Archive for September, 2007

by Scott Schwartz
When you win a personal injury lawsuit, the judge will have to decide if the amount awarded should be paid in a lump sum, or over a period of time. This is considered to be a structured settlement. A structured settlement is often awarded when the judge believes that the injured party will be facing a lot of future medical bills or a significant amount of time unemployed. For some people, a structured settlement fits the bill, for others, however, it does not.

You may think that because your verdict was for a structured settlement that you will be unable to get your money in a lump sum. This is not true. You can get cash for annuity payments instead. The phrase “cash for annuity payments” means that you trade in some, or all, of the money due to you for a large amount of cash on the spot.

Which Is Better?

Structured settlements are an excellent solution for someone who is facing a lengthy time of hospital services. With payments being made, often monthly, the injured party will not have to worry about paying bills such as rent or utilities. There are some instances, however, when cash for annuity payment is a better option. Court cases can be lengthy, and by the time settlement comes, there may be a large amount of bills already due. In a situation such as this, it may be wise to sell some of the available annuity in order to pay off all of the back bills. As an example, if the victim sold four years worth of annuity, the victim would be able to pay off everything while still having a good amount of money coming in for income.

How It Works

So how does a cash for annuity payment situation work? The first thing to do is to talk to a structured settlement buyer. A qualified buyer will be able to explain how much money you can expect to get and all of the options you have available to you. There are a number of different ways the structured settlement can be cashed in, which is another reason it is vital to speak with a professional. For instance, some people may choose to get a cash for annuity payment while still receiving a portion of the monthly payments, while others may choose to get the payment from years that are in the future.

Where To Start?

There are a number of different companies that offer to give cash for annuity payment, and some are not genuine in their offers. The fact is that there are federal restrictions that need to be understood before the annuity can be cashed in. Whether the money comes from an individual, a company, or an insurance company, you will need a professional to be able to parlay with all of the parties involved. Dealing with insurance companies can be difficult, especially when you are trying to get cash for annuity payments.

Scott Schwarts scott is sales director at WoodBridge Investments. Woodbridge Investments is a specialty finance company that provides lump sum payments to individuals. Visit today www.woodbridgeinvestments.com

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by fin2000
The internet has long been home to ‘get rich quick schemes’, but it now seems that the serious face of investing is getting wise to the potential of the web. So forget about the ‘I made a million in a week and you can too’ emails that turn up in your inbox. Turn your attention to the world of stocks and shares. Not only is there a wealth of information about the whys and wherefores of trading in stocks and shares on the internet, but it is also possible to start trading online.

It isn’t just the big spenders who are catered for either. Even if you are a complete beginner, or just have a small portfolio, there is plenty of online information and help out there. Before you start worrying about what’s available online, it is worth taking a closer look at yourself and your preconceptions about investing in the stock market.

Day Trader

For most people, the image of the 80’s city investor springs to mind: sharp suits, fast cars, and million dollar deals struck during the blink of an eye. The reality is far removed. While there is no escaping the fact that with the necessary combination of funds and nerves you can assume this role. The day trader who risks all on the hourly fluctuations of the market is not the norm. The reasons for this are simple. The vast majority of day traders don’t get rich quick. In fact, the majority don’t make a profit at all.

If you want to invest your money in this way, then the services offered by the internet are ideally suited to it, with real time quotes and execution available. However, there are also services geared to more sober traders, such as long term investors and savers looking for an alternative to leaving their hard earned money in a bank account accruing a safe, yet modest interest.

While the elements of risk are not removed by playing the long game, investing in shares over a longer period tends to be a safer option than diving into the frenetic world of the day trader. But it’s not all about high rolling stocks and shares.

Financial Planning

The first thing to do is work out what you want to achieve by investing on the stock market. This may sound like a stupid statement, because you want to make money, right? Obviously, that is the driving force, but ‘how much, how soon and how safely?’ are the questions you need to ask yourself.

At this stage you don’t need to be familiar with all the possibilities, because all you are doing is setting some guidelines covering how much you have to invest, how much of a risk you can take with the money and when you would like to see a return.

