KISS - Get To The Next Financial Goal

The acronym KISS (Keep It Simple Stupid) should be regularly applied when creating wealth. Even though becoming wealthy is not a game, it can In our goal of financial wealth and independence, we (myself included) sometimes get caught up in the reaching the finish line by catching instead of focusing on reaching the next goal. It is important to remember to not just focus on the ultimate goal, but to provide enough focus and planning to get to the next step. Even when you don't reach a short term goal, and have to adjust the timeframe for the ultimate goal, the chances that you will have an easier time reaching the short term goal the second time around are high.

Sometimes you might not make the short term target. But you still moved forward. That is a big indicator that the goal is right but the plan needs to be adjusted. There are benefits just to make more money than you had before. Reaching a goal is important. But if you happen to create a lesser amount of wealth that does not reach your goal, do not despair. If you can focus your short term plan on getting to the next amount, you will be at your ultimate goal before you know it.

Trading options is a great example on how plans can get off track. The lure of making monster gains sometimes will take money from other sources and instead of monster gains, monster losses occur. I remember a time when I thought that options  were the way to get rich quick. This is true. Being on a roll options wise can make you a millionare very quickly. But a couple bad trades can take you (and it did take me) out of trading for a period of time. Using part of your capital for options trading (which is what I do now) can be a much safer A safer way to create wealth is to widen out the number of investments. Getting wealthy very rarely happens in a flash. For the majority of the population, it takes time, focus and managed work.

Having a longer term goal is important. But having a series of shorter term goals that lead up to the longer term goal is also important. It builds confidence and perspective as you look to the longer term goal.

Trading ETF Options To Wealth

One great way to increase your wealth is through trading options on ETF's. They provide access to indices and commodities that otherwise would be too expensive or not available. Traders with less capital can still participate and profit from moves in that particular asset class. Because moves happen every day, opportunities come up all the time. A few examples are shown below.

SPY - SPY is an ETF that covers the S and P 500 stock index. In this most recent rise in price of the S and P 500, SPY has risen at a similar level. Since mid November of 2012, SPY has moved from the $135 range to the $155 range. Purchasing 100 shares of SPY would have cost over $13500. The profit if sold now would be somewhere in the range of $2000 or 15%. Purchasing an April $135 call option in November would have cost somewhere near $400 - $500. The call option is now worth $2275. That is a profit of $750 or 150%.

FXY - FXY is an ETF that covers the Japanese Yen. In mid - November, it was trading in the $122 range. A news barrage about how the Yen would be devalued if Abe was elected prime minister in December (which has happened) has caused the price to fall to the $100 range. Shorting 100 shares of the ETF would have brought a profit of $2000.00. Purchasing an April $120 Put would have cost around $1 -$2 range. The April $120 put is now worth $21.00. That profit would have been about $1800 or 900%!

GLD - GLD is the main ETF for Gold. Just in the last couple of months, Gold showed a negative trend. It then ran up against some strong support at the $150.00 level. But on Friday it broke through and today it is trading in the low $130's. Put Options in the $140's late last week are now 5-10 dollars richer.

The ability to trade in all three markets exist because of ETF's. In these three trades, the stock market, currency market, and commodity market are all covered. Because of options, the profits can be very large.

***Disclaimer - Trading Futures ETF Options did have trades (closed now) in SPY and FXY options and has written about GLD as recently as last week. Always do your own Due Diligence before trading.

Benefits Of Deep In The Money Options

Regardless of what options you are buying, the deeper in the money the better. There are a couple of reasons why this is the case. One simple reason why is that  the time value attached to each option is lower for deeper in the money options. Another reason why is that it provides extra cover intrinsic value wise if the trade does not do what was planned.

Analysis of the recent trades at Trading Futures ETF Options blog has shown that one of the reasons for the sale of the option is due to its time value decay. Minimizing it by buying deeper in the money calls seems to be an appropriate action. Trades might be able to last longer and become more profitable if the time value did not decrease at such a high rate.

arbitrary coherence

I started reading Daniel Ariely's Predictably Irrational, and the topic of Arbitrary Coherence was brought up. In the book's words, "Although initial prices can be "arbitrary," once those prices are established in our minds, they will shape not only present prices but also future ones (thus making them "coherent"). " With this being said, I am looking at stock prices a little more carfully with the focus being on the relationship between a company's stock price and its true value. If there is a significant difference, is arbitrary coherence a reason? Can understanding the topic of Arbitrary Coherence make a person a better investor or trader? I think so.

Comments welcome.

Chasing wealth

There is a trade I want to make but I would need to break away from my plan in order to get in now. This is where discipline is important. It is important to work the plan.

I thought I would be in the trade two weeks ago but the stock has moved up to a point where even if it stays at this price, it will still be a week or two before I can get in.

For information on the trade, you can go to my call selling blog.

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Commissions

Recently, one of my brokers lowered its commissions rates by . This is important as I use this account for trading and will plan to make 25+ trades in the coming year.

Commissions do affect how you invest. You must include those costs when figuring out your returns.