Get Paid to Write at Home
The covered option writer and the uncovered (naked) writer are the two types of option writers. The covered option writer sells an option on 100 shares of stock that he has bought (owns). He benefits from selling the option, having the time value of the option on his side and, at the same time, profits from the upward move of the stock, offsetting any possible losses from the option he has just written. This kind of strategy is very conservative and the most popular today. The uncovered (naked) writer, on the other hand, is very speculative and writes (sells) the option on 100 shares of stock that he does not own. There is unlimited risk to the naked call writer (betting the stock won't go up) and extensive risk to the naked put writer (betting the stock won't go down). To guarantee to both the options buyer and to the Options Exchange that the naked writer will make good on the options that he writes, he must put up cash and or collateral to back up his naked option writing position.
For every holder, or buyer, of an option there must be an option writer or seller. Figures 15.5 and 15.6 are the payoff and profit diagrams, respectively, for the option writer. If the spot price, S, of the currency pair is above the exercise price, X, the option will be exercised and the writer is obligated to deliver the currency pair to the holder of the option in exchange for the exercise price. Thus, the writer incurs a loss of S - X on the transaction. If the currency pair price is below the exercise price, the option is not exercised and the writer does not incur a loss. Note, that while the payoff diagram shows only the payoff at expiration to the writer's position, the profit diagram takes into account the call price, or premium C, initially received by the writer of the call option. If the payoff, or profit, diagrams of the option holder and writer are added , they, not surprisingly, cancel each other out. The option market is a zero-sum game, when the option holder profits,...
If you are buying the right to sell or buy stock at a certain price over a given time, you have to be buying that right from someone. That someone is the option writer. In other words, if option buying is analogous to a side bet on the price action of a specific stock, the backer of that side bet is the option writer, the casino owner. Put simply, option writers sell an option rather than buy it. The option seller ( writer) has a time advantage over the option buyer because unlike the buyer, time works for the seller. As time passes, the value of the option depreciates. This depreciation, this value, slips into the pocket of the option writer. This money will go into his account, so, in a sense, you have just put 300 into the pocket of the option writer. Now he has The option writer now has a paper profit of 100, less commissions. If he wishes, he can go back into the Options Exchange, buy that option back for 200, take his profits and, in a sense, close the casino door. In other...
As far as the mechanics of putting the book together, Stacy Kennedy, Acquisitions Editor, Chrissy Guthrie, Senior Project Editor, and Carrie Burchfield, Copy Editor, were extremely helpful for this non-writer. Tim Brennan, the technical editor, did an excellent job pointing out areas that needed some improvement. Brittain Phillips gets a special thank you for taking what I'm trying to say and making it readable. Also, I can't go without acknowledging Michelle Hacker, Editorial Manager, who introduced me to the people at Wiley Publishing, Inc. Without her I never would've had the chance to produce a book.
Each WetFeet Insider Guide represents hundreds of hours of careful research and writing. We start with a review of the public information available. (Our writers are also experts in reading between the lines.) We augment this information with dozens of in-depth interviews of people who actually work for each company or industry we cover. And, although we keep the identity of the rank-and-file employees anonymous to encourage candor, we also interview the company's recruiting staff extensively, to make sure that we give you, the reader, accurate information about recruiting, process, compensation, hiring targets, and so on. (WetFeet retains all editorial control of the product.) We also regularly survey our members and customers to learn about their experiences in the recruiting process. Finally, each Insider Guide goes through an editorial review and fact-checking process to make sure that the information and writing live up to our exacting standards before it goes out the door.
Not only is a universe of data needed, but it is necessary to simulate one or more trading accounts to perform back-testing. Such a task requires the use of a trading simulator, a software package that allows simulated trading accounts to be created and manipulated on a computer. The C+ + Trading Simulator from Scientific Consultant Services is the one used most extensively in this book because it was designed to handle portfolio simulations and is familiar to the authors. Other programs, like Omega Research's TradeStation or System Writer Plus, also offer basic trading simulation and system testing, as well as assorted charting capabilities. To satisfy the broadest range of readership, we occasionally employ these products, and even Microsoft's Excel spreadsheet, in our analyses.
ABC's online store sells apparel worn by Desperate Housewives characters (Edie's Dolce & Gabbana pumps, Lynette's Armani pants). And coming in the spring is GET magazine, a kind of Lucky for TV product placement. By letting companies advertise products without flashing logos or disrupting storylines, the services may lead to more subtle plugs. But they're not likely to stamp out complaints from the Writers Guild of America and Screen Actors Guild that placements blur the distinction between advertising and entertainment. -Elizabeth Woyke
They present you with some newfangled system that you never figure out how to use without the help of a mainframe computer, several mathematicians, and a Nobel Laureate as your personal consultants. Books that bewilder more than enlighten may be intentional because the author may have another agenda to get you to turn your money over to him to manage or to sell you his newsletter(s). These writers with an agenda may imply and sometimes say that you really can't invest well on your own.
Option Writers 303 Two Types of Option Writers 304 I have been trading options since the option exchanges first opened in 1973 and have seen everything. As an option newsletter writer starting in 1973, I have monitored and talked to hundreds of traders. Now you can have the benefit of all this experience and information. This book provides important nuggets of knowledge about option trading that I have collected over the past thirty years strategies, tactics and methods that have worked and not worked for me and my subscribers.
Remember that financial writers know as little as and perhaps even less than you do about the markets. They are paid by the word and not by truth. As stated earlier, if they really understood the markets, they could make many times more money trading than they do writing about trading.
