Posted by Martin August 31, 2015
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Buy and hold, sell? Well buy more! How to deal with China Crisis

The futures are down big and Tuesday opening will be another rout as many investors will rush to exit selling their stocks.

If you are one of them, you are making a big mistake.

As I wrote some time ago, you always need to have a plan and remember your trading strategy, but most importantly have your time horizon on mind when rushing towards exit.

If you have 20 or more years ahead there is absolutely no reason for panicking and selling any of your stocks. There is also no need to reducing your contributions to your 401k retirement account or moving it into cash.

A lot of investors are now nervous fearing that we will be repeating 2008 collapse and they panic. But if you didn’t sell your stocks three weeks ago, it is already too late selling now and you will be selling low. And maybe a few days or weeks later you will end up buying back high.

Unfortunately this is what majority if investors or even traders end up doing. Sad.

It takes a lot of guts to act contrarian in times like this when everything is falling apart around you and talking heads are predicting the end of the world. But that is something, you really want to learn! You want to learn ignoring gut wrenching behavior sitting in front of your computer screen, following every move, get emotional and actually learn to act the right opposite.

It is a long lived market cliché, but it works. When all is red out there, when all people panic out there you want to be buying.

You may have heard that this time it is different and that buying this dip will not work.

It is not different. People are same as they were many years ago and their behavior is always the same. And it is people who participate, behave, and panic in the markets. And so you do not want to get influenced by the crowd hysteria and stay above the herd.

In times like those we are undergoing always look back and see what happened in the past.

In 2008, or 2003, or 1987, the markets collapsed. Yes, it was painful. But how those collapses correlated to your investment strategy and time horizon?

In 2008 the market collapsed from 1500 level (SPX) down to 600 level. Then it took about two years to recover all losses. Two years! And if you were buying dividend stocks, for example, you actually doubled or tripled your money as of today.

If an average collapse and recovery take about two to three years, what is it compared to your 20 year time horizon you have available? And if you do not have that time, you probably do not have such big exposure to the stocks anyway.

Panicking in this market is irrational and wrong. If you are about to do it, you will lose money big way. Instead, calm down, review your available cash (you have some free cash, right?) and start buying some good stocks. But do not use all of your available cash. Buy small, step by step. For example, make a rule that you would buy a small position every Tuesday. Or buy anytime your selected stock drops by a certain percent. You will see, how beneficial your investing will be.

Good luck!


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Posted by Kristen August 26, 2015
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Credit Not Money Rules Today’s Global Markets

Money may not rule the world, but today’s news headlines would have us all believe that credit does. After a glum day for global markets on Monday, China stocks tumbled an additional seven percent Tuesday morning.

Chinese markets are in bear territory. The Chinese stock market has been on a roller coaster ride for the past two months which has experts asking “what is going on in Shanghai?” Stalled Beijing construction projects, depressed auto sales, global economic problems since 2007, all have played a small part in the Chinese market adjustment. Should other world economies be concerned?

Imbalances can’t go on forever, right? If you are Greece, you might answer “yes.” The Greek Economy Minister Giorgos Saatsakis announced a few months ago that Greece would default on its payment to the IMF. The IMF International Monetary Fund loaned Greece over $264 billion at today’s exchange rates after the 2008 market crisis. Greece, Europe’s epicenter of debt, continues to operate their economy using an astounding sleight-of-hand. While the bailout money was intended to pay down Greece’s international debt, the Syriza party did not use it in this manner. Instead, they promised their citizens that they would renegotiate new bailout terms. Why pay a creditor when you don’t want to? An excuse was needed of course. Greece opened up their hands and asked fellow Euro countries to give them more money for what they now refer to as a charity for their “humanitarian crisis.”

The Western half of the globe also runs on credit instead of money. While the United States has been preaching that China’s undervalued currency was in need of an adjustment, China’s response was to gobble up U.S. Treasury bills to strengthen their dollar. While the rest of the world singles out the huge American fiscal and trade deficits and blames this situation on global economic instability, other countries have been procuring American debt.

According to the CIA Fact Book, Luxembourg owns $144.7 billion in U.S. debt. Luxembourg offers tax-free banking to all. Of course, it has become a banking ally of many global companies including Apple. It is well known that Apple’s proceeds from Itunes downloads are funneled through Luxemburg banks to avoid U.S. taxes. Now Luxembourg is beginning to battle its market problems.
Let’s not overlook Belgium, who also has purchased a large share of American Treasury Bonds and other U.S. debt. A nation of bankers, Belgium’s government, has been shrewd in offering superior tax breaks for foreign companies, kept under a veiled secrecy.

