There is plenty of money in the stock market. However, not everyone can get money from there. Some people can make a lot of the scholarship, but some have lost a lot of money there. It is very doubtful. Sometimes it’s time, money, but the loss you after a few days, you can make a profit and is sometimes reversed. So how should we do to get money from the purse? Usually, there are two ways to get money on the stock market, investing and trading. The difference between trade and investment is trading involves buying and selling stocks, futures or options in a short time, while investment is buying stocks, futures and options and hold for a long time, usually a year or more before selling.

What is the difference between the share, future and option? What we know is that this option is much cheaper than the action and the future is generally ten times lower than the share price. So if you have an amount of money you need to purchase 100 units of shares, you can use this money to buy 1000 units option. And the return on investment is almost the same between the stock and options. Therefore, you will earn about ten times more if you buy an option rather than share or future. However, the downside is that if you lose on this trade, you lose almost tenfold also. When we trade option, the amount of money that we can take advantage and losing is almost as if the share of trade than we do. However, we need a lot of money to buy share, compared to buy option. This causes the percentage of profits and losses for the purchase of the option is much higher than the share. The example is like when you buy $ 10 for a unit share and $ 1 for a unit option. When the price falls to $ 0.10 share, lower percent for the purchase of shares is 1%, but for the purchase option, the loss is 10% per cent. Therefore, the percentage of profits and losses for the purchase of the option is huge compared to the purchase of shares, although share prices fluctuate in a small amount.

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An options strategy called covered call options is a prudent strategy to reduce risks and increase revenues for investing in stocks. In short, stock options are contracts you buy or sell the right to buy or sell. Although there are eight types of options contracts, we are interested here in low-risk “covered call.”

Here’s how it works: Say it’s August and you buy 300 shares of XYZ at a price of $ 48 per share. XYZ pays a quarterly dividend of 50 cents per share. Therefore, if the price never moves, you’ll earn 4.2% per year.

At the same time, you would participate in covered call options. To do this, you “write three Janvier 50 calls.” This means that you are selling (“writing”) the right for someone else to buy shares from you (they “call” it Away) between now and the third Friday of January to the price of $ 50. (all contracts expire the third Friday of each month.)

Each contract represents 100 shares, therefore, three contracts. Buyers will pay a fee (called “premium”) of $ 3.5 per share, or $ 1.050. (The premium is based on the amount of time until expiration, and the gap between current price and the exercise price, “in this case $ 50. Therefore, changes in premiums permanently. )

Assuming you have not canceled, only two things can happen: The contract will have exercised or it will expire worthless in January. Anyway, you keep $ 1,050. Clearly, this strategy can produce big rewards. Among the advantages are:

1. You are establishing a profitable selling price the day you buy the stock. If exercised, you are guaranteed a profit;

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Both short-term trading and long-term trading can be effective trading strategies, however, long-term trading has several important advantages. These include the effect of capitalization, the opportunity to earn dividends, reducing the impact of price fluctuations, the ability to make corrections more quickly, less time to monitor stocks.

1. Compounding

The time may be the best friend of the investor, because it gives the mixing time to work its magic. Compounding is the mathematical process where interest on your money in return earns interest and is added to your capital.

2. Dividends

With a stock to take advantage of dividend payments is another way to increase the value of an investment. Some companies offer the opportunity to reinvest dividends to buy additional shares thereby increasing the total value of your investment. In addition, dividends are more a reflection of the business strategy and overall business success that the volatile price fluctuations of the market based on emotions.

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Many discussions have been devoted towards finding fair value of an investment. The goal of all investors is to find undervalued investment and sell when it reaches fair value. Admittedly, this is the hardest part of investing. So what is fair value? The fair value is a point where the price of an investment reflects its earning capacity.

The fair value is relative and depends on other factors beyond the control of investors. Here we will discuss the calculation of fair value within our own border control. In short, the calculation of the fair value of an investment depends on the expected return and risk taken to obtain the statement. High risk needs higher reward. It is very simple.

So, what assets are low risk investments? We can only compare. The first thing that comes to mind is my certificate of deposit (CDs). You are guaranteed a certain return (interest rate), if you can hold in a time certain pre-determined. You never lose your capital at the end of the period.

Low-risk investments is the next Treasury Bond. It is the bond issued by the Government of the United States, which is considered the safest in the world. There are some risks associated with small fluctuations in bond prices. However, if you had the bond until maturity, you are guaranteed certain rate of return. Your rate of return depends to some extent on the price you bought the bond.

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