Where to Begin

Before you jump into the daunting world of buying and selling shares, build up a useful set of resources. The financial world speaks a language of its own. Make sure you understand the glossary of terms.

It is vital that you understand both the markets and the companies you are investing in. You really can’t have too much information on these matters. Fortunately, providing information is where the internet excels. Visit the websites of your local stock exchanges.

While there is a dearth of financial services websites around, finding the right one for you and your needs is not always that easy, and you get bogged down by the dazzling array of services offered by impressive websites all vying for your patronage.

Direct share dealing in the past was quite limited. But with the advent of the internet, this has all changed. Alternatively, you could avoid the actual markets altogether and pop down to your local computer games store and grab a copy of the latest wall street trader game that provides another risk free way to get the feel of trading.

Sandra Prior is an advertising marketing consultant. She runs her own advertising website(s) America Small Business Classifieds and Florida Computer Hardware Classifieds.

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by Melanie
In the second instalment of this series, in issue 198/Apr 06, we saw that shares are worth the present value of the future cash they can generate for their owners. We can either look at this cash in terms of the dividends paid out, or in terms of the net cash flowing into the company.

In the mystical world of economic theory, where all capital is created equal and markets are efficient, it actually makes no difference because (a) shareholders’ money is shareholders’ money whether or not there’s been a board resolution to pay it out, and (b) all investors and companies should be assumed to make the same returns and should therefore discount their cash flows at the same rate.

In spite of a few shortcomings (one of which we’ll come to shortly), this theory does at least provide a framework for comparing different companies, whatever they do with their cash. And if you give an analyst a theoretical framework, he or she will give you a 15-page spreadsheet.

After all, if a company is worth the present value of its future cash flows, then why not put together a giant sum, calculating all those cash flows, discounting them back to their present value and totting them all up. These sums are called ‘discounted cash flow’ calculations and they’re all the rage these days (though curiously they were not nearly so popular before the advent of the computer).

Visit The Intelligent Investor for the rest of this article on valuation and to find out more about value investing.

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by Jim Barnaby
Investing in property overseas is a great thing, but good research is essential. That’s the message frequently emphasised by property industry experts. There may be many pots of gold out there, but plenty of pitfalls as well.

The point was emphasised by Pelle Langli, chief executive officer for property consultancy Emerging Real Estate. He said: “People do need to do their research. They have to stop and think about it. Does this actually stack up? Does the local economy stack up? Do the macro-economics stack up? Is this sustainable? And for the investment market, they need to look at exit options. How can I get out of this investment if I wanted to?”

Mr Langli’s advice may be well-needed. Figures from the Association of International Property Professionals (AIPP) show that in 2006 some £20 billion was spent by British investors overseas, with the average property investment costing over £98,000. Such large commitments clearly should not be taken lightly, or without a reasonable level of planning and common sense.

Using common sense is the advice recently given by Bill Jackson, director of Jackson International, a property sales firm which operates in Europe. He states that when buying in Spain, for example, the sort of preparation used when buying a property in the UK should apply there too. He said: “Buying abroad is like buying here - you have to use diligence, not only on the title but also basically on the construction,” advising that proper checks are done on the durability of the property.

Mr Jackson also advised that people should use interpreters when buying overseas property, emphasising that there were dangers in signing contracts in a language which the buyer was not fluent in: “Interpretation can be totally different and words that are similar have very different meanings,” he noted.

Fortunately, it seems that more and more investors are getting the message and becoming better aware of what they need to know, not least because much of it is available online. Apart from avoiding signing up to questionable clauses and not being ignorant about local tax laws, there is the matter of knowing what the real market values are when making the investment.

Agreeing that investors are becoming better informed, Mr Langli said: “It’s definitely a positive, having all the information out there on the internet. You can get a feel for what the real market values are before you go in to the market and that can only be a good thing.”

