MARKET MAGIC REPORT issue III - 'What are your options'

When buying and selling stocks you need to decide whether you are a trader or an investor?

Traders work the stock market on a daily basis and it becomes a full time job, 9:30 to 4pm est.

Investors are in there trades for the long haul. This is were most of you will fall, and is a good way to play the market.

In fact, if during the last down turn in the stock market, you were able to just look the other way, you will soon be back to where you were before the down turn depending on which companies you were invested in. And should not be too much longer for the others.

Some of you might of made money with PUT options during the down time. A PUT option makes money when your stock falls in price. A CALL option makes money when the stock price goes up. Some traders buy and sell options instead of stock because they are much cheaper. Just a fraction of the stock price.

However, options are truly a different animal in the market. It is hard to loose all your money in stocks because they rarely go to zero. But options expire and can become worthless in a couple different ways.

Options cost a fraction of the stock price and are bought and sold in groups of 100 options per contract. Some options expire in a week, some expire in several years depending on which one you choose as there are many different options in options. No pun intended!

The safest way to use options is as a back-up for your stock in down times. An option can also be exercised, which means you buy the 100 shares of stock at the strike price you bought the option at. But more commonly the options are just sold for a profit or lose. But unlike most stock you can loose every penny you put into the trade.

It too MMP some time to become familiar with options so we do not expect you to completely understand them in one issue of MMP. So we will cover more of options later as there are several ways to play options. But the most practical way to use options is to protect the stock you own in your portfolio in down times.

The first thing you need to do is have an investment strategy. The MMP strategy is simple: 10% cash and savings, 20% commodity's, 20% options, 50% stocks. There are plenty of ways to play commodity's with commodity companies such as Canadian Natural Resources, US Steel, Alcoa are just a few and ones we gave you in the first issue of MMP.

Please feel free to ask MMP any questions you may have, or stocks you wish MMP to check on and give you an opinion on. But please also remember that we are just another tool for you to use and you should always check with your professional financial advisor before committing your money to a trade.