InvestEd 2014: Irvine CA

February Webinar: Troubles We Have with Selling; How to Get Over Them

A Different Kind of Collar Part 2

Scheduling Email Messages

InvestEd 2014

Irvine, CA   June 6-8, 2014

Irvine Marriott

Register Now!


This month we'll highlight a couple of new InvestEd conference sessions.


Saul Seinberg is presenting "A Pragmatic Approach to Dividend Investing." Saul offers this brief description of his new session:


Most investors who focus on dividend paying stocks understandably target dividend yield as their chief criteria. Unfortunately, relatively few dividend companies meet the basic criteria that would qualify them as a suitable and effective investment choice. For example, a drop in share price will pump up yield, thereby causing some income driven investors to ignore the underlying results that caused the price drop and buy the stock despite potential problems signaled by the share price fall. The underlying factors concerning company performance need to be examined in order to ensure that today's attractive dividend paying stock is likely to hold that status for the duration of an investor's investment period.


The session also will examine criteria for evaluating the likelihood that dividend growth will drive income benefits as well as share price increases. Conventionally, this means examining payout ratios based on earnings flow. However, we will discuss alternate criteria that seem likely to provide better results.


Finally, the session will address income alternatives to dividend stocks along with tax concerns arising from both dividend paying stocks and similar income alternatives.


Mary Ann Davis is presenting "Tools/Indicators for Selling Options" and offers this brief description of her new session:


Selling options, both covered calls and cash secured puts, has proved to be very profitable. Can you believe that people are willing to pay you for the right to buy your stock? And the best part is that you get to keep that money, which is paid to you within 24 hours, and most of the time you get to keep the stock as well. I know, this sounds too good to be true, but it is and it is legal.


Let me show you how to build on those basics and increase your returns by refining the option selling process even more. The session "Tools/Indicators for Selling Options" will teach you how to use the Keltner Channel and Average True Range plus many more new tips and tricks about selling options. Come and join us to take your option selling to the next level. You will be glad you did.


Learn from Saul and Mary Ann and all the InvestEd instructors at InvestEd 2014 in Irvine. Review the InvestEd 2014 website and register to join us on June 6.


Early Bird Registration Rate Ends March 31, 2013

Early bird registration is $389. Registration received after March 31 is $409. Full-time students with a valid school identification card pay $359.


You must register by March 31, 2013, to receive paper copies of session handouts. All attendees receive a CD of the handouts.

Register now and save!



InvestEd Inc. Free Webinar

Troubles We Have with Selling; How to Get Over Them

Sunday, February 23, 2014

8:00 PM-9:00 PM ET / 5:00 PM-6:00 PM PT

Instructor: Don Cassidy

Webinar Registration


The vast majority of investors have great difficulty pulling the "sell" trigger -- much more so than deciding what and when to buy. Understanding the multiple forces that create this problem is a necessary first step to overcoming it and being able to sell as easily as to buy. This webinar will provide detailed lists and discussion of the challenges and then will suggest specific ways to conquer the fear of selling, which will help improve returns and allow better nights' sleep.


Register now to attend the InvestEd Inc. free online investor education webinar. Space is limited.


Don Cassidy has served as an instructor at four recent InvestEd national conferences and has been a frequent speaker at national and local AAII events for 20 years. He's the author of five books for individual investors, including It's When You Sell that Counts (Global, 3rd Edition) and Trading on Volume. He looks at markets mainly from a psychological viewpoint.





A Different Kind of Collar Part 2

Saul Seinberg


In Part 1 I mentioned the two stocks in my portfolio (ABC and XYZ) that are overvalued with a significant possibility of a downward correction. I have decided to buy married puts on each stock to protect against the possible loss. Once I decide the time is now appropriate to buy a married put on my ABC and XYZ holdings, I must select the strike price and the duration of the puts I will buy. This in turn determines the size of the premiums I will pay for each put.


As for strike price, the closer it is to the current share value, the more expensive the put will be. I can select a lower strike price, which will cost less, but it also will give me less downside protection. The size of the gap between current share price and strike price is a primary consideration. In a sense, this is akin to picking a higher deductible for an automobile insurance policy to lower policy premium costs.