Being more clued-up also benefits the investor by putting the onus on developers to produce something better than what is already available on the market. As a spokesman for consultants Knight Frank said: “The buyer is a lot better informed and has a lot more choice, so the developers have to come up with new angles in terms of product, service, facilities and location.”

Thus the advice from the property industry is clear: being well informed and having good research in place is the best thing any investor can do. Buying a property on a whim or a gut feeling, or without getting a clear translation of documentation, may be taking serious risks with what is a serious investment.

Author Bio:
Jim Barnaby is a real estate investment broker and successful propertyinvestment adviser delivering research and selected UK and overseasproperty investment solutions with experience in spanish properties,holiday home sales, German property, Cyprus holiday homes, France,Spain and Germany holiday homes, Property Cape Verde, buy to let properties.

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by Melanie
At The Intelligent Investor we simply adore dividends. They may not be very sexy, but in a corporate world littered with half-truths and empty promises—and that’s the good bits—dividends do at least provide a bit of black and white. A company can either put money in our bank accounts or it can’t, and we much prefer the ones that can.

The word ‘can’ here is important, though, because a dividend may not be the best use of a company’s cash—there may be projects to fund that offer a higher return on capital than shareholders could make for themselves. But it’s a great sign if a company is making enough cash to have to worry about this—and the option of paying a dividend does draw a line in the sand when management comes to consider such projects (or at least it should).

So the idea is that company boards should make decisions about their use of cash based purely on whether the company or its shareholders could make the best use of it. The sad reality, though, is that managements frequently feather their own nests and concentrate on building up their empires.

Temptation

And, as if there wasn’t already enough temptation for companies to hold on to cash, it used to be the case that money paid out as dividends was taxed twice— once when the company paid tax on its profits and once when the individual recipients paid tax on their dividend income. Quite apart from being unfair, this biased the system in favour of companies retaining—and, often, squandering—their profits.

Visit The Intelligent Investor for the rest of this article on dividends and to find out more about share advice.

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by Leonard Montgomery
If you are considering investing in UK land, you will need to have a property survey performed. The following questions and answers will help you understand the details about what a UK land property survey is, how the survey is carried out, and why a property survey is needed for UK Land Investments.

What is a UK land property survey?

A property survey is an examination of a piece of land that yields a report describing the land’s features. Land survey is a vital preliminary step when one is investing in land. The various types of surveys are described later in this article.

Why do I need a property survey for a UK land investment?

The property survey provides important information that you will need in order to make good decisions about investments in UK land. The results of the survey may cause you to reconsider the asking price of the property, and may give you leverage to ask for a decreased price. You may even reconsider the decision to invest in that particular piece of land.

How is a property survey accomplished?

Conventional transit and tape, electronic angle and distance measurement equipment, as well as computer-aided systems are used. Physical markers are typically placed on the property and a survey map is created.

What are some of the different types of UK land surveys?

Subdivision Survey:

Maps out boundary determinations for the purpose of subdividing a portion of land into smaller sections.

Topographic Survey:

A survey of both natural (vegetation, creeks, contours etc.) and man made (buildings, fences, monuments etc.) elements on the property which is used to help plan, design, and build on a site.

Land Survey:

A land survey determines size, level, and character of the land, usually for purposes of obtaining project approvals.

Boundary Survey:

These surveys can be done in combination with a land survey or independently to establish disputed boundaries, when property ownership is being changed, or when a building project is planned.

How does one find a qualified surveyor?

Some land survey companies specialise in a specific industry or specific type of survey. Choose a UK land surveyor who has expertise in the type of survey that fits your specific need. Never select according to price alone. Choose one who has a good reputation and with whom you are able to easily communicate. The Royal Institute of Chartered Surveyors provides referrals to surveyors of all specialties.

How do I prepare for the UK land survey?

Discuss the specifics about your potential investment. The surveyor can then recommend the type and scope of survey needed. The surveyor should be given the current title report information about the property in which you are interested. Let the surveyor know about any specific questions or concerns you may have about the property, in order to be sure that those issues are addressed.

How long will the surveying process take?