Out-of-the-money calls are usually written during a given expiration month against5 each 1oo shares of stock to enhance the investor's rate of return. The premium collected is an enhancement if the call expires worthless and the stock is the same price or higher. It is also an enhancement if the call is assigned (exercised) when in-the-money because the writer's total proceeds on the sale of his or her shares is the strike price plus the premium collected and that had to have been greater than the available stock price at the time of the call sale. It would not turn out to be an enhancement if the call expired worthless while the stock declined an even greater amount than the premium collected.
I know that, but please bear with me. I don't want to make the mistake that I see so many investment writers (and financial advisors) make starting with the more advanced stuff on the assumption that you know the basics. So often I hear from people reading about mutual funds and complaining that a writer starts throwing around terms such as small cap value stock fund and asset allocation without explaining them, and before you know it, you're lost in the weeds and frustrated. You have every right to be. Mutual fund terms, such as municipal bond fund or small cap stock fund, are thrown around too casually. Fact is, thanks to our spending-oriented culture, the average American knows cars a lot better than mutual funds. In this chapter and the next, I explain the investment and mutual fund terms and concepts that many writers assume you already know (or perhaps don't understand well enough themselves to explain to you). A rjrudl (I(Ml ul '.-.'kit's i-.rilten about mutual funds completely...
The great bull market in stocks has led to an equally great bull market in the number of books published on the subject of how to make money trading the markets. Many ideas abound, some good, some not, some original, some just a repackaging of earlier works. Occasionally, though, a writer comes forward with something that really sets him or her apart from the pack, something special. One such writer is Mark Douglas. Mark Douglas, in Trading in the Zone, has written a book that is the accumulation of years of thought and research the work of a lifetime and for those of us who view trading as a profession, he has produced a gem.
Perhaps the best testimony to the power of the systems and models we lay out in this book are two that are very close to home. Heather M. Iarusso, our researcher, and Rachel Proctor May, our transcriber and profile writer, transformed their lives and their mindsets while working on this project. When Heather interviewed her first Millionaire Real Estate Investor for this book, she was helping her landlord pay his mortgage. Eight months and 114 interviews later, a friend rents two rooms in her four-bedroom, two-bathroom house. More important than the logistics of this move, however, is the mental move she made going from renter to homeowner to investor. She's now on the path to building wealth and passive income. After spending hours upon hours transcribing Heather's interviews with Millionaire Real Estate Investors, Rachel and her husband, who were both graduate students at the time, bought their first house. Armed with all the knowledge from these investors, Heather and Rachel have...
Our own personal ocean of logic started approximately 2,500 years ago, when a philosophical war was going on between two opposite camps represented on one side by Aristotle and on the other by Heraclitus. Aristotle basically seduced the world by saying that if you don't know something, you should go to people who know more than you do, and ask them. That advice sounds quite reasonable, and it has been accepted by much of the earth's population for two and a half millennia. Acceptance does not necessarily make it true. Remember that the civilized world functioned adequately for hundreds of years while believing that the world was flat. Businesses and mapmakers flourished. But then Galileo and a handful of others looked through a telescope and saw round planets in orbits in the heavens. They knew that the flat-earth paradigm was wrong, but it took close to 200 years and much suffering on their part before the reality of a round earth was accepted. The Aristotelian Heraclitian dispute...
Let's look at an option example and the alternatives an option buyer possesses. In February, a trader buys 1 IBM May 110 Call at 5 when IBM is trading at 108 per share. In late April, when the option is nearing expiration, IBM stock is trading around 120 per share and the option's premium has increased to 11K. In this example, because the option is in-the-money, the option holder has the choice of either exercising the option contract or trading out of the long call position. If the trader decides to exercise the IBM May 110 Call option contract, he or she must first inform the clearing firm of his or her intentions. The clearing firm then notifies an IBM May 110 call writer that he or she has been exercised and is obligated to sell 100 shares of IBM stock to the option holder at a price of 110 per share.* The option buyer pays the option writer 110 per share for the 100 shares of IBM, for a total of 11,000, giving the trader a long stock position at 110 when the market is trading 10...
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One of the most popular measures of risk is the standard deviation of returns. This measure is used by academic writers, traditional investors, and hedge fund investors. The standard deviation of return is shown in equation (1.2) and can be found in almost any introductory statistics textbook
The motivation for investing via index funds dates back to the early work of Treynor (1965), Sharpe (1966), and Jensen (1968).12 The findings of each of these writers are well summarized by Jensen, who concluded that there is little evidence that any individual fund was able to do significantly better than that which we expected from mere random chance. What these early writers highlighted was that a randomly selected benchmark portfolio could consistently outperform the average active money manager this subsequently led to the birth of indexing.