There are other ways to own U.S. debt. Russia has been successful in converting oil exports into U.S. Treasury bonds, and Brazil has followed suit.Here is where our story comes full circle. While most countries have not invested in China, Brazil has invested heavily in Chinese markets. China imports massive amounts of raw materials like iron ore and crude oil from Brazil. While Brazil’s political problems are making headlines this week, Brazil’s economy has been struggling the past twelve months. The Bovespa stock index has dropped 21 percent and the Brazilian commodity index has declined. The devaluation of China’s currency will make matters worse for Brazil.

With weak growth in emerging markets, and decent growth in America and Europe the Fed is destined to raise rates. This is bad news for struggling countries with growth numbers. China is creating the drag and plunging their trading partners with them. It used to be that money made the world go round, but today it is credit that keeps the global market turning.


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Posted by Martin August 24, 2015
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China stocks plunge but other Asian markets hold on


(CNN Money) The benchmark Shanghai Composite was about 5% lower in morning trading. Losses were sharper on China’s smaller Shenzhen Composite, which shed 6%.

The Shanghai Composite has now declined 42% from its June 12 peak, erasing all gains year to date.

Markets were faring better elsewhere in Asia. After starting the day in the red, Japan’s Nikkei, Australia’s ASX All Ordinaries and Seoul’s KOSPI Composite were all in positive territory.

Turbulence in Asia comes after a very rough Monday for U.S. stocks. Following an unprecedented 1,000-point decline at the open on Monday, the Dow closed with a loss of nearly 600 points.

Three factors continue to weigh on markets:

1. Concerns that China’s economy is slowing faster than analysts had anticipated.

2. Uncertainty over when the U.S. Federal Reserve will raise its benchmark interest rate.

3. The effect of exceedingly cheap oil — crude is now trading below $40, its lowest point in more than six years.

The focus on China has increased in recent days, especially after a key manufacturing index hit a 77-month low.

But many economists say global investors are overreacting to China’s economic risks.

“The collapse of the equity bubble tells us next to nothing about the state of China’s economy,” said Mark Williams, chief Asia economist at Capital Economics. “In fact, recent data have been more positive than the headlines might suggest, with large parts of the economy still looking strong.”


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Remember your objective, your goal, your plan, and hold tight

As expected markets were even worse on Monday than on Friday. It was scary, but there is no need to panic. Ignore all bears who are coming out of all directions screaming that this is it, this is the end, and this is the beginning of an even bigger crash! It is not.

I can make a bet with you that 6 months from now nobody will remember this crash anymore.

A bear market looks different than this. If you want to see a bear market, take the current chart from 2009 up to today and turn it upside down.


That is the bear market! What we have just experienced is not a bear market. It is just a panic overreaction and robots trading bad news providing huge selloffs without any fundamental and technical reasons.

We saw a bad news coming from China and algos (robots) started selling sparking more selling from institutions and retail investors freaking out full of fear and panic.

But, you should not panic. Ride this down, buy more shares and sit tight. Unless you see a chart like the one above, you do not have to worry. Soon you will ride this back up.

Just remember your objective and your plan. Remember your time horizon. Are you investing for a few days, months or for the next 20 years?

If you are in the market for the next 20 years, this sell off is just a blip and ignore it. But moreover, buy more shares!


I know, it is difficult to be buying when everyone around you is scared, selling, screaming, and predicting more doom. But remember your time horizon.

Do you remember 2008 year? The markets erased 50% of its value. It is said that 401k plans lost 60% those days!

And year later the markets were already creating new highs.

We are down only 14.5% from all-time highs. I bet you that in the next 6 months all this frenzy will be forgotten.

So, sit tight, buy more shares and ride this panic.

And if you are a trader? If you are a good trader, you were probably out last week.

Don’t panic, be happy!


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Posted by Martin August 23, 2015
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Rout set to continue on Monday but do not panic

I have two news for you, one bad and one good. The selloff is going to continue on Monday as futures are already down another 2.5% as of now; yes it may change by the end of the night and we may open higher and see a V shape recovery, but as of now, it doesn’t look much like that’s would be the case.

The good news is that this creates a great opportunity for buying more stocks for cheap.
Just do not panic!

SPX selloff

See the third large red candle? That’s tonight futures! Nasty right?

Is this the time of the end of the world?

I do not think so, but if you are scared, go ahead and sell your stocks. I am holding tight and wait for this rout to end. Then I will start adding more shares to my dividend positions.

But what about options positions?

Well, this is unfortunate and we have to close a few. These moves are very wild, huge steep, and fast. Unfortunately I do not have an effective defense for such moves and the best thing to do is to close all endangered positions and move on.

The good news here is that routs like this typically do not last long and even this week, we may see a recovery (at least partial one).

