is
that the stock might gap down to $80 and still be triggered. Just because the stop is set
at $94 does not mean you will always sell out at $94. On the plus side, for the majority
of the time, stops will work. Note: Some brokers
charge more for stop loss orders. You can also set stops for buying into a stock.
Buy Stops: You can also
buy a stock using a "buy stop." For example, if you want to buy on strength, you
might set your buy stop at $101 when the stock is down at $100. When the stock trades at
or above $101, it turns into a market order. We often enter trades this way. If you want
to get in at an exact price, use limits (below).
STOP LIMIT:
If you want to get into or out of a position once an exact price
is hit, a stop limit order can be used. The drawbacks and
advantages for limit orders are noted above. Buy example:
"Buy to open 500 shares INTC at a stop of 24.45 and limit
of $24.51". Once your stop price is hit, it becomes a limit
order (in this case, you will only be filled at 25.51 or lower).
This is the preferred entry method.
What
are options?
Every serious
trader should learn about options. Options are very similar to stocks (they are
based on stocks) yet they are more volatile and they expire at a certain date. An option
is basically used to control a certain amount of shares in stock. Note: Read more below about what an option is. Options, if played correctly, can be the biggest money maker in your
portfolio. Note Check out some key terms
below if you do not know what calls,contracts and such are.
For example, you buy 3
contracts of the $80 July calls on XYZ, with the option trading at $4. This means that you
just purchased the control of 300 shares of the underlying stock for $1200 total (3 * 100
* $4=$1200). Let's say that the stock was at $80 when you bought its option, and now the
stock has gone up to $86. The option will now be worth around $8, so your $1200 investment
will be worth $2400, a 100% gain! All this from a 7.5% move in the stock. Basically
speaking, if the stock goes up a little, the option goes way up in
comparison. The main
problem with options is that you risk losing all your money if you let it expire, or the
stock goes way down in price. Check out some of the terminology below.
At Financialpicks, we hate to
lose, so we developed many ways to insure that we win. One of the ways we play an option
is to pick only those that we believe will go up 30% to 300% in a short amount of time. We
usually set sell limits to trigger a sale at a certain price because an option's price
fluctuates dramatically. We also do not put more than 15% of our portfolio in options.
Anything higher than that, and you might get an ulcer or go blind looking at your computer
screen ALL DAY (We have dumped huge funds into options before, but only a daytrader should
do this) :>)
CALL: A call option is
basically the right to buy a number of shares of stock at a given strike price. Most
people, including us, never exercise our right to actually buy the stock. We just trade
the options before they expire. When you buy a call, you are betting that the stock will
go up, and thus the option will also rise in price. Then you sell the call. To ensure that
there is a buyer out there, we make sure that the OI is at least 300.
CONTRACT: A contract on
an option will be bought or sold in lots of 100. If you buy 6 contracts, you are buying
control of 600 shares of the underlying stock.
COVERED CALLS: Covered
calls are basically options that you sell when you own a stock. For example, if you have
500 shares of XYZ and then sale 5 contracts of the September calls for $3, you make a cool
$1500 right away. The problem with covered calls is that you can have your stocks bought
from you for less than you originally paid for them, and the fact that you must hang on to
the stock until the expiration date or when you buy back the calls. The benefit is that on
stocks that you want to keep and that have been staying flat, you can now have a way to
make money!
EXPIRATION DATE: The
date that an option is set to expire.
INDEX
OPTIONS: Index options are options that are traded based on indices like the
S&P 100 or the Dow Industrials. Sometimes it can be easier to call the general market
instead of individual stocks. Here is a list of some index symbols with options: OEX
(S&P 100), SPX (S&P 500), DJX (Dow Jones Industrials), NDX (Nasdaq 100), NYA (NYSE
Composite), SOX (Semiconductor), VLE (Value Line). There are others, but volume is low on
many of these. Our favorite is the OEX due to its high volume and liquidity. We have found
it VERY profitable to trade these options.