Adam Smith, and other elementary writers on the science of Political Economy, have shown the principles upon which commodities must have been exchanged in that rude condition of society which preceded the use of metallic money, and it is not my intention to travel over the same ground, and occupy the attention of the reader in recapitulating details with which he is probably already familiar. Nor is it my intention to give a history of the various inventions to facilitate barter, which have been adopted at various periods in different countries, such as the use of cattle, cowry shells, tobacco, iron, and some other objects, each of which has been at some period employed to perform the function of what has been appropriately denominated a medial commodity, by which the relative value of other things could be determined. I propose at once to enter upon the subject of currency as we find it at the present day in commercial nations, and shall first point out the laws by
The maximum amount that an option buyer can lose is the option price. The maximum profit that the option writer can realize is the option price. The option buyer has substantial upside return potential, while the option writer has substantial downside risk. Notice that, unlike in a futures contract, one party to an option contract is not obligated to transact specifically, the option buyer has the right but not the obligation to transact. The option writer does have the obligation to perform. In the case of a futures contract, both buyer and seller are obligated to perform. Of course, a futures buyer does not pay the seller to accept the obligation, while an option buyer pays the seller an option price. Consequently, the risk reward characteristics of the two contracts are also different. In the case of a futures contract, the buyer of the contract realizes a dollar-for-dollar gain when the price of the futures contract increases and suffers a dollar-for-dollar loss when the price of...
Option is 100 and the current asset price is 105, the intrinsic value is 5. That is, an option buyer exercising the option and simultaneously selling the underlying asset would realize 105 from the sale of the asset, which would be covered by acquiring the asset from the option writer for 100, thereby netting a 5 gain. For a put option, the intrinsic value is equal to the amount by which the current asset price is below the strike price. For example, if the strike price of a put option is 100 and the current asset price is 92, the intrinsic value is 8. That is, the buyer of the put option who exercises the put option and simultaneously sells the underlying asset will net 8 by exercising. The asset will be sold to the writer for 100 and purchased in the market for 92. For our put option with a strike price of 100, the option would be (1) in the money when the asset price is less than 100 (2) out of the money when the current asset price exceeds the strike price and (3) at the money...
For a variety of reasons, funds may choose to pursue multiple strategies in a single hedge fund. In some ways, the aggregate performance resembles a fund of funds that gains some benefits from diversification. Academic writers are often quick to point out that well-healed investors can accomplish the same diversification (perhaps more efficiently). However, some investors nevertheless prefer the multistrategy funds, either because they lack the financial resources to get the maximum benefit from
One of the best features of the futures markets is that they have listed options and because these are futures products, they also have the access of the transparency on how many options on the futures contracts are available to buy and how many options on the futures contracts are offered to sell. This book, Forex Conquered, is designed to give you specific trading plans on all aspects of foreign currency trading opportunities. I feel that there are many, many choices and yet so few people are aware of them. Options are just one futures trading vehicle, and many forex traders have had only limited exposure to options. Therefore, I want to introduce you to what they are and how you can benefit from them in your trading career. To start with, there are two types of options a call and a put. And there are two kinds of positions for each call and put a buyer and a seller, or an option writer. cause option writers or sellers will want more money and buyers will have to pay more for the...
It would be exaggerating to affirm that this was also the point of view of all the German economists. Some of them, as Liefmann, Schlesinger, Pohle, Beckerath, Terhalle, and Lansburgh, clearly recognized the influence of the paper inflation on internal prices and on the exchange rate. But others refused to admit a relation of cause a ad effect between the increase of the quantity of paper money and the depreciation of the exchange, and they adhered to the theory of the balance of payments. This mental attitude, contrary to quantitative monetary conceptions, was the effect of the line of thought which was prevalent before the war, and which preferred that type of monetary approach which Altmann called Qualitative as opposed to the quantitative. Writers were attempting to construct a sociological 2. To a great number of writers and German politicians the deficits in the budgets of the Reich and of the States, and the paper inflation, were not the cause, but the consequence of the...
The stock-picking cheerleaders will cite plenty of reasons and make hyped claims to get you to invest in individual stocks. But they are loathe to mention the drawbacks of selecting and trading individual securities. You won't buy their books if they can't promise you effortless riches, so you may not openly get the following information from the stock-picking-is-easy writers
The author believes that he was one of the first, if not the first, writer in this country who called the attention of the public to this new change, and apprehensive at the time, that the legislative folly of attempting to establish by law what nature herself could not establish, would be repeated by a new enactment, he urged in December, 1821, upon the late Mr. Lowndes, a representative in congress from South Carolina, and chairman of the committee of finance, the expediency of abolishing the coinage of eagles and their fractional parts, and of substituting in their place new pieces, to weigh respectively an ounce, a half ounce, and a quarter of an ounce of standard gold, under the full conviction that they would soon be introduced into circulation at their proper equivalent, without involving us in the absurdity of having two legal tenders.* The arguments presented to Mr. Lowndes in conversation were at his particular request reduced to writing, together with answers to two points...
Table 2.7 illustrates the effects of not using an initial money management stop versus adding an initial money management stop of 2,000. The trading system, a canned system using four consecutive up or down closes to initiate a trade, comes with the Omega Research's System Writer Plus .
This chapter will show that price shocks, which are frequently small and only occasionally extreme, are the reason the risk of trading is always greater than expected. When you look back at historic price moves, especially with a computer charting or a test program, such as System Writer, TeleTrac, or MetaStock, it is easy to identify a price shock. The clear ones are seen as highly volatile days or large gaps.
Writers define this group differently. Some categorize individuals with a net worth of between 1 million and 10 million as semiaffluent.3 Others include investors with between 500,000 and 1 million in this group.4 J. P. Morgan also includes investors above 1 million in a group called semiaffluent.5 Regardless of how this group is defined, it includes investors who historically have not had access to hedge funds. Due to changing attitudes, changes in the risk profile of the hedge funds, and new legal developments (notably the registered fund of fund), this group represents a large, almost untapped market.