If you put this move into a perspective of previous sell offs, you will see how extraordinary this one is:


It took the market almost 2 months to lose the first 10% of value (from 10/08/2007 to 11/19/2008 when market dropped from 1582 all-time high to 1420; 162 points)

It took the market 6 months to lose the first 20% of value (from 10/08/2007 to 3/17/2008 when market dropped from 1582 all-time high to 1260, 322 points)

Of course after a few bounces the market went all the way down to $660 level


It took the market 2 months to lose 10% of value (from 04/19/2010 to 06/28/2010 when market dropped from 1220 to 1008; 212 points)


It took the market 2 months to lose 25% of value (from 07/11/2011 to 09/28/2010 when market dropped from 1354 to 1003, 351 points)


It took the market 2 and a half months to lose 10% of value (from 03/26/2012 to 06/04/2012 when market dropped from 1418 to 1268, 152 points)


It took the market 1 month to lose 10% of value (from 09/15/2014 to 10/13/2014 when market dropped from 2018 to 1819, 199 points)

And what do we have today?

Today, the market lost a whopping 185 points (8.80%) in 5 days.

Let me repeat it – 185 points or 8.80% in F I V E days!

Can you see what fear and panic this is? And how irrational it is? I see it that all this China mess is an overreaction and maybe an excuse for a correction everybody was waiting for. But is it a justified sell off? As a trader named Jani put it, I believe, it is not:

To be perfectly honest, the US economy is extraordinarily self-absorbed. Seventy percent of our GDP is service based and we run a gigantic trade deficit. Does that sound like an economy dependent on global growth? Lower energy and commodity prices, cheaper junk at Walmart; what does that mean for our economy? It means consumers will have more money left to spend on massages, vacations, and bathroom remodels. Should we be worried about our economy? Not really.

Obviously the China story will affect companies like AAPL and TSLA that have huge Chinese growth premiums built into their stock price. But these are the exception in the S&P500, not the rule. While the pessimists are concerned about plunging energy sector profits, we know American consumers are lousy savers and without a doubt the dollars saved on energy will find their way into other sectors of the economy. That’s bad for energy shareholders, but it is a net neutral for our economy since one loss is offset by another gain. Jani, The Cracked Market

Pullbacks happen. It is inevitable. You will see many bears now coming out and telling you “we told you so”. Many will predict even worse outcome and more selling and more disaster and the end of the stock market.

If you are scared, I have yet another perspective for you.


I borrowed the picture from Roadmap2retire investor who published it on his blog. If you look at the market capitalization of China who wants us to believe that crashing Chinese market could crash the US market? This is exactly what Jani said about the US market above.

So, if you are scared and plan on dumping your stocks, funds, options, do not do it. It is not worth it. The only exception is with options if you have expiration near and want to protect yourself, then yes, close the trade, or if your retirement starts next week and you will need money next week. Otherwise, it is not worth it either.

And there is one more thing I have for you to think we are probably at the end of the party.

The SPX futures are down 2.5% at 1925 as of this writing. If the market opens down at 1925 on Monday morning, it will be a big gap down opening. I think the market will have the tendency to close that gap, so although Monday will still be a down day, we may actually see a green candle or the beginning of a new rally. Will it last? I do not know. Will it even happen? I do not know either. But it gives me a hope that this rout may be finally over and I will not be required to close more trades with losses and the new trades offset those I already have to close.

So good luck and pick up that treasure in the market now, there is a plenty of stocks for great price and plenty of volatility to sell!


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Investing for A Good Cause: Breast Biopsy Space

If the thought of contributing to a meaningful cause through an investment, and profiting from that move appeals to you, consider one of these medical device publicly-traded companies.

Striving to make strides in the area of breast biopsies, these companies have shown an intense goal of addressing one of the world’s most deadliest cancers – breast cancer. Their research and development efforts have led to advanced medical devices that are used at the most crucial stage of addressing breast cancer – the biopsy.

In this piece, we will look at three of the medical device companies that have made devices that contributing to the early detection of breast cancer through biopsies. They are Becton, Dickinson and Company (NYSE: BDX), C.R. Bard (NYSE: BCR) and Hologic. (NASDAQ: HOLX).

 · Breast biopsy market

Markets and Markets last month published a research report in which it found that the breast biopsy market could reach almost $730 million by 2020. This year, 2015, the market is estimated to be roughly $436 million. That kind of growth translates to a compound average growth rate of 10.8% from 2015 to 2020. The report, “Breast Biopsy Market by Product (Table, Needle, Localization wire, Guidance System), by Type (Open Biopsy- Excisional, Incisional, Needle- Core Needle Aspiration, Vacuum Assisted) & by Guidance system (Ultrasound, Stereotactic, MRI) – Forecast to 2020.”