IN THE MONEY: A term
used to mean that the strike price is less than the actual price for a call option. For
example, XYZ is trading at $50, and the strike price for the call is at $45, so it is in
the money by $5.
OI: Open interest on an
option. Very, very necessary to know. The option you buy must have many previous buyers
before you jump in. Otherwise you might not find a seller. We like options to have an OI
of 300 or more. We also like to see that other people are actually trading the option the
day we buy it.
PUT: A put option
basically is just the opposite of a call. With a put, you are betting that the underlying
stock will go down. A put increases in value when the stock or index goes
down. That's one of the ways you can profit in a bear market or during a
correction.
SHORTING CALLS AND PUTS:
Options are risky enough. Shorting a call or a put will get you money up front, but the
potential loss from being wrong is huge. We never short options.
STRIKE PRICE: The price
at which a stock can be bought if the option is exercised. For example, you buy 5 of the
XYZ $35 calls. XYZ is trading at $34, and the option is at 2. If the stock hits say $40,
you have the right but not the obligation to buy 500 shares of XYZ stock at the strike
price of $35. Of course, we never do this. We just trade the options themselves.
VOLATILITY: Options are
priced mostly on volatility. It is basically a percentage measurement based on how much
the price of the underlying issue (stock or index) fluctuates up and down. A big jump in
volatility means a big jump in option price.
What are Index Funds?
Index funds mimic stock
averages like the Dow or the S&P 500. The American exchange allows you trade these
averages just like a stock. For example, you can trade the S&P 500 under the ticker:
SPY. The price is based on 1/10th the value of the index. The Dow Industrials are traded
under the ticker: DIA. We also like to trade the NASDAQ 100 (QQQ), the Internet sector
(HHH), and the Bank sector (XLF).
You can also trade different
mutual funds that mimic the indices. Rydex
is well known for a number of funds in this category.
What are Index Futures?
Index futures are
basically contracts that enable you to by an index like the Dow or S&P 500 for a
certain price. You are not really buying all the stocks in the index, rather you are just
settling in cash. It sounds like it would be hard to profit except for the fact that
margin requirements are extremely low.
For example, if the S&P 500 is trading at 1000
and you want to buy one E-mini contract, it would cost you about $50,000 if you weren't
trading on margin. However, using margin to buy the contract, it would cost less than
$5000. Now for every point the index moves, you can gain or lose $50 (The multiplier is 50
for e-mini's. S&P's have a multiplier of 250 and are more expensive to trade). The
S&P 500 can easily move 20 points from high to low everyday. The bad part is that you
risk a huge amount of money when buying. The good part is that you can use stops to
protect yourself from losses.
Note that futures can be shorted much like stocks, allowing
you to make money in any kind of market. Futures are settled in cash the following
morning, which means funds are taken out or put in your account automatically.
When
trading the E-mini, you can trade 24 hours a day on the Globex system. However, when
trading e-mini's on Globex, you can only use limit orders. That means no stop loss or
market orders. Some brokers allow stops on e-mini contracts, but they basically use limit
orders to manually get out of a trade.
Futures, due to their
perceived high risk, are probably the most over looked method for trading the over-all
stock market. However, they do require much more attention than stocks or spiders, as the
potential for profit or loss is very high.
Index Futures expire
every quarter. The strike codes are H,M,U,and Z. An e-mini that expires in June 1999 would
be ES99M. An S&P that expires in March 1999 would be SP99H.
Our Guarantee
We try to show you we
mean business by offering a one year guarantee on our services. We are confident enough in
our trading skills to offer a 10 times your money guarantee. Read more about it here.
Why Would You Sell Your System?
Great question.
Everyone knows that if someone had a system that beats the market, he would never sell it.
That's true. We won't sell our trading techniques at ANY price. We also
know that if everyone follows our signals, they eventually will become useless.
Personally, I hate the fact that so many people trade incorrectly (buying at the top, and
selling at the bottom). However, we count on that...that's how we win so much.