The length of time it takes to complete a UK land survey depends on several things, including survey type, shape, and size of the land, terrain level variations, amount of existing brush, and how easy it is to get to and measure the land.

What is the cost for a property survey?

The variables listed above for the time scale will also affect the fee. Look for a surveyor who offers free quotations.

Remember, the fees you spend on a property survey before investing in land, can save you both time and money later on.

Leonard Montgomery is a an expert in UK Land Investment. For more information about the opportunities in UK land investment please visit http://www.land-investment-uk.com

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by Ron Lanieri
For better or worse, most investors purchase stocks with the intent of holding their shares for an extended period of time.

We do this mainly because the media and industry professionals have drilled into our heads, year after year, time after time, that it’s best to buy and hold. The recent bull market phenomenon also fueled this mindset because the ‘buy and hold’ strategy worked extremely well - for a while.

Whether or the not the ‘buy and hold’ strategy is still the most efficient way of investing remains a topic for discussion. However, it is still the strategy that most investors are comfortable with and tend to follow.

The first strategy we will discuss is a hybrid of the buy and hold strategy, one that provides for better and more consistent returns a large majority of the time when compared to naked stock ownership alone.

When we buy a stock, there are three possible outcomes. As we discussed previously, two of these scenarios are generally negative and only one outcome is generally positive. If the stock goes up, that is good. If the stock goes down, that is bad. And if the stock stays still, that is also a bad outcome.

To briefly recap, not only do you have a loss in opportunity cost (the money invested in your stagnant stock could be making you money if somewhere else) but also, you have incurred commission costs on both the way in and way out. So, in this case, only one of the three scenarios provides a positive return.

For the sake of description, we will identify the three potential scenarios as the “up” scenario, the “down” scenario and the “stagnant” scenario. By employing the covered call or
“buy-write” strategy, you can change the outcome of the scenario profile so you have two positive potential results instead of only one.

Employing the covered call or “buy-write,” we still have the “up” scenario as a positive result, but now the “stagnant” scenario will also produce a positive result since we collect a premium and the third scenario, the “down” scenario will not be as negative.

Thanks to the covered call strategy, now two of three scenarios end in a positive result and the third has a result that is less negative.

Let’s take a closer look at the covered call strategy and its construction. There are two components of the covered call strategy, the stock component and the option component.

The stock component consists of a long stock position (you own stock). The option component consists of selling one call per every one-hundred shares of stock owned.

Remember, one option contract is worth one hundred shares of stock. So for example, 1000 shares of stock equals 10 call contracts or 200 shares equals 2 call contracts.

The chart below shows more examples of the proper construction of buy-writes.

Please take special note that the ratio of stock to calls must be exactly 100 shares to 1 option contract.

Number of Shares Owned Call Contracts to Sell
100 1
300 3
1700 17
9200 92
14500 145
267000 2670

The philosophy behind the covered call strategy is not complicated. It entails using a long stock position along with a short call option to create a positive stream of additional income, much in the same way a person would purchase a house and then lease it out to collect rent in order to pay for the mortgage.

Another analogy is that of the insurance company. An insurance company receives premiums month in and month out. Over a period of time, this constant stream of income easily builds to a point where it outweighs any pay out the insurance company may face, even for catastrophic events.

The constant and reoccurring collection of option premiums works better if done over longer periods of time (for example, one year.) That time frame allows the odds to play into your favor.

Now let’s talk about the odds. There have been several studies done on the topic of premium buying versus premium selling. The goal of the studies was to determine whether it is better to buy options or sell options.

Recent studies have found that selling the premium was the correct trade 78% to 83% of the time. That is a very high percentage and is worth taking advantage of when a good opportunity presents itself.

The covered call strategy takes advantage of the fact that an option is a depreciating asset because its extrinsic value goes to zero at expiration. The process by which an option’s extrinsic value dissipates is called time decay.