Anyone, female or male, with a suspicious breast growth, abnormality detected on imaging study, or other symptoms of breast cancer should undergo a biopsy, notes Medicinenet.com.

 · Becton, Dickinson and Company

This medical device company makes the needles used in breast biopsies. It dibbles in many other areas, which leads to its roughly $31 billion market cap. Of the three medical device companies featured in this piece, its market cap is the largest.

Barron’s describes Becton Dickinson as a prize for investors because of its stable, predictable financial results. It has enjoyed at least 40 straight years of increasing its dividend, which is currently $2.40, yielding 1.6%.

Closing at $148.27 on Monday, Becton, Dickinson is within reach of its 52-week high of $154.98.

 · C.R. Bard

C.R. Bard boasts several breast biopsy products. They include a system aimed at delivering quality samples-even in the most difficult locations within the breast. Another of its systems is deemed the only self-contained, vacuum-assisted, single insertion, multiple sample, ultrasound-guided, breast biopsy system that aids in the utmost control of the biopsy.

When it reported its earnings for the second quarter of this year, officials highlighted that its biopsy family of products grew 11%, driven by more than 40% growth in emerging markets.



“Biopsy is one of our more global product lines in the portfolio, with approximately 60% of our sales coming from outside the United States,” said John Weiland, the company’s president and chief operating officer.

On Monday, the stock closed just shy of $200, and it is closing in on its 52-week high of $202.47, which it hit during the first week of August.

With a market cap of $14 billion and gross margins of roughly 62%, the stock is a strong investment opportunity.

 · Hologic

Hologic specializes in providing medical devices to women in the U.S. and internationally. It operates in four segments, with one of those being breast health. The Breast Health segment provides breast imaging and related products and accessories, including digital and film-based mammography systems; computer-aided detection (CAD) for mammography; invasive breast biopsy devices; breast biopsy site markers; breast biopsy guidance systems; and breast brachytherapy products. This segment also offers Dimensions platform, a mammography gantry for 2D and 3D image acquisition and display; C-View that provides a 2D image; breast MRI coils and workstations; and photoconductor coatings.

Hologic has a market cap of about $12 billion. It also just broke its 52-week high, closing on Monday at $42.99. Part of the reason its stock has been on a tear stems from its 3D mammography systems. Called Genious 3D, the system replaces traditional 2D systems. The company sees multiple growth opportunities – not to mention multibillions of dollars in revenues – for its 3D system. It says that it’s only penetrated about 20% of the market, leaving 80% of it to be converted over into its 3D system.

 · In summary

The very important area of breast cancer research and development projects demands companies like those featured in this piece. As noted, the biopsy is credited with being key in detecting breast cancer early, and increasing survival rates. Watch the companies in this post closely, especially since they are approaching their 52-week highs. I see them continuing on their positive runs, and there is room for them to continue to move higher as they penetrate the breast biopsy market.


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Posted by TwillyD August 12, 2015
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Equity vs. Debt in Real Estate Crowdfunding Investments

Few would question that investing in real estate can be very lucrative. Look no further than Donald Trump who has been running away with news headlines since he announced plans to run for president of the United States. The real estate mogul boasts funding his campaign with money he earned through his real estate holdings.

You may not become as rich as Trump through real estate investing, but new doors have been opened to so-called average investors that can help you tap into this profitable market. An act that became effective in 2013 provides for crowdfunding, and it paved the way for developers to raise investment capital from what had been an untouchable market – average, unaccredited investors.

If it interests you, it is imperative that you first understand the offerings the developer has available for you to get in on the project. The offerings are usually equity or debt.



In this piece, we will examine these two types of strategies, looking at the pros and cons of each. Also, we will provide you with the basics of how to get into this area of investment.

 · Some history

Before we get into equity versus debt offerings as they relate to real estate crowdfunding, let’s look at some of the history. As part of the 2012 JOBS Act (Jumpstart Our Business Startup), Congress created an exemption to permit securities-based crowdfunding. The intent was to help alleviate the funding gap and accompanying regulatory concerns faced by startups and small businesses in connection with raising capital in relatively low dollar amounts, according to the Securities and Exchange Commission.

From the 2012 JOBS Act came many measures aimed at loosening the reigns that had kept non-accredited investors from investing in areas like real estate.

Chance Barnett, the chief executive officer for Crowdfunder, was one of plenty of supporters for the measures spawn from the JOBS Act. His company connects startups that need funding with investors. He told VentureBeat that for the past 80 years, startups and small businesses in the U.S. had been prohibited by law to solicit the public for investment capital.

