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Archive for the ‘Video’ Category

Investing in ETF Options: Perspective of a Trader

Posted by rantaboutit on March 17, 2007


I found an enlightening interview of a trader talk about investing in ETF options. Let us have a quick look at what ETFs and Options are before we move to the interview…

What are ETFs
A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange, thus experiencing price changes throughout the day as it is bought and sold.

What are Options
A privilege sold by one party to another that offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security at an agreed-upon price (strike price) during a certain period of time or on a specific date. Options are extremely versatile securities that can be used in many different ways. Traders use options to speculate, which is a relatively risky practice, while hedgers use options to reduce the risk of holding an asset.

Naked calls increase in value as the underlying stock increases in value. Likewise naked puts increase in value as the underlying stock decreases in value. Buying both a naked call and a naked put means that if the underlying stock moves up the call increases in value and likewise if the underlying stock moves down the put increases in value. The combined position can increase in value if the stock moves in either direction. The position loses money if the stock stays at the same price or within a range of the price when the position was established. This strategy is called a straddle. It is one of many options strategies that investors can employ. Options strategies can favor movements in the underlying stock that are bullish, bearish or neutral.

Taipan Financial News’ Smart Investing host Sandy Franks gets ETF trader Rick Pendergraft’s advice on profitable ETF investing.

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(Source: Wikipedia, Investopedia)

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Posted in Educational, Exchange Trade Funds, Investment, Options, Trading, Video | Leave a Comment »

Subprime Lenders: Screwed Real Bad

Posted by rantaboutit on March 15, 2007

Last few days the market is full of news about how the number of foreclosures are increasing around U.S. and how badly subprime lenders are screwed. I do not want to reiterate the same point again and again. Instead i will list a few interesting pointers/takeaways from this whole episode. But just before doing that for those who do not know what subprime is…
What is a subprime loan ?
This is a loan to someone with a bad credit history. These people pay higher interest rates, earning more money for lenders, so long as the mortgage payments keep coming.

Delinquencies & Foreclosures

  • The delinquency rate for one-to-four-family houses rose to 4.95% of all loans outstanding compared with 4.67% during the 3rd quarter. The North Central region had an overall delinquency rate of 5.68%, the South 5.71%, the Northeast 4.59% and the West 3.18%.
  • A record high number of homeowners faced a serious threat of foreclosure during the 4th quarter of 2006. Foreclosures were highest in the North Central region, at 2.02%. The rate in the Northeast was 1.16%, the South was 1.08% and the West just 0.63%.
Subprime Issues
  • 7.78% of nearly 6 million subprime loans were seriously delinquent, since many borrowers have difficulty making payments when home price appreciation fades and interest rates on their adjustable-rate loans jump up from their original low teaser rates.
  • At least 20 lenders in the subprime mortgage sector have gone out of business.
  • Total subprime mortgages outstanding amount is about $1.3 trillion, of which $700 billion are held by private asset-backed securities issuers.
Stock Market Saga
  • Homebuilders like D.R. Horton (DHI), Toll Brothers (TOL) and Pulte Homes (PHM) have cut the number of new homes built, but a large supply of existing homes is also forcing them to reduce prices or offer incentives. DHI, TOL & PHM stocks lost -14.4%, -12.2% & -20.1% respectively in the last 3-months.
  • Countrywide Financial Corp (CFC) the largest U.S. mortgage lender, told its brokers to stop offering borrowers the option of a no-money-down home loan. CFC stocks sank -16% in the last 3-months.
  • No. 2 subprime lender New Century Financial (NEW) warned that it faces $8.4 billion in loan repayment obligations. Its shares had already been badly battered over the last month on rising concerns of a possible bankruptcy filing. 1-year return was -95.81%.
  • Other subprime lenders like Accredited Home Lenders Holding Co. (LEND) and Fremont General Corp. (FMT) are facing a major meltdown at the stock market too. FMT, have cited mortgage fraud, along with the softer housing market and loose underwriting standards, as contributing to a rapid run-up in delinquencies. FMT said it would exit the subprime business amid regulatory pressure, and severed relationships with 8,000 brokers.
Few More Facts
  • The FBI is seeking to stem a rising tide of crime in home financing. They warned borrowers and lenders that mortgage fraud can result in stiff fines and prison time.
  • Late payments for residential mortgages shot up by 15.6% in the fourth quarter.
  • National inventory is 20% higher than last year, vacancy rates have soared and prices are down about 3%. With tighter credit, prices might fall another 5-7 %.
  • Even though the housing market has slowed down, the U.S. economy and job market has held solid.
  • Housing meltdown is bad news for investors in U.S. residential mortgage-backed securities.
Check Out The Video

So who is at fault. The lenders or the borrowers ?
Taking a loan is a give and take relation. The lenders were stupid/greedy to loan out an amount they knew borrowers could not afford. Lenders had all the information (W2, credit score, paystubs) they needed to make the right decision. The borrowers were stupid/naive to not understand their own financial strength. Borrowers made decisions without weighing all the possibilities and got burned out. Both are at fault.

Conclusion: Subprime lenders are already slaughtered, but what remains to see is how will rising mortgage delinquencies affect home prices overall ?

Recommended Books:

(Source: CNN Money)

Posted in Mortgage, Real Estate, Video | 1 Comment »

Is Emerging Market Craze Over ?

Posted by rantaboutit on February 21, 2007

For years, investors shunned emerging markets stock funds, which have historically been regarded as some of the riskiest investments around. Over the past decade, emerging markets stock funds have attracted just $4 billion a year on average, while domestic stock funds have pulled in more than $108 billion annually

But all that has changed in the past two years. Emerging markets stock funds have posted eye-popping gains of around 32% a year since 2005 and attracted investor interest, drawing in around $14 billion of new money annually. Last year, they took in more new money than domestic stock portfolios did.

Investing Outside the U.S.
Why you should put a portion of your portfolio in international stocks ? View this video…

More on what analyst have to say about Global Emerging Markets

And finally check out the 3 International Stock Picks

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  2. The Short View: Emerging Markets
  3. The Lure of Emerging Markets

Posted in Emerging Markets, Video | Leave a Comment »