But it is important not to forget that that last stage of the depreciation of the mark was, in a great part, the direct consequence of an erroneous financial policy in the preceding years. Besides, the increase of the note-issues, following the increase of home prices, was not at all a necessary action, as some writers seem to believe. An energetic financial and monetary policy and a more circumspect banking policy would have broken the vicious circle as in fact it was broken by the monetary reform of November 1923.
As already said in Chapter 1, Alfred Winslow Jones (1923-1989) is considered the father of the first hedge fund. During World War II he was a writer and editorfor Fortune magazine covering a variety of topics from finance, to politics, to the war effort. By 1948 he had left Fortune but was working on a freelance article for the magazine entitled Fashions in Forecasting . It was while researching this piece that he interviewed the most successful money managers of the time and began to formulate ideas for a new type of fund. Jones was not convinced of his ability to predict the direction of the market consistently. He thought he had good stock picking skills but admitted that he was not able to predict the direction of market trends.
It was not unusual for a cabinet minister to attend one of his foundation's conferences nor for him to drop in on a political leader while attending one of his foundation's board meetings. Taking writer Michael Lewis on a two-week visit to his foundations in November 1993, Soros boasted after meeting with the president of Moldova in the morning and the president of Bulgaria in the evening, You see, I have one president for breakfast and another for dinner.
Taken to extremes, these cognitive illusions may give rise to closed systems of thought that are immune, at least for a while, to revision and refutation. (Austrian writer and satirist Karl Kraus once remarked, Psychoanalysis is that mental illness for which it regards itself as therapy. ) This is especially true for the market, since investors' beliefs about stocks or a method of picking them can become a self-fulfilling prophecy. The market sometimes acts like a strange beast with a will, if not a mind, of its own. Studying it is not like studying science and mathematics, whose postulates and laws are (in quite different senses) independent of us. If enough people suddenly wake up believing in a stock, it will, for that reason alone, go up in price and justify their beliefs.
Table 3.2 shows test results for a stochastic-oscillator-based antitrend trading system provided with System Writer Plus software from Omega Research. The stochastic oscillator is a range-location oscillator that shows where today's close is within its trading range over the last x days. If the close is near the top of the range, then oscillator values are greater than 80. The next move in prices will probably be toward the lower end of the range. Similarly, if the close is near the lower
The quotations of exchange on France, are so many francs and centimes, (or hundredth parts of a franc,) payable in France for a dollar paid here. According to the regulations of the French mint, the silver franc should contain 69.453 troy grains of pure silver, equivalent to 18.708-1000 cents in silver currency of the United States, (not quite 18f cents.) The quantity of pure silver in an American dollar, is equal to that in 5 francs 34.5341000 centimes. But as foreign coins are not a legal tender in France, and as a seignorage of about 1J per cent is charged on silver coinage at the French mint, American dollars, when sold as bullion in France, are said to bring on an average not more than 5 francs 26.25-1000 centimes. This is, by some writers assumed as the par of exchange on France. Other writers assume 5 francs 34 centimes as about par.
If the option becomes worthwhile for the buyer of the option to exercise, the writer futures investment position. Such a position is almost certain to have a built in loss. The amount of the option writer's loss could substantially exceed the amount of the premium income he would have received from writing the option. On the other hand, selling options can provide for some great opportunities to hedge against the option(s) that were bought. This can be done through different spread strategies, which we will talk about later.
Remains the only country on the continent that is not a part of the African Union. Financially, Morocco has the fifth-strongest economy in Africa (as measured by gross domestic product). With its temperate Mediterranean climate, famous cuisine, busy outdoor markets, and historical architecture in the old city areas, Morocco has evolved into a powerful tourist draw. It has been a popular refuge for artists and writers, and many Europeans go there to spend a relaxing weekend in a riad a luxurious house built around a patio garden.
Another disadvantage of commercial contracts is that they can be fairly large and may be a little bit intimidating for new investors and sometimes for sellers. Most serious investors use a computer program to fill out their offers so that they don't end up with writer's cramp. (Check out www.commercial investingsoftware.com for details on investing software.)
Internal rate of return (IRR) holds a dubious distinction in the panoply of investment measures. It is the most widely used and oft-quoted rate of return for real estate, and at the same time, the least understood. The next time someone claps you on the back and proclaims a property's IRR, ask him or her, Now just what exactly does that mean This writer will bet you a local suspension bridge (acquired recently in a friendly card game) that the answer, if any, will be unintelligible.
Shortly after Berkshire's 1989 public announcement that it owned 6.3 percent of the Coca-Cola Company, Buffett was interviewed by Mel-lisa Turner, a business writer for the Atlanta Constitution. She asked Buffett a question he has been asked often Why hadn't he purchased shares in the company sooner By way of answer, Buffett related what he was thinking at the time he finally made the decision.