 · Risk Tolerance vs. Investment Goals

By their very nature, debt instruments offer less risk than equity investments because there isn’t as much volatility as there is with stocks. This means that the typical debt obligation is more stable than a stock. Debt obligations usually consist of stable issuers, such as mortgage companies, and those investments are secured by real estate collateral. Research shows that the bond and mortgage market have historically experienced fewer price changes than stocks.

As with most investment decisions, investors must determine how much risk they are willing to tolerate before deciding between equity and debt crowdfunding for real estate projects. If the thought of the project facing major hurdles, such as clearances to be built, make you anxious, this kind of investing may not be right for you.

Zacks goes a step further and points out that just as important in deciding between debt instruments and equity investments are your investment goals:

Your investing targets may favor equity investments if you’re seeking striking growth or profit potential. Conversely, you might focus on debt instruments when you prefer consistent income and less risk. Tailor your investment actions to match your objectives and risk tolerance.

Equity investments typically carry high risks, thus the potential return on investing in them is high. On that same note, borrowing, or investing in debt instruments typically carry low risks, and the return on that investment is low. The type of offering (debt or equity) dictates the position you would hold as an investor.

 · Real estate opportunities created

The onus is on the real estate developer, or sponsor, to determine how to fund a project. When it comes to crowdfunding, the decision boils down to selling securities in the project through a debt or equity offering, notes EarlyShares, an online real estate crowdfunding portal.

Depending on their needs and the specifics of a given project, a real estate developer or sponsor may “crowdfund” a portion of the capital stack by selling securities in the project to investors through a debt or equity offering.

 · Use of Crowdfunding Portals

Also thanks to the JOBS Act of 2012, investors are able to browse online real estate crowdfunding portals to find investment opportunities This is the first time investors can take advantage of this kind of service, which includes being able to compare properties, and make “return driven investments, notes EarlyShares, which hosts one of the many online portals. According to its website, interested parties can make investments for as little as $5,000, without relying on their networks for referrals or paying high fees to intermediaries.

PeerRealty is another example of an online portal that is making it easier for individuals to get into real estate crowdfunding. By using its real estate crowdfunding portals (or others that are similar), the company says accredited investors can buy shares in, or lend money to, private real estate projects and properties via real estate crowdfunding portals like PeerRealty. Debt crowdfunding will appeal to investors desiring fixed returns and reduced risk. Those who prefer equity crowdfunding seek the possibility of higher returns, albeit with greater risk. With a minimum investment of $5,000 for some deals on the PeerRealty platform, crowdfunding investors don’t have to be real estate moguls to invest like them.

 · With all that being said…

Traditional investors who had been unable to invest in real estate because they lacked the investor savvy or wealth, found themselves locked out of what is a lucrative market. Now they can play the real estate market like Donald Trump, and other moguls.



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Posted by Martin August 11, 2015


A Stunned Wall Street Reacts To China’s Currency Devaluation

WS Tyler Durden: There is much stunned confusion among Wall Street’s “best and brightest” following China’s historic Yuan devaluation overnight which was predicted by exactly zero of said best and brightest, just like nobody expected the SNB to give up its own peg to the EUR in January.


The problem as the WSJ puts it, is that a devaluation for China is both good, and very bad. Good because it will help the struggling export sector, which has stalled amid weak global demand. Exports in July, for example, sank more than 8% and they were down nearly 1% for the first seven months of the year.

At the same time, it was essential for the People’s Bank of China not to alarm domestic and foreign investors to avoid triggering a wave of capital outflows. Investors tend to dump a weakening currency and move their assets into other currencies. Thus, the PBOC said the move was a one-time reform effort to bring the yuan more in line with the markets.

That, of course, is a lie: the Fed’s first QE was a “one-time” abnormal monetary intervention which has since become the de facto standard of every single central bank.

Finally, the central bank may also have had the International Monetary Fund in its sights. The yuan is up for possible inclusion in international agency’s Special Drawing Rights, a basket of currencies that serves as a global reserve. Too big a move might have damaged Beijing’s case that the yuan is a suitable candidate for addition to that basket of currencies, analysts said.