I also have a choice as to the length or term of the option. If I pick a put with a fairly distant expiration date, say six months from now, I will pay more in premium than an option that will expire in just two months. The more time an investor buys the greater the period in which the feared market downturn can occur. But that insurance comes with a higher cost to compensate a put seller who extends his or her risk period so dramatically. By way of a tradeoff, an investor can choose to partially hedge a position by buying puts on fewer than all shares of a stock held in a portfolio. In this case, I might choose to lower my put premium cost by purchasing only one put to cover ABC and XYZ instead of the two puts I might buy otherwise. That lowers my cost, but also lowers my downside protection. As I said, it's a tradeoff.


In the context of my market downdraft scenario, I also can reduce my overall cost for protection by selling a call on either or both of my ABC or XYZ holdings. Since my expectations of a selloff in both stocks is high, the likelihood that the stocks will be called away from me is commensurately low, especially since I've also determined that both stocks are overvalued and unlikely to keep going much higher.


The position in which a call is sold against a long stock and a long put combination is known as a collar. Investopedia defines a collar as: "A protective options strategy that is implemented after a long position in a stock has experienced substantial gains. It is created by purchasing an out of the money put option while simultaneously writing an out of the money call option." Note that the put and call do not have to be bought and sold respectively in the order given or at the same time.


More important to note is that the premium for the call will offset and, on occasion, fully cover the put cost. This reduces or completely negates the argument of the investor who declines to buy puts because of their expense, since the offsetting call premium reduces the net option premium at the same time it secures meaningful downside protection in a scenario where the potential loss of profits associated with selling calls is meaningfully reduced.


As noted, married puts and collars most frequently are applied to stocks. However, they also can be used with respect to ETF positions. Indeed, many investors who believe a market correction is in the near term future often are concerned with protecting their entire portfolio rather than just a handful of their holdings. Such investors have two main possible options, no pun intended, to consider: buy puts on a market index-based ETF, or simply buy shares in an inverse market index ETF. Either approach comes with tradeoffs that the investor needs to consider.


In the case of buying puts on a market based ETF, such as SPY, which tracks the S&P 500 index, or QQQ, which covers the NASDAQ 100 Index, an investor has most of the same tradeoffs as with puts on individual stocks. Of course, the ETF selected would be the one that comes closest to the overall nature of the stocks in the portfolio. Thus, downside protection for investors who choose this route is of wider scope and is likely to be more effective.


Portfolio protection obtained by buying index-based ETF puts also helps shield most or all of an investor's portfolio against corrections, since a correlation that only negatively impacts two high flyers is highly unlikely, even in a 12 stock portfolio. Buying married puts for only a small number of holdings is not apt to provide as much loss protection as buying index-based ETF puts provides. An ebbing market tide is going to drop most stocks in a portfolio, if not all, so index-based ETF put protection has the merit of providing protection to an entire portfolio, especially when the drop in a few high flyers is not as great as forecast, but the hit to the portfolio as a whole is significant.


Another approach to individual stock or portfolio protection is to short the stocks or conventional index-based ETFs of concern. An investor also can buy shares in an inverse ETF, essentially providing a shorting capability via ETFs specially constructed for this purpose.


The problem with shorting stocks or ETFs for most investors is a lack of familiarity with the shorting process and, most importantly, a lack of recognition that the price of a shorted stock or ETF theoretically can increase hundreds of times beyond its current price. While the actual risk of such a huge increase is very small, it can occur, so extreme caution with respect to shorting is advised. The risks of short selling are explained for beginning and intermediate investors in an Investopedia article. Keep in mind that shorting in the context of this article is discussed here for hedging purposes and not for purposes of gathering profits on a stock or ETF that isn't owned and for which a drop in share price is expected.