About author:
Ron Ianieri is a professional options trader, former floor trader, and market maker on the PHLx options exchange. As co-founder of the Options University, Ron teaches hundreds of aspiring options traders from all over the world how to trade options ‘the right way’. Click here to learn more: optionsuniversity.com

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by Ron Lanieri
An option is a derivative trading product that is best used by investors as a hedging tool providing profit protection and profit enhancement. Although it is a powerful risk management tool, it can also be used effectively as a stand-alone trading vehicle.

Under the proper conditions, options do not have to be paired with stock or another option to be an effective trading tool. To successfully trade naked options, an investor must realize that certain options will fit certain scenarios and certain options will not.

One of the major misconceptions that investors have about options stems from the fact that most do not know how to trade them properly. When they lose money trading them, they feel that there is something wrong with the option. They do not understand that options are on a higher, more sophisticated level when compared to stocks.

Stock trading has fewer variables involved and is therefore easier. No one is saying that the individual investor isn’t smart enough to trade options. The problem is not intelligence; it’s just education and experience. Most investors have not been properly educated in the proper use of options, and even fewer have had any real experience trading them.

One of the biggest problems investors have is this: Even if you buy a call and the stock goes up, you can still lose money. Most investors tend to buy out of the money options at a cheap price.
The stock trades up a little, which is the right direction, but the option still loses money and the investor wonders why.

What the investor fails to realize is that in order for the option to be profitable the options delta must out-pace its rate of decay. Implied volatility also plays a key role if the stock does trade up while implied volatility decreases, the options delta must then outperform the decrease in volatility. Remember, when volatility increases, the price of all options goes up. When volatility decreases, the price of all options goes down.

We have categorized options in several ways. One way is by the option’s strike price, and its distance from the stock price. We identified these options as either in-the-money, at-the-money,
or out-of-the-money.

In our discussion about trading naked calls and puts, we will identify trading opportunities or situations that fit each of these types of options, for both calls and puts. But it is important to first review the definition of Delta before continuing.

Remember, delta tells you how much the option will move with a similar move in the stock and is given as a percentage. For example, a 33 delta option means that the option will move 33% of the movement of the stock and 70 delta option will move 70%. In-the-money options act like stock. The deeper in the money the calls are, the more they act like the stock. As the call moves deeper and deeper in the money, the calls delta approaches 100 which means it’s price movement will reflect 100% of the stock’s movement. (This is discussed in more detail later in “The Stock Replacement Covered Call Strategy”).

In fact, deep-in-the-money options are sometimes even used to replace stock positions. If you look at the charts below, you can see how closely the in-the-money call mimics the upward movement of the stock (2nd quadrant).

In the money options are best used for smaller stock movements. The reason is that in-the-money options contain less extrinsic value. The extrinsic value can work against you when purchasing an option because extrinsic value is affected by time decay.

As you wait for your stock movement, the in-the-money option will decay less than either the at-the-money or out-of-the-money options because it has less extrinsic value. The amount of money you lose in time decay must then be made back by additional stock movement.

Obviously, the less you lose in decay, the less the stock has to move for you to be profitable because it has less decay loss to make up for.

This is because an in-the-money call has a high delta and a much higher percentage chance of finishing in-the-money by expiration so they follow the stock more closely.

With less extrinsic value loss to make up for, a smaller movement in the stock will produce a greater profit. For a call example, as you can see in the chart below, the in-the-money produces a profit with the least amount of stock movement. With less extrinsic value, the ITM option has a lower break-even point.

For chart below, stock price = $35.00

Strike Price Option Price Delta Breakeven Extrinsic Value
$30 5.20 85 35.20 $.20
$35 1.00 52 36.00 $1.00
$40 .30 20 40.30 $.30

About author:
Ron Ianieri is a professional options trader, former floor trader, and market maker on the PHLx options exchange. As co-founder of the Options University, Ron teaches hundreds of aspiring options traders from all over the world how to trade options ‘the right way’. Click here to learn more: optionsuniversity.com

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by Ron Lanieri
Time decay, also known as theta, is defined as the rate by which an option’s value erodes into expiration. The value of the option over parity to the stock is called extrinsic value.