To show the many different and often opposing views, here is a summary of sellside views compiled by Zero Hedge and the WSJ:


The PBOC adjusted the CNY fixing mechanism, which prompted a step weakening in today’s fixing. From now on, FX market makers are asked to base their contribution to CNY fixing on: i) the closing FX rate in the previous day, ii) CNY supply-demand conditions, and iii) the movements of other major currencies. While public comments suggest this could be a one-off move, in our view it increases the uncertainty around the future path of the CNY, especially if closing FX rate significantly deviates from the fixing. In our view, the market’s previous expectations for a fairly stable CNY have seemingly been de-anchored by the surprising move today. Although information at this stage is limited, our current expectation is that the PBOC will likely use open market FX operations to try to reduce sharp volatilities and avoid further destabilizing the market’s CNY expectations in coming days. – MK Tang, Goldman Sachs


The People’s Bank of China shocked the market today by weakening the yuan reference rate in the largest single-day depreciation since the central bank’s exchange rate reform on July 21, 2005. The PBOC statement interprets the depreciation as a one-off adjustment to fix the persistent discrepancy between the reference rate and the actual spot rate in the market. Since June, the yuan/dollar spot has been consistently about 1.5% higher than the daily fixing. The PBOC statement said that today’s adjustment will fix the discrepancy, and going forward daily fixing will align more closely with the closing spot rate on the previous day. The strong appreciation of the yuan has put a lot of pressure on China’s exports. It is unlikely that China will achieve the 6% trade growth target set for this year. Today’s announcement is also a response to weakening currencies around the Asian region.- Haibin Zhu, JPMorgan


The PBOC was hitting two birds with one stone: The PBOC’s move will lead to a weaker yuan, lending support to export growth. It will also make the yuan exchange rate more market-determined, which could help China at the upcoming Special Drawing Rights review in November. In the past, one major problem with the yuan exchange rate setting was too much emphasis on its stability against the U.S. dollar while neglecting [trends in] other currencies. In the past 12 months, the yuan appreciated by 23% against the euro and 17% against the yen. As a result, so far this year, China’s exports to the EU and Japan are down 4% and 11% year on year. Today’s change should mitigate the problem. –Larry Hu, Macquarie Securities

We believe the unexpected devaluation today is more about the Special Drawing Rights bid rather than an intention to support exports. Tomorrow’s fixing will be the key to test whether this devaluation of fixing is one-off event or a start of new fixing system. Our best guess is that it may be a one-off adjustment. Should it prove to be a one-off event, we think a combination of a widening of the yuan’s daily trading band and a cut in the bank reserve requirement ratio is likely to be the next policy option to increase the yuan’s flexibility. In the near term,
we may see more volatility ahead.




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Stock Splits: How You Can Benefit As An Investor

With awe, I’ve watched stocks soar to highs that were once deemed impossible by some market players. Companies whose share prices are well over $500 are those that may be considered ripe to split their stocks.

Stock splits can be advantageous to investors, as well as to companies.

In this piece, I will discuss these advantages, in terms of the pros and cons of stock splits. I’ll also provide you with five companies that I think should consider splitting their stocks.

 · Stock splits explained

Before we get into the nitty gritty details of profiting from stock splits, let’s make sure we clearly understand what stock splits entail. Simply put, stock splits entail a company’s board of directors voting to increase a company’s float, or outstanding shares, by issuing more of them to current shareholders. The shareholders may also vote to approve a stock split.



Investopedia gives this spot on example:

In a 2:1 stock split, every shareholder with one stock is given an additional share. So, if a company had 10 million shares outstanding before the split, it will have 20 million shares outstanding after a 2:1 split. (Investopedia.com)

The ratios can be of any structure, although the most common are 2:1, and 3:1. So in a 2:1 or 3:1 split, the shareholder will have two or three shares, respectively, for every share held earlier.

Back in 2010, the world’s most expensive stock, Berkshire Hathaway (NYSE: BRK-B), had a 50:1 stock split for its Class B shares. Back then, it was trading around $3,500. Those who got in on Warren Buffet’s company after the split were able to buy in for around $70 a share.

To put that in perspective, consider this. They were able to buy a share in the world’s most expensive stock to own for the same price as buying a share in Panera Bread (NYSE: PNRA) back then!

 · The makings of a good stock split

The most important thing you must look at if you are considering whether to buy in to a stock split is the company’s stock price. Companies whose stock prices have soared so high that they are out of reach for the normal investor, like the four-digit per share Berkshire Hathaway, splits are ideal.

When Netflix (NASDAQ: NFLX) split earlier this summer, it said in regulatory filings that by issuing new stock it would have better flexibility for dividends, equity financing, and acquisitions. So companies following this strategy should make for good choices.

 · What’s in a stock split for you

Just as the stock split will decrease the stock’s price, it can also boost the price. That’s due to investors who had not been able to afford the stock before the split anteing up for a piece of the pie. Observers also note that an increase may have been already anticipated by investors because a company’s share price has already been on a tear. The demand to own the stock may increase as believers cling to the notion that the price will continue to rise.



Because stock splits create a larger number of shareholders, there is a theory that a company could be protected from government regulations.

