How To Invest Properly To Keep Your Business Growing

Often businesses need to invest in products for their company to help insure proper growth of the company. For instance, upgrading computer systems may cost a lot of funds however having access to better computer programs is an investment. Computer programs that are current can allow the company to track spending, manage inventory and process information. By upgrading the computer systems the company is improving and therefore investing in their future. 

Investing for a business can also mean investing in the customer. Every day the business strives to please their customers. By striving to gain and keep customers companies are using a form of investment. Investing in your customer is a key to a successful business. Without care and effort customers can easily leave and find another business to fit their needs. It is one of the challenging aspects of running a business, knowing when and how to properly invest in your customers. Some of the ways a business may invest in customers may be to strive hard through advertising. 

Advertising aggressively is a way to try and bring in more customers for a business. Another way companies invest in customers is by aiming to have the best service available. Businesses must try hard to create a service environment for their customers. Through insuring customers feel well cared for within the company regardless of the product or service sold can go a long ways towards pleasing the customer and therefore your investments.

Another key to investments in a company refers to capital versus dept. Like many individuals companies often have to borrow money in order to buy products or services to keep their business running well. Borrowing funds is a common practice for a business. The key however is insuring that the debt is kept well under the amount of capital a business has or produces. By reducing dept you are investing back into the business. Financing from banks is to be determined as short term or long term depending on the length of time need to repay the banking institution. 

Investing in your company is the only way your business can grow and profit. Through the investments in time, labor, customers or funds businesses are able to determine the amount of involvement and value of a company. Whether you are investing in your future is completely within the businesses control. Finding the best way to invest in the future of your business or company will insure long term success.

The Basics Of Option Price

Options are contracts that give option buyers the right to purchase or sell a security at a predetermined price on or before a specified day. They are most commonly used in the stock market but are also found in futures, commodity and forex markets. There are several types of options, including flexible exchange options, exotic options, as well as stock options you may receive from an employer as compensation, but for our purposes here, our discussion will focus on options related to the stock market and more specifically, their pricing. 

Who's Buying Options and Why?

A variety of investors use option contracts to hedge positions, as well as buy and sell stock, but many option investors are speculators. These speculators usually have no intention of exercising the option contract, which is to buy or sell the underlying stock. Instead, they hope to capture a move in the stock without paying a large sum of money. It is important to have an edge when buying options.

A common mistake some option investors make is buying in anticipation of a well-publicized event, like an earnings announcement or drug approval. Option markets are more efficient than many speculators realize. Investors, traders and market makers are usually aware of upcoming events and buy up option contracts, driving up the price, costing the investor more money. 

Changes in Intrinsic Value

When purchasing an option contract, the biggest driver of success is the stock's price movement. A call buyer needs the stock to rise, whereas a put buyer needs it to fall. The option's premium is made up of two parts: intrinsic value and extrinsic value. Intrinsic value is similar to home equity; it is how much of the premium's value is driven by the actual stock price.

For instance, we could own a call option on a stock that is currently trading at $49 per share. We will say that we own a call with a strike price of $45 and the option premium is $5. Because the stock is $4 more than the strike's price, then $4 of the $5 premium is intrinsic value (equity), which means that the remaining dollar is extrinsic value. We can also figure out how much we need the stock to move to profit by adding the price of the premium to the strike price (5 + 45 = 50). Our break-even point is $50, which means the stock must move above $50 before we can profit (not including commissions). 

Options with intrinsic value are said to be in the money (ITM) and options with no intrinsic value but are all extrinsic value are said to be out of the money (OTM). Options with more extrinsic value are less sensitive to the stock's price movement while options with a lot of intrinsic value are more in sync with the stock price. An option's sensitivity to the underlying stock's movement is called delta. A delta of 1.0 tells investors that the option will likely move dollar per dollar with the stock, whereas a delta of 0.6 means the option will move approximately 60 cents on the dollar. The delta for puts is represented as a negative number, which demonstrates the inverse relationship of the put compared to the stock movement. A put with a delta of -0.4 should raise 40 cents in value if the stock drops $1. 

Changes in Extrinsic Value

Extrinsic value is often referred to as time value, but that is only partially correct. It is also composed of implied volatility that fluctuates as demand for options fluctuates. There are also influences from interest rates and stock dividend changes.  However, interest rates and dividends are too small of an influence to worry about in this discussion, so we will focus on time value and implied volatility.

Time value is the portion of the premium above intrinsic value that an option buyer pays for the privilege of owning the contract for a certain period. Over time, this time value premium gets smaller as the option expiration date gets closer. The longer an option contract is, the more time premium an option buyer will pay for. The closer to expiration a contract becomes, the faster the time value melts. Time value is measured by the Greek letter theta. Option buyers need to have particularly efficient market timing because theta eats away at the premium whether it is profitable or not. Another common mistake option investors make is allowing a profitable trade to sit long enough that theta reduces the profits substantially. A clear exit strategy for being right or wrong should be set before buying an option.

Another major portion of extrinsic value is implied volatility – also known as vega to option investors. Vega will inflate the option premium, which is why well-known events like earnings or drug trials are often less profitable for option buyers than originally anticipated.  These are all reasons why an investor needs an edge in option buying. 

The Bottom Line

Options can be useful to hedge your risk or speculate since they give you the right, not obligation, to buy/sell a security at a predetermined price. The option premium is determined by intrinsic and extrinsic value. There are numerous ways to benefit from using option contracts.

Benefits of Trading Futures Online

The old days of calling your commodity broker to place a futures trades are fading. However, I believe there will always be a need for a full service commodity broker, but there are many advantages to using and online futures broker.