Actually, a more likely case is that a shorted stock or ETF will rise beyond an investor's expected forecast, thereby incurring a loss instead of protecting against one, as is the purpose of hedging. Essentially, an inverse ETF has the same risk profile as that of a shorted stock or ETF. The benefit of a short position is that no premium is paid and no time limitation exists, as is the case for puts. Buying shares in an inverse ETF also offers portfolio hedging, rather than specific position hedging, thereby protecting individual stocks, as well as mutual fund positions.


The negative aspect of hedging by going short is that theoretically your risk of loss is unlimited. Further, the risk of loss is accelerated if you buy leveraged inverse ETFs where a loss in the underlying ETF is multiplied by the amount of ETF leverage. A shorting approach to protection against market or individual positions is mentioned here for the sake of completeness, but is not recommended for careful, risk adverse investors.


Given that a hedging position can incur costs and may be premature or unnecessary, an investor would be prudent (and effective) in putting such a strategy in place only when a careful assessment of future market or individual holding positions warrants that action. Given all the tradeoffs involved, I like the collar best since it provides the desired downside protection, but with lower costs than those incurred by just buying puts, and it does so with reasonable risk.


Carefully consider what approach fits your knowledge and risk profiles and act accordingly. Also keep in mind that any hedging strategy can be paper traded in order to practice the various implementations discussed in this article. The Investopedia website offers a good explanation of paper trading. Check with your brokerage firm to learn about this virtual trading possibility, which lets you practice trading without any financial commitment.


Learn more about options and other technical topics from Saul and others at the 2014 InvestEd conference, June 6-8 in Irvine, California.


Saul is an InvestEd Inc. advisory director and a conference instructor. A former vice president for education of InvestEd, he teaches at local through national investor education events. With degrees in electrical engineering and law, Saul spent most of his career as a corporate attorney. In addition, he served as an adjunct professor at Albany Law School in New York.






Scheduling Email Messages

Sandy Gallemore


Have you had an email message pop up when you know the person or business sending it isn't at a computer right then? Do you wonder how you, too, can compose a message and send it at another time? Programs are available that let you compose a message that will arrive in someone's inbox on a certain day and even at a specific time. Simple add-ons let you compose now and send later.


Boomerang is a nifty email add-on that lets you schedule messages to go out at a time of your choice. This option lets you compose a message when the thought crosses your mind, even though sending it right then is not appropriate. Perhaps you are working on a reminder message to a group that needs to go out the following week. This program may be just the ticket. Boomerang is free for the basic plan, which allows 10 messages per month to be scheduled for sending later. The pro plan is $14.99 per month and allows unlimited messages each month.


The Boomerang add-on, which works with Google Chrome, Mozilla Firefox, and Safari, offers three main features or options. Send Later gives you the option to set the time and date for sending the email. As the composer of the email, you do not need to be online for the message to travel through cyberspace. Boomerang also offers you the option to use a Boomerang Reminder to help you remember to respond to an email you've read, but not yet answered. Response Tracking is the third main option. This feature helps you remember to follow up on an email you've sent that calls for a response. You specify the time frame in which you would like the response, and you receive notification if that does not happen. A demo of Boomerang is on YouTube. A Boomerang add-on for Microsoft Outlook is available.


Another scheduling application is RightInbox, a new tool for Gmail and Firefox (Outlook is on schedule to be added later) that lets you schedule emails for later delivery, receive notification when emails are opened by recipients, and set reminders to follow up with message conversations. Like Boomerang, RightInbox offers a free plan, along with paid versions for those who need more scheduling opportunities. The free plan lets users schedule 10 emails a month to be sent later, receive notification for 10 emails a month when they are opened by recipients, track 10 emails a month, and schedule 10 email follow up messages per month. Unlimited plans cost from $4.95 per month to $47.40 per year. Demos of this program may be found on YouTube.


Sandy is an InvestEd Inc. director and serves as secretary. She is lead editor and prepares the general program brochure for the InvestEd conference. Sandy, an O'Hara Award recipient, is a charter member and the current president of a local investment club. She has helped form investment clubs, presented introductory investing programs, and taught stock study classes at local and regional events. Sandy is professor emeritus, Georgia Southern University.



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