When point-and-figure charting first appeared, it did not contain the familiar boxes of Xs and Os. The earliest book containing the subject is reported to be The Game in Wall Street and How to Play it Successfully, published by Hoyle (not Edmond Hoyle, the English writer) in 1898. The first definitive work on the subject was by Victor de Villiers, who in 1933 published The Point and Figure Method of Anticipating Stock Price Movement. De Villiers worked with Owen Taylor to publish and promote a weekly point-and-figure service, maintaining their own charts he was impressed by the simple scientific methodology. As with many of the original technical systems, the application was intended for the stock market, and the rules required the use of every price change appearing on the ticker. The rationale for a purely technical system has been told many times by now, but an original source is often refreshing. De Villiers said
Instead, index options are cash settlement contracts. This means that if the option is exercised by the option holder, the option writer pays cash to the option buyer. There is no delivery of any stocks. For a stock option, the price at which the buyer of the option can buy or sell the stock is the strike price. For an index option, the strike index is the index value at which the buyer of the option can buy or sell the underlying stock index. The strike index is converted into a dollar value by multiplying the strike index by the multiple for the contract. For example, if the strike index is 1,QQQ.QQ, the dollar value is 1QQ,QQQ ( 1,QQQ.QQ x 1QQ). If an investor purchases a call option on the SPX with a strike index of 1,QQQ.QQ, and exercises the option when the index value is 1,1QQ, then the investor has the right to purchase the index for 1QQ,QQQ when the market value of the index is 11Q,QQQ. The buyer of the call option would then receive 1Q,QQQ...
Our central argument is that knowledge is dispersed, and that it is most effectively used when decisions are made by individuals, rather than by a central agency. When production is organized along capitalist lines, good laws should therefore support devolved decision-making, and they should not attempt to prejudge its outcome by expressing a central preference for particular economic methods or outcomes. A society in which this is the case is subject to the rule of law. While liberal writers make a moral case for the rule of law (see, for example, Hayek, 1973), our justification rests upon economic efficiency the rule of law strengthens property rights.
After the crash of 1987 it took close to 11 years before the S&P 500 experienced a larger drop measured in points. This happened in the autumn of 1998. This was announced as big news by the media, with some analysts and market writers even comparing it to the crash of 1987, implicitly suggesting that this was equally as bad or at least was soon to be. To get a better feel for the benefits of the RAD contract, let us take a closer look at this recent event and compare it to the crash of 1987 (see Figure 2.1). During October 1987, the market fell by 152 points, or 38,000, or 45.6 this we know. During the autumn of 1998, the market fell from a July high of i 199.4 to an October low of 929, for a total drop of 270.4 points (as
Traders have never had so much information and so much ability to process this information, thanks to computers and to Bill and Ralph Cruz, who invented the first and best workable software, System Writer, which evolved to Trade Station. Thanks to these products from Omega Research, average joes like you and me can now test market ideas. For more than 10 years now, thanks to Bill's foresight, it has been possible to ask just about any question to find the truth of the markets.
President or win two-thirds of Congress, a violent warfare was begun by the bank. The power of its interest at the time is attested by any amount of evidence. Mr. Wm. Gouge published his work on the History of Paper Money in 1833, in which he bears the strongest testimony to the power of the bank corporations throughout the country. The expressions used now in the West in regard to railroad corporations are not stronger than those used by many writers at the period under review in regard to banking by which they meant the issue and loan of notes nominally convertible but really inconvertible, and thus subject, in their ex
For the exchange-traded options that have been described so far, the writers and purchasers meet on the floor of the exchange and, as trading takes place, the number of contracts outstanding fluctuates. A warrant is an option that arises in a quite different way. Warrants are issued (i.e., written) by a company or a financial institution. In some cases they are subsequently traded on an exchange. The number of contracts outstanding is determined by the size of the original issue and changes only when options are exercised or expire. Warrants are bought and sold in much the same way as stocks and there is no need for an Options Clearing Corporation to become involved. When a warrant is exercised, the original issuer settles up with the current holder of the warrant.
A foreign exchange spot or forward transaction creates a symmetrical exposure, so that one party contracts to deliver to another a specified amount of one currency on a specified value date and receive a specified amount of another currency in exchange. A currency option trade, however, is an asymmetrical transaction, in that the buyer of the option has the right, and the option writer (seller) the obligation, to make or take delivery of a specified amount of currency in exchange for another on (or up to) a particular date. An option is a contract between the buyer (or holder) of the option and the seller (or writer) of the option. This contract describes the rights of the option holder and the obligations of the option writer. An example of an option is a call option, which represents the right of its holder to buy a specified asset at a specified price on or before a specified date. The call option also represents the obligation of its writer to sell, if called upon, a specified...
The two most important steps to follow are the use of a stop-loss and taking small positions. Without a stop-loss, the option writer is doomed. Small positions will prevent you from taking a hit that will wipe out your portfolio. Remember you want to be able to return to fight another day
One of the first things we learn about finance is Buy low, sell high. In the movie Trading Places, when Eddie Murphy and Dan Aykroyd prepare to corner the orange juice market (illegally and implausibly, but comically), you can tell the script writer was casting about for something finance-sounding to say. So Dan tells Eddie, Buy low, sell high. What more advice do you need, really
The fundamental difference between futures and options is that the buyer of an option (the long position) has the right but not the obligation to enter into a transaction. The option writer is obligated to transact if the buyer so desires (i.e., exercises the option). In contrast, both parties are obligated to perform in the case of a futures contract. In addition, to establish a position, the party who is long futures does not pay the party who is short futures. In contrast, the party long an option must make a payment (the option price) to the party who is short the option in order to establish the position. Thus, futures payouts are symmetrical, while options are skewed. The maximum loss for the option buyer is the option price. The loss to the futures buyer is the full value of the contract. The option buyer has limited downside losses but retains the benefits of an increase in the value of the underlying. The maximum profit that can be realized by the option writer is the option...
As can be seen, there are two parties involved in any currency option transaction - the option buyer and the option writer (seller). The following grid outlines a risk profile for each. Option writer (seller) The option buyer has the right to demand fulfilment of the option contract and the owner can exercise the option. The option buyer pays a premium for that right. The option seller (writer) grants the right and receives a premium for accepting the obligation to fulfil the option contract, if the buyer demands.