Since an option is a depreciating asset, meaning it has a limited life, the extrinsic value in the option will wither away daily until expiration. This “decay” is not a linear function meaning it is not equally distributed between all of the days to expiration.

As the option gets closer to expiration, the daily rate of decay increases and continues to increase daily until expiration of the option. At expiration, all options in the expiration month, calls and puts, in-the-money and out-of-the-money must be completely devoid of extrinsic value as noted in the time value decay charts below.

As more time goes by, the options extrinsic value decreases. Again, it is important to note that the rate of this decrease is not linear, meaning not smooth and even throughout the life of the option contract. An option contract starts feeling the decay curve increasing when the option has about 45 days to expiration. It increases rapidly again at about 30 days out and really starts losing its value in the last two weeks before expiration.

This is like a boulder rolling down a hill. The further it goes down the hill, the more steam it picks up until the hill ends.

By selling the option and owning the stock, the covered call seller captures the extrinsic value in the option by holding the short call until expiration.

As mentioned earlier, an option’s loss of extrinsic value over its life is called time decay. In the covered call strategy the option’s time decay works to the seller’s advantage in that the more that time goes by, the more the extrinsic value decreases.

Key Point – The covered call strategy provides the investor with another opportunity to gain income from a long stock position. The strategy not only produces gains when the stock trades up, but also provides above average gains in a stagnant period, while offsetting losses when the stock declines in price.

We have now seen how a covered call strategy is constructed and how it is supposed to work. Keep in mind that the trade can be entered into in two ways. You can either sell calls against stock you already own (Covered Call) or you can buy stock and sell calls against them at the same time (Buy Write).

Example 1

You own 1000 shares of Oracle at $9.50.

The stock has been stuck around this level for a long time now and you have grown impatient. You finally give in and sell the front month (November for example) at-the-money calls. The at-the-money calls would have a strike price of $10 if the stock was trading at $9.50.

You sell the calls at a $.50 premium per contract which creates a $10.50 breakeven point. Remember, in a buy-write, the breakeven point is the strike price plus the option premium.
Let’s look at what our returns will be in each of the three scenarios.

About author:
Ron Ianieri is a professional options trader, former floor trader, and market maker on the PHLx options exchange. As co-founder of the Options University, Ron teaches hundreds of aspiring options traders from all over the world how to trade options ‘the right way’. Click here to learn more: optionsuniversity.com

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by Melanie
There’s an important distinction between a supercycle for commodities and a supercycle for resources stocks.

With a heading like ‘Resources mania or mining supercycle?’, a small piece in issue 197/Apr 06 was always likely to polarise opinion, and sure enough we’ve received a number of emails disagreeing with the point of view we expressed (which leaned heavily towards the ‘resources mania’ side of the fence).

We have no difficulty with that, because it’s different opinions that make a market and we’re not afraid to voice our own. Subscribe to The Intelligent Investor for long enough and you’re bound to disagree with us on something or other. But we’ll do our best to explain our thinking, and a contrary viewpoint often helps to test one’s own opinion.

It’s also bound to be the case that the analysts at The Intelligent Investor don’t agree on everything, and this is one of those areas. So, in the interests of balance, we thought it would be worth airing some other sides to the debate.

Crucial distinction

Firstly, let’s get two very important definitions straight. We’ll use the term ‘commodity supercycle’ to describe a large, sustained increase in the price of underlying raw commodities: crude oil, gold bullion, silver, iron ore, uranium etc. While commodities also include agricultural produce such as wheat, sugar, pork bellies and frozen orange juice, we’ll just limit the discussion to something we collectively know more about: mineral commodities.

And we’ll use the term ‘resources stock supercycle’ to refer to a situation where the BHP Billitons, Rio Tintos and Kicking Rocks NLs of the world experience large, sustained (perhaps decade-long) increases in the price of their shares. The difference between the two terms may seem so obvious as not to warrant a mention, but we frequently see the two being confused, and that might prove to be a costly mistake.

Visit The Intelligent Investor for the rest of this article on stocks and to find out more about stock market investing.

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