Also keep in mind that an increase in the size of the float could create more liquidity for the stock. Many observers believe this could ease trading and even cause thee bid-ask spread to narrow.

 · Stock split cons

Stock splits can be disappointing to say the least if the value of the company falls. If a company splits its stock and then the value of the company itself falls, the shares may fall below this requirement and be delisted from NASDAQ or the New York Stock Exchange.

Also, remember that a stock split does not directly affect the company’s value.

 · Stocks that should split

Now that we’ve gotten those nitty, gritty details out of the way, let’s look at five of the companies I think are ripe for splitting – their stocks.


Company Name Price p/share as of 8/7/15
AutoZone (NYSE: AZO) $704
NVR (NYSE: NVR) $1472
Chipotle (NYSE: CMG) $749
Priceline (NYSE: PCLN) $1317
Intuitive Surgical (NYSE: ISRG) $533


As one of the largest aftermarket, auto parts retailers, AutoZone has more than 5,000 retail stores. In 2010, the stock was trading at just about $47 a share. Now, five years later, it trades at $700, with few dips as it climbed.

NVR Inc. managed to survive the housing collapse of 2008, and continue to break new highs. In addition to building homes, the company also provides mortgages. NVR boasts building almost 365,000 houses in the U.S., and it shows no sign of slowing down.

I remain completely in awe of Chipotle. Who would have thought that a Mexican fast-food restaurant chain would demand a share price way above that of consumer household name McDonald! McDonald’s trades around $98 a share.

Naysayers of Chipotle say that it is extremely overvalued. That makes for one of the cases for why it should split its stock.

Priceline also baffles me. It remained a strong choice among investors even when consumers traveled less during the economic slowdown. The “Priceline negotiator” seems to truly be paying off for the company.

Intuitive Surgical makes robotic surgical systems, and has seen its share price soar since it IPO’d in 2000. According to Zacks, over the course of July, the stock moved higher by almost 13%. It’s also moved above its 20-day single moving average. The stock is seen continuing to its run for a little longer by Zacks, which states, “this isn’t the top for the in-focus company.”



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How you can start trading SPX Iron Condors

I started trading my new strategy some time ago and my options ladder is already fully developed (meaning that now I have expiration every week and widening my spreads). If you’ve just subscribed to my newsletter, considering mirroring this strategy, and start trading it, this post is meant to help you as the newsletter may differ from what you can afford to trade.

This post will be about money and trade management to allow you jumping in our moving money making train or even jump ahead of us.

In this post I will show you how to find out how wide spread you can trade and how to adjust the trade idea from our newsletter.

 · First, determine how wide spread you can trade

This is quite easy. Take the total amount you can or you want to trade, divide it by seven, then divide the result by 100 to find out how wide spread you can trade.

For example, you have $5,000 available to trade. Divide 5000 by 7. The result is 714.28. Divide it by 100 and the result is 7.14. That means that you can trade 7 dollar wide spread. But SPX doesn’t have such width. SPX trades in 5 dollar increments. So the nearest available spread is 5 dollar wide spreads.



If you have $30,000 available, you proceed the same way. Divide 30,000 by 7 = 4285 then continue dividing by 100 = 42 dollar wide spread. The nearest available will be $40 wide spread you can afford to trade.

 · How to adjust Iron Condor strikes

As of this writing we are trading 10 dollar wide spreads going towards 15 dollar spreads. Our goal is to widen the spreads to 40 dollars, then we will start adding contracts. If, for example, we put our 10 dollar wide spread, but you can afford 40 dollar spread, the diagram below show how to proceed.

Basically, you use our short strikes as in the newsletter, but adjust the long strikes to yours by adding calls 40 dollar higher and puts 40 dollars lower than ours:

Adjusting IC

Now you know how adjust your trade both directions – narrowing the strikes or widening them.

 · Start building the ladder

Now that you know how much you can trade and how to adjust the strikes, start building up the ladder. What does it mean? The ladder’s purpose is to create expiration every week. We want weekly income. We want trading weekly, but we want as high probability of profit (POP) as possible.

In the past I used to trade weekly options against SPX with 4 to 7 DTE (days to expiration). The risk was high and never I was sure how the trade ends up. Trading 45 DTE increased my probability of profit to 80% – 92%.

Every Monday evening you will receive a newsletter with our trade idea. Start selling one Iron Condor per week. Do not invest all money at the same time. Use only one trade. Every week you will be opening a new trade and at seventh week you will be opening a trade #7 while on Friday, your trade #1 will be expiring. From then you will have expiration every week. Your trading will now simulate weekly trading. You will have weekly income money making machine on and running.