Because a foreign exchange transaction is, by definition, an exchange of one currency for another, the purchase of one currency is also the sale of another currency. Therefore, the right to buy one currency is also the right to sell another currency. For example, the owner of a Swiss franc call option has the right to buy Swiss francs and also has the right to sell dollars. The writer of a Japanese yen put option is also the writer of a dollar call option. Hence, the terms call and put option in foreign exchange are interchangeable.
While head-and-shoulder bottoms are not as sound as previous writers have claimed, head-and-shoulder top price structures are one of the more reliable price patterns signifying a top in a stock. But be careful withjust a little knowledge of charts, you can misinterpret what is a cor-rect head-and-shoulders top. Many professionals do not properly interpret the price structure.
Naked put writing can be as conservative as covered call writing, for naked put writing is a way to buy stocks or futures. You see, the put writer is obligated to be put or to purchase the stock at the strike price. Even though I am an aggressive put writer and follow all the rules I have laid out in previous chapters, such as buying back puts when they hit my stop-loss, I only write puts on stocks that I don't mind owning at the strike price.
While the writer of this option may be assigned only on the expiration date of the option. On the other hand, the holder of an American style option has the right to exercise the option on any day until expiry, while the writer of an American style option may be assigned on any day until expiry. If the call currency (right to buy) of the option has a higher interest rate than the put currency (right to sell), there will be an advantage in calculating the intrinsic value against spot rather than against the forward outright rate. Therefore, the risk that the writer of the American option has is that at some point in time, if the option is so far in-the-money that there is negligible time value remaining, the holder may exercise early. This would mean the writer would incur the differential interest cost of borrowing the higher interest rate currency and lending the lower interest rate currency. If this happens, the option is said to be at logical exercise.
The OTC market is principally made up of banks and financial institutions, which make option prices to their clients, and to each other. The exchange traded market is a public market, where traders (who may be international banks) and private individuals own seats on the exchange, and meet together in a room , floor or pit to trade currency options whereby in the OTC market, trading is a private deal between two parties. Similarly, in the OTC market, settlement of option trades and the credit risk inherent in any deal is a matter between the financial institution and its counterparty. This is usually for the option premium, which is paid upfront by the buyer to the writer. The buyer, therefore, has a contingent claim on the writer until the option expires. In the listed market, all transactions are processed through a clearing house which acts as the counterparty to each deal, through a margining process (similar to that used in all futures markets) and the clearing house guarantees...
Well, not this specific book. But just the act of finishing a book and getting it to a publisher. While I trade for a living, I have dreamed of being a writer since I was 10 years old and sat in the back of Mrs. Holmes's fifth-grade class in La Verne, California. But just because I had the dream didn't mean that I made it easy for myself. In the past two decades, I have allowed some people and experiences to get in the way of my dreams.
Margin - a significant contribution to the integrity of the listed option marketplace is the option writer's requirement to post margin - an amount of money or collateral deposited by a customer with his broker, by a broker with the clearing-house, or by a clearing member with the clearing-house, for the purpose of insuring the broker or clearing-house against potential loss on open option contracts. In a marketplace with margin requirements, option traders can avoid review of one another's credit every time they trade. It is the obligation of the customer to post or deposit margin due on currency options carried short (or written) in the customer's account on a marked-to-market basis with their respective broker. Brokerage firms guarantee the obligations of shorts or writers to the OCC, called clearing members , that carry the accounts of writers or their brokers. Thus, there are customer obligations to the brokers and or clearing members, and then clearing firm margin requirements...
Exercise is one of the possible outcomes, and you cannot just ignore the potential capital gain. That may even be desirable. However, the majority of covered call writers would prefer to gain option profits without going through exercise so that they can repeat the strategy many times. You can avoid exercise in a number of ways however, if you look at exercise as a worst-case outcome, you will want to ensure before entering the position that it is justified by the level of profitability upon exercise.
Negotiating is a process by which the investors, entrepreneurs, and their advisers reach an interdependent mutual decision that the transaction is a good deal. This involves clarifying and agreeing on what the investor and entrepreneur will give to and receive from each other in completing the transaction. It is not win-lose instead, each person attempts to understand and consider the other's concerns. While it is generally believed that those with the gold, rule, entrepreneurs who overly concede accrue resentment and anger that surface later, confounding relationships with investors. As the nineteenth century English writer Samuel Butler put it, It is not he who gains the exact point in dispute who scores most in controversy, but he who has shown the most forbearance and better temper. Entrepreneurs must make their negotiation objectives a fair deal, and be willing to give the investor some protection if the entrepreneur fails to meet milestones.
Because covered call writers have to accept the possibility of exercise, why avoid it Although exercise is a real possibility, it is often preferable to keep well-selected stocks in the portfolio and to take steps to (a) avoid having it called away, (b) be able to continue writing subsequent calls, and (c) in the event of exercise, maximize income from the transaction. All this requires employing a rolling technique.
The system was tested using System Writer Plus and actual S&P-500 contracts. The rollover date was the twentieth day of the month before expiration. The results are in two blocks in Table 4.20 because System Writer can process only 30 contracts at a time. You can treat either the conservative or the aggressive set of X and Y values as an unop-timized set. Both combinations were profitable on both blocks of data.