At the same time, I
know there's room for a small percentage of investors to share the "pie" so to
speak. Plus, the additional compensation allows me to keep compounding my
portfolio without having to make many withdrawals.
Can you just trade for me through a broker?
No. Not
at this time.
What
exchanges do you trade on?
We
trade US equities only, so we'll trade on NASDAQ, NYSE, and AMEX
for stocks. We trade index options occasionally. These are based
on options exchanges like CBOE. We don't trade exchanges in
Europe or Asia.
Can I trade if I
live in another country?
The
US has the most liquidity of all markets, which makes it easier
to get in and out of stocks. Many members trade our picks from
other countries. Brokers like interactivebrokers.com
are world wide, so most can trade US equities with them.
How am I notified
about what to buy and sell?
All the information
on what to buy and sell, changes to positions, and commentary is
accessed on the member page. We do
not email the updates, as Spam filters will often inadvertently
mark them as Bulk email.
How long are most of your stock plays held?
Stocks
are usually held 1-5 days for the very short-term systems. The trend
following trading systems usually last 10-40 days.
How long are your option picks held?
We don't
trade options much these days since volatility has fallen a great deal since
2003. However, we will be giving option recommendations for our
intermediate-term trading model - The Smart Money Index
Trader. This is a very powerful
way to grow an account.
Are you really going to raise the price?
Yes. As we get closer
to the 1000 members, we will raise the price for new members. Our
newsletter subscribers will be notified in advance to any subscription hikes.
Will existing members' prices rise?
No. As long as you stay
a member, the price you pay will not rise. If you quit then rejoin, you will be subject to
any new pricing.
How
much money should I start with?
The
minimum suggested is $10,000. A deep discount broker like
interactivebrokers.com makes it easier to trade with smaller amounts, but
$10K is the minimum suggested to make it worth while.
How often are the
signals issued?
Signals are issued nearly
everyday for the stock trading systems. Index trading signals are issued
far less frequently.
When should I start making
money?
The reason we offer a 12 month
guarantee is because trading is a commitment. You will not make money
every month let alone during the first 30 days. The market gives us
profits in spurts. You might be down 10% for the year, then make 150% in
the last few months. It happens like that most years! My job has been to
knock this into trader's heads so they don't give up.
Over 80% of months have been
profitable, but the market does not give you a set paycheck like your 8-5
job (which is what you're trying to get away from right)?
Can
I receive a discount for prepaying 6 or 12 months?
Yes,
you will receive 15% off if you prepay 6 months, and 23% off if you prepay
12 months. To receive the discounted price, simply log into the Member
page, click on Edit Billing, and set the Payment Cycle to 6 or 12 months.
The fees are refundable, minus a one month minimum
How
do I add additional email addresses?
Simply
log into the Member page, click on Edit Profile, and you will see that
there is space for up to three email addresses.
How
do I cancel service?
Our web
site is automated, so you can simply log into the Member page, click on
Edit Billing, then set the auto-renew feature to "no". You will
then be cancelled automatically at the end of your billing cycle, and you
will also receive a receipt of your cancellation via email.
I
want to recommend this service to people I know. Is there anything in it
for me?
Yes, we
have an affiliate program that pays 20% of each sale...for as long as that
member stays on (so you get residual income...month after month). More...
What if I
miss a signal...can I buy it now?
If you miss a trade signal for
buying a stock, it's best to skip the trade. Your reward/risk ratio is not
as good past day one.
If you miss the Smart Money
trade signal, you can buy the recommended fund within 1 week of the
signal, or you can wait for a repeat buy signal (which occurs every 1-2
months on average). Options on SPY can be bought only at the start of the
signal, or on a repeat buy.
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The results listed herein are based on hypothetical trades.
Plainly speaking, these trades were not actually executed. Hypothetical or
simulated performance results have certain inherent limitations. Unlike an
actual performance record, simulated results do not represent actual trading.
Also, since the trades have not actually been executed, the results may have
under (or over) compensated for the impact, if any, of certain market factors
such as lack of liquidity. You may have done better or worse than the results
portrayed.