 · Widening your strikes

Let’s say you have been trading for some time and cash is piling up in your account. It is a good opportunity to start widening your spreads. This takes some ahead planning. You do not want to widen your spread in one week and then have no money the next week to open a new trade.

Here is a procedure how to determine if you can widen a spread or not yet.

Look at your money available to trade for options (options buying power). Let’s assume we are trading 10 dollar wide spreads and thinking to widen them to 15 dollar. To find out check to following.

For example, your latest options BP (buying power) shows $773 and you will have a Friday expiration the next day. On Saturday, your BP jumps to $2248.

If we open 15 dollar wide spread next Tuesday, will we have money for the subsequent trades? Let’s do some math.

Starting BP week #1 $2248
Minus $15 wide spread in week #2 – $1355 (assuming we collected
$145 premium, thus
$1500 – $145 = $1355
Remaining BP in week #2 $893
Friday expiration in week #2 + $1000
New BP for the week #3 $1893

This shows that if we open a new trade with 15 dollar wide wings, we will have enough money for the next week trade. Thus it is doable to widen your spreads. You can continue counting this every week to see whether you should stay with your current width or widen it.

 · Adding new contracts

My goal is to reach 40 dollar wide Condor wings after which I plan on start adding contracts. This goal may change, I may later on adjust to 50 dollar or 100 dollar wide wings if it makes sense. I do not know where the cut off of feasibility is, but once I find out, I will let you know. If it won’t make sense to trade 50 dollar spread because of credit will be same as with 40 dollar spread but risk larger, then it will be better add contracts instead of widening the spreads.

In this case, we will start opening new trades on Tuesday and Wednesday. We will open one contract on Tuesday and one new contract on Wednesday. So if you still have more money than us allowing you trading more contracts than us, you can go ahead and open more contracts.

For example, let’s say you have $150,000 available to trade. Using math as mentioned above you will find out:

$150,000 ÷ 7 = $21428
$21428 ÷ 100 = $214 wide spreads

But, you want to trade only 40 dollar wide spread and not 210 wide spreads:

$210 ÷ 40 = 5 contracts

Per this math, you can trade five $40 wide spreads. This will allow you opening two contracts on Tuesday and one contract on Wednesday and one contract on Thursday. Still all trades will have 45 DTE on Friday, but now you will be trading every day (we will not trade on Mondays and Fridays).

 · Why avoiding Mondays and Fridays?

I do not have this empirically verified and only go with what I read other traders commented on this. It is said that on Mondays and Fridays the value of options decays the fastest and on Fridays, there is very little to no extrinsic value in options, so you are literally leaving money on the table.

As I said, I do not have my own experience on this, but I have seen many experienced traders advocating and opening new trades on Tuesdays or Wednesdays and sometimes on Thursdays.

Because of that, I do the same, but do not ask me for a reason. Once I find out, I will let you know.

 · The case for wide spreads

The last thing I want to mention is the reason for trading wide spreads and one contract rather than narrow ones with more contracts. There are two large benefits to this:

  1. It is cheaper.
  2. The probability of a full loss is lower with wider spreads.

It is cheaper
Yes, it is cheaper to trade wider spread than narrow one with more contracts. Try it for yourself. If you open for example a 15 dollar wide spread and three 5 dollar spreads, you will pay commissions for 15 dollar spread for one contract. It could be let’s say $11.00.

For three contracts of 5 dollar spread you will pay more, let’s say 21 dollars.

The probability of loss is lower with wider spreads than narrower.

This is the best and strongest argument for wider spreads. You need to understand how spreads work and when they bring the full loss.

You will experience a full loss when the underlying price slices through both of your strikes. What is your probability of full loss then?

Check the picture below then:

Spread width

As you can see from the picture above, wider spread is actually protecting you from a full loss. While your 5 dollar spread is already losing everything, your 25 dollar spread may still be above your breakeven price and thus no loss. If you also move your calls down (converting to Iron Clad), you can offset any potential loss from this trade whatsoever.

The last benefit is that if you decide rolling the trade, it will be easier to roll the 25 dollar wide spread for a credit than the 5 dollar spread.

 · Rinse and repeat

In this post I tried to show you how you can start trading Iron Condors I provide in my newsletter when you start late or have different money available for trading. I presented you with money management, how many contracts to trade, how wide spreads and why.

If you decide to give it a shot and trade, just follow the rules and be consistent. Do this every week and your account will grow fast and fat. And if you need to gain some experience first and see how the strategy works, then just paper trade it. Paper trade it as long as you see how it works, how the strategy makes money, loses money, and how you can defend it. Nevertheless, I give you a hand and help you if you want. But the decision is yours.

Happy trading!


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