Stracca heralded a new age, which was however slow in arriving. In the seventeenth century there was a continuation of this endless series of authors writing about wealth and poverty, about trade and the pursuit of riches. These were either humanists who had become mere rhetoricians writers on 'economica', who had given up the slightest enquiry into wealth or writers We shall conclude this chapter with an emblematic example of the difficulty experienced by the Italian humanistic world in understanding its age. In 1609 Pietro Andrea Canoniero (or Canonerio), a Genoan doctor, philosopher, theologian and intemperate writer on a great many subjects, while commenting on Tacitus, maintained that wealth is preferable to poverty and that it has great importance both for individuals and for the state. He supported his view with numerous learned quotations and a series of arguments. When reporting this thesis, the nineteenth century historian Ulisse Gobbi remarked ironically that it can't have...
Reporters are responsible for finding good ideas that interest their readers or viewers. In selling a story to the media, the company needs to consider the demographic of the reporter's audience the personality of the newspaper, magazine, or television program and the style of the particular writer or reporter. With that legwork done, the company should then position the story so it makes sense to the reporter, with an angle that is valuable.
Over the counter options refer to privately guaranteed deals made by and between financial institutions and those customers who apparently have sufficient credit. Counter-party risk is the major consideration, especially for the holder of the option, because he or she must rely on the financial strength of the writer to pay for the in-the-money amount should the option be exercised.
He figured TurtleTrader was like other sites offering quick tips and short cuts to profit making. He figured wrong and we told him to move on. Eventually he'll locate another firm or site that will tell him what he wants to hear. Then he will go broke. That is a promise. If this writer sounds like you, click here and start burning your money.
Throughout the investment world pairs trading takes many forms, and the various forms rely more or less heavily on different factors. While none of these approaches is inherently better than the others, some parallel the approach laid out in this book more closely than others. One approach that differs greatly from the one explored in this book relies heavily on fundamental data rather than technical factors. This particular approach falls largely outside of the focus of this book (hence the inclusion of technical rather than fundamental analysis as the third element), but it should be addressed in order for the reader to gain a comprehensive understanding of the strategy. It should not be assumed that the fundamental approach is a less legitimate form of pairs trading than the technical approach, but rather that it is not the preferred methodology of this particular writer.
German writers have frequently observed that the depreciation of the exchange was to Germany's disadvantage in that it induced her to sell her goods at unduly low prices. The phe lomenon had been previously observed by Wagner in the Russian case. In his researches into the Russian exchange Wagner asserts that in consequence of the depreciation of the rouble, since internal prices had not increased in exact proportion to the premium on foreign exchange, Russian exporters
With decades of experience as a trading system designer and financial writer, Thomas Stridsman's market career has entered a new phase. The author of two books on system design, Trading Systems That Work (McGraw-Hill, 2000) and Trading Systems and Money Management (McGraw-Hill, 2003), Stridsman has also written extensively on these topics for Active Trader (as well as Currency Trader), where he worked as both a senior staff editor and contributing editor before taking his trading ideas to a different venue. TS I've been trading currencies for about two years now. When I worked as a researcher and writer prior to trading currencies, I mostly constructed systems for multi-sector portfolios. What surprised me, and what I had to learn the hard way, was how vulnerable you are to correlations when you trade only one sector. I took a huge hit early on in the spring of 2008 because of this, but I adapted well when I recognized the root problem.
The Option Clearing Corporation (OCC), the clearinghouse for options trading, is jointly owned by the exchanges on which stock options are traded. The OCC places itself between options traders, becoming the effective buyer of the option from the writer and the effective writer of the option to the buyer. All individuals, therefore, deal only with the OCC, which effectively guarantees contract performance. Because the OCC guarantees contract performance, option writers are required to post margin to guarantee that they can fulfill their contract obligations. The margin required is determined in part by the amount by which the option is in the money, because that value is an indicator of the potential obligation of the option writer upon exercise of the option. When the required margin exceeds the posted margin, the writer will receive a margin call. The holder of the option need not post margin because the holder will exercise the option only if it is profitable to do so. After...
With more sophisticated strategy-testing software, it is no longer necessary to program the trading method in FORTRAN, BASIC, or C to test its success. In a few minutes, using a strategy testing package such as TeleTrac, Omega's System Writer, or even a Lotus or Quattro spreadsheet program, you can have a good idea of the viability of the technique.
Bill Miller first learned about the Santa Fe Institute in an article on chaos theory by James Gleick, a science writer for the New York Times. Miller began to wonder whether the study of complex systems would give him insight about investing. In 1991, his work brought him into contact with Citicorp President John Reed, who provided the seed funding for the Institute's Economics Program.
13 Bond-market participants often use the term yield when referring to total returns (returns incorporating both price change and income), as in yield to maturity. In other cases, yield refers to returns from income alone (as in current yield, which is annual interest divided by price). As used in this book and by many writers, holding period yield is a bond market synonym for holding period return, total return, and horizon return.
Two major historians of sixteenth and seventeenth century Spain, Hamilton and Larraz, saw Spanish mercantilism as advocating chrysohedonism and bullionism respectively. They contrasted this with the supposed quantity theory of the scholastics in an attempt to show the mercantilists' 'error'.16 Indeed, in Spain as elsewhere, mercantilism was born of the opposition to chrysohedonism 17 and with a very special type of 'bullionist' attitude. The attempt to stop or restrict the draining of gold from the kingdom can involve various motives either an actual chrysohedonist attitude (paradoxically, this applies to the scholastic and 'quantitativist' Mercado) 18 or the desire to establish a fixed, profitable exchange rate for the nation (as in the English writer Malynes) 19 or else the desire to use money not to purchase goods from abroad but for investment at home. This latter motive is the most common among the Spanish mercantilists, but it has nothing to do with the proper bullionism.
