During the recent explosion in Oil prices, which may or may not be over, blue chip stocks that were affected positively were essentially canceled out by the stocks disrupted in a negative way.
There are tons of ways in which traders and investors exploit changes in the perception of supply and demand in energy, commodity and currency prices. With respect to Oil, traders may simply buy the futures contact itself, light sweet New York Crude for any number of months out. Or they may play the Gasoline, heating Oil or natural gas markets.
Often, investors will buy or sell shares of an ETF, or Exchange Traded Fund that is heavily weighted in the Oil, or Gold sector to prevent the risk of investing in only a few exploration, mining or manufacturing companies.
They may also further attempt to enhance their profits by using their investment in Jet Fuel to borrow shares of an Airline, to use an obvious example, and selling them short at the same time.
Sure, you can open up a new futures account, or buy Exxon Mobil on margin, but in the main stream world of investing, it will take a very large amount of capital and a good deal of time and risk to capitalize on a Ten Dollar move in a barrel of Oil or a Twenty Five Dollar move in the Price of Gold.
This is where Penny Stocks come in.
Aug 10, 2008
Aug 8, 2008
Minimizing Risks In Penny Stocks
To get an idea as to just how risky buying a Penny Stock could be, let's look at a worst case scenario, and then focus on how to avoid these types of situations. Seeing how high a stock has been in the past and how low it is today forces us to send an order through to our broker using half of our account value.
We noticed the stock because it skyrocketed today on high volume, and the press release that came with it makes the company seem unstoppable. We calm our nerves by telling ourselves we will sell the stock at a moments notice if it gets down to a certain level. The very next day the stock moves up a little bit more early in the morning, and we are euphoric, and even whisper that we can now sell the stock should it fall back down to break even, thereby making it risk free from here on out.
But this is not really an issue, because we are certain that the stock will not even go back down to those levels. Lunch time comes and volume slows to a standstill and you start to think about lunch yourself. When you return to the screen, you see a lot of activity on the Level II screen, and feel something is brewing; perhaps this is the big run.
The first few trades look good, but you soon comprehend that the stock is tanking fast, you are concerned but convince yourself that it must just be a shake out before the next peak. It has already fallen below your break even level and even below your point of no return. As you page through different time frames on your charting software, you quickly realize that your penny stock has now fallen back to where it was before the run began, and is even right near its all time low.
Instead of firing your sell order, you begin to hypothesis that if it was cheap when you first bought it, it must be at bargain basement levels now. You decide to use the rest of your account value to enter another buy order, and then quickly calculate how high the stock will have to go to break even. Solace is found in the fact that it is less than halfway between your two buy points, and you continue to hold for weeks, even months as the stock slides ever downward.
Perhaps the stock falls below a penny, and maybe you even scrap up a few more dollars to add to the position. Eventually, after trading between $.0001 and $.0002 for what seems like a lifetime, the company announces a 1 for 900 reverse stock split. After you find the new symbol and see your account updated, what seemed like a substantial position in the company has been reduced to a mere couple of hundred shares, but at least it is worth close to a dollar per share.
Over the next few days the stock plummets back to sub-penny land almost as fast as the pit in your stomach develops as you come to the devastating conclusion that selling the stock now would not even yield enough to cover the commission.
We noticed the stock because it skyrocketed today on high volume, and the press release that came with it makes the company seem unstoppable. We calm our nerves by telling ourselves we will sell the stock at a moments notice if it gets down to a certain level. The very next day the stock moves up a little bit more early in the morning, and we are euphoric, and even whisper that we can now sell the stock should it fall back down to break even, thereby making it risk free from here on out.
But this is not really an issue, because we are certain that the stock will not even go back down to those levels. Lunch time comes and volume slows to a standstill and you start to think about lunch yourself. When you return to the screen, you see a lot of activity on the Level II screen, and feel something is brewing; perhaps this is the big run.
The first few trades look good, but you soon comprehend that the stock is tanking fast, you are concerned but convince yourself that it must just be a shake out before the next peak. It has already fallen below your break even level and even below your point of no return. As you page through different time frames on your charting software, you quickly realize that your penny stock has now fallen back to where it was before the run began, and is even right near its all time low.
Instead of firing your sell order, you begin to hypothesis that if it was cheap when you first bought it, it must be at bargain basement levels now. You decide to use the rest of your account value to enter another buy order, and then quickly calculate how high the stock will have to go to break even. Solace is found in the fact that it is less than halfway between your two buy points, and you continue to hold for weeks, even months as the stock slides ever downward.
Perhaps the stock falls below a penny, and maybe you even scrap up a few more dollars to add to the position. Eventually, after trading between $.0001 and $.0002 for what seems like a lifetime, the company announces a 1 for 900 reverse stock split. After you find the new symbol and see your account updated, what seemed like a substantial position in the company has been reduced to a mere couple of hundred shares, but at least it is worth close to a dollar per share.
Over the next few days the stock plummets back to sub-penny land almost as fast as the pit in your stomach develops as you come to the devastating conclusion that selling the stock now would not even yield enough to cover the commission.
Aug 4, 2008
Picking The Right Broker
Many online brokers are suited quite well for penny stocks, others, however, are horrible. The first and foremost feature to check is share limitations.
With penny stocks you will be purchasing as many as a million shares or more at a time. A half a penny extra per share over say 1000 shares doesn't sound like much, but a million shares will cost you an extra 5000 dollars, and that’s just to get in. Most brokers that offer no share limitations typically charge a tiny bit more per trade, but it is definitely worth the cost.
At the present time, there is no need for the average day trader to spend tons of money on software.
The next necessity is to have a good trading platform. Most online brokerage firms offer perfectly sufficient real-time, streaming customizable charts, watch lists, time and sales, some screening ability and the all important level II for free as long as you’re an active trader.
It may appear as though you have to trade heavily for a quarter or so to get all of the features, but most of the time if you call and tell them that you’re an active trader they will let you install right away for free, or at least a nominal fee.
This goes hand in hand with trade minimums.
Do not be too concerned with how many trades you make a month to save a few bucks, as long as you get the software.
With penny stocks you will be purchasing as many as a million shares or more at a time. A half a penny extra per share over say 1000 shares doesn't sound like much, but a million shares will cost you an extra 5000 dollars, and that’s just to get in. Most brokers that offer no share limitations typically charge a tiny bit more per trade, but it is definitely worth the cost.
At the present time, there is no need for the average day trader to spend tons of money on software.
The next necessity is to have a good trading platform. Most online brokerage firms offer perfectly sufficient real-time, streaming customizable charts, watch lists, time and sales, some screening ability and the all important level II for free as long as you’re an active trader.
It may appear as though you have to trade heavily for a quarter or so to get all of the features, but most of the time if you call and tell them that you’re an active trader they will let you install right away for free, or at least a nominal fee.
This goes hand in hand with trade minimums.
Do not be too concerned with how many trades you make a month to save a few bucks, as long as you get the software.
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