Reduced Commissions

The most obvious benefit to trading online has to be reduced commissions. This is especially true for large traders and those who trade frequently. Commission rates can sometimes be the difference between a profitable year or a losing year. Commission add up quickly and by trading online you can often slash your trading costs by 50 - 75 percent.

The typical online commission for trading futures is about $5 to $10. The electronic markets are cheaper than the pit-traded markets, but the savings are substantial. The full service broker charges about $40 to $70 per round turn trade. Of course, you have to factor in that the broker is making trading recommendations and a lot of work typically goes into that. There are also broker-assisted accounts where you essentially make the trading decisions but you can bounce ideas off a broker and receive help. The rates for this type of account are typically $15 to $20 for a round turn trade.

Online Futures Learning Curve

A good argument can be made that you will learn more about trading commodities online in the long run than you would under the guidance of a broker. The only reason I bring this up is that many commodity brokers are not good traders. All brokers can certainly help you with the basics, but you can easily learn those on your own. If you are fortunate enough to find an excellent broker who is a good trader, then it is a different story. The problem is that most commodity brokers don’t fall into that category.

One thing I like about trading online is that you take ownership of your own trading decisions. It is 100 percent your call on each trade. You cannot blame the broker for bad trade recommendations or timing. Believe it or not, this will benefit you as a trader in the long run. You will know exactly how well or poorly you are doing based 100 percent on your decisions. This is also a great motivator. Effort will be channeled into fixing your own problems instead of blaming someone else or being led astray by a broker.

There are many practice platforms for trading the futures markets online. Tradestation, for example, allows their clients to trade real time on their online platform or they can trade on the same platform in simulated mode. This allows traders to practice their trading strategies in a very real environment. Essentially, you can switch back and forth from real time mode to simulated mode.

Online Trade Execution

Speed is another factor that clearly benefits trading futures online. There is no questions that it is far quicker to click one button on your computer to place a trade that it is to pick up the phone and call your broker with a futures order. It might not be critical for those who trade with a long term timeframe, but it is for those trading for the quick move. Online trading also makes it much more easy to place and track a variety of resting order in the market such as one- cancel-other (OCO).

Online Broker and You

In reality, arguments can be made by those who support online trading and those who are against it. There are many obvious arguments for online futures trading, but it is all a matter of personal preference. If you are day trading futures, you almost have to trade online. If you are a long term trader, you might see the added benefits of using a full service broker.

My biggest problem, especially for new traders, is that they know virtually nothing about the markets and almost every broker will appear to be an expert to them. You almost have to become a good trader before you can spot a good trader. Most commodity brokers have a difficult time making money for their clients over the long run, especially since they have to cover the added cost of full service commission rates. Some brokers are able to do this, but most of them only accept very large accounts or they are no longer accepting new accounts.

In the end, the odds favor using an online futures broker if you plan on putting in the time and effort to become a commodities trader. You will certainly have to do your homework each day if you trade on your own. Trading is not easy and those who work the hardest and smartest make the most money.

Mutual Funds Basics

Once you've decided to invest in the stock market, mutual funds are an easy way to own stocks without worrying about choosing individual stocks. As an added bonus, you can find plenty of information on the Internet to help you learn about, study, select, and purchase them.

But what is a mutual fund? It's not complicated. A dictionary definition of a mutual fund might go something like this: a single portfolio of stocks, bonds, and/or cash managed by an investment company on behalf of many investors.

The investment company is responsible for the management of the fund, and it sells shares in the fund to individual investors. When you invest in a mutual fund, you become a part owner of a large investment portfolio, along with all the other shareholders of the fund. When you purchase shares, the fund manager invests your funds, along with the money contributed by the other shareholders.

Every day, the fund manager counts up the value of all the fund's holdings, figures out how many shares have been purchased by shareholders, and then calculates the Net Asset Value (NAV) of the mutual fund, the price of a single share of the fund on that day. If you want to buy shares, you just send the manager your money, and they will issue new shares for you at the most recent price. This routine is repeated every day on a never-ending basis, which is why mutual funds are sometimes known as "open-end funds."

If the fund manager is doing a good job, the NAV of the fund will usually get bigger -- your shares will be worth more.

But exactly how does a mutual fund's NAV increase? There are a couple of ways that a mutual fund can make money in its portfolio. (They're the same ways that your own portfolio of stocks, bonds, and cash can make money).

• A mutual fund can receive dividends from the stocks that it owns. Dividends are shares of corporate profits paid to the stockholders of public companies. The fund might have money in the bank that earns interest, or it might receive interest payments from bonds that it owns. These are all sources of income for the fund. Mutual funds are required to hand out (or "distribute") this income to shareholders. Usually they do this twice a year, in a move that's called an income distribution.
• At the end of the year, a fund makes another kind of distribution, this time from the profits they might make by selling stocks or bonds that have gone up in price. These profits are known as capital gains, and the act of passing them out is called a capital gains distribution.

Unfortunately, funds don't always make money. If the fund managers made some investments that didn't work out, selling some investments for less than the original purchase price, the fund manager may have some capital losses.

Everyone hates to have losses, and funds are no different. The good news is that these losses are subtracted from the fund's capital gains before the money is distributed to shareholders. If losses exceed gains, a fund manager can even pile up these losses and use them to offset future gains in the portfolio. That means that the fund won't pass out capital gains to shareholders until the fund had at least earned more in profits than it had lost. (Although you might want to reconsider your decision to remain invested in a fund that's losing money if the rest of the market is growing).