All the decisions you make about entries, exits, and stops show up in the slope and smoothness of the equity curve. In this section we will explore the equity curves of the 65sma-3cc model using a deutsche mark actual contract with rollovers. We will study how the equity curve responds to changes in system design. Our yardstick for comparison will be the standard error calculations described in the previous section. We will not test continuous contracts, because the actual contracts with rollovers provide a better simulation. Besides, the System Writer Plus software from Omega Research can be used here to develop detailed equity curves.
We need to differentiate between opinions and information. Buy information, but avoid opinions. I subscribe to the Wall Street Journal, and have for close to half a century, because it provides me with information. I use it to double-check prices and statistics. I glean indicators from the pages. Yes, I must admit, I like to read some of the columns. I also look at the sections that tell me what has happened in the markets. But that is not to have the writers tell me what is pushing prices it is to see what they think is pushing prices. There is a big difference. It is also a way of knowing what may be moving that I had not been aware of. I think the Wall Street Journal is a worthwhile expense for anyone wanting to be active in markets. But it is still very important to not be swayed by the opinions that are everywhere. The only important opinion, in the final analysis, is your own. That opinion is what will prompt you to buy or sell a certain stock and to have a particular outlook...
In this case, the premium represents a profit as it is being paid to the writer. If the spot foreign exchange rate at maturity is at or below the strike, the holder of the option will not exercise and the premium will be kept. If, however, the spot foreign exchange rate at maturity is above the strike, the holder will exercise and the writer will realise a loss as for a spot foreign exchange position less the premium received.
Clearly there is ambivalence towards our belief about emotions and their value. On the one hand, emotions are what make us human such as love - of parents, of lovers, of children, of friends and we readily accept that some emotions are the foundations for compassion and heroic acts. On the other hand, we distrust emotions. We wonder about anger, contempt, and fear as destructive forces. These elements destroy our trading, our peace of mind, devastate families, and elicit war between communities and between nations. There is greed, which drives traders to make irrational actions and which makes for endless misery among powerless minorities. There is shame and humiliation, which drive people to rage and desperate acts. Jenkins et al. (1998) comment that thinkers, writers, and researchers on emotions have believed down the ages that there is something both profound and non-obvious about emotions, about how they arise, about how to understand them, and about how to deal with them.
This possibility entailed an additional drawback following the significant rise in the price of ECM shares, the hedge fund would no longer be hedged against the ECM industry risk. Actually, it could be argued that the hedge fund in this case is in the same position as a call option writer on the ECM sector, with the exercise price equal to the threshold value that would have triggered the change in the reorganization plan by the bankruptcy court.
Chicago's reputation for real estate booms was such that Berlin, overindulging in real estate speculation in the euphoria of victory over France in 1870-1871, was called 'Chicago on the river Spree.'12 The booms in Berlin and Vienna in 1873 were related to that in the New York stock market. One writer claimed that in Chicago in 1871, every other man and every fourth woman had an investment in house lots.13 The bubbles expanded in parallel until the summer of 1873.
The poverty of certain German classes during the inflation which contrasted with the foolish extravagance and provocative ostentation of inflation profiteers,' was mainly the result of the monetary depreciation. In fact, the period of most acute and widespread poverty was 1923, that year in which the dollar exchange rate rose from 10,000 to 4,200 milliard paper marks An indication of that poverty is given by statistics about individuals who received small subsidies or pensions from national or local governments. Excluding the unemployed, they amounted to 5,632,000 towards the end of 1923, according to the statements of the minister Brauns. Naturally there are no statistics about those people who were reduced to a life of penury and misery among the professional and academic classes students, tutors, writers, artists, and scholars. But many in the working classes also suffered dire poverty they were the unorganized workers, and especially domestic workers of both sexes, both in the...
Some writers have considered the monetary reform, introduced bv the decree of October 15th, 1923 on the creation of the Rentenbank and the issue of the rentenmark as a revaluation of German money whilst others have spoken of the stabilization of the German Exchange and still others of the legal reduction of the value of the currency. It is a question of terms and points of view. Some writers refer to the paper mark, others to the rentenmark.
Of course, for anyone who buys an option, someone must sell (or write) an option. The sellers, or writers, of call options believe that the market will not rise sufficiently to make a profit for option buyers. Sellers of call options make money most of the time they sell options, since the vast majority of options expire worthless. But should the market move sharply against the option sellers, their losses could be enormous. For that reason, most sellers of call options are investors who already own stock. This strategy, called buy and write, is popular with many investors since it is seen as a win-win proposition. If stocks go down, they collect a premium from buyers of the call, and so are better off than if they had not written the option. If stocks do nothing, they also collect the premium on the call and are still better off. If stocks go up, call writers still gain more on the stocks they own than they lose on the call they wrote, so they are still ahead. Of course, if stocks go...
In contrast, the concept of the division of labour is one of those common ideas which are found in all economic writings, starting at least from Xenophon (see pages 20, 29), and which were not discovered by anybody.120 Certainly not by Smith, as was often believed in the nineteenth century nor by Diderot or Beccaria, as J. B. Say and Pecchio wrote.121 Not even by Plato. It is therefore naive to think that Smith was inspired by Plato,122 and not, more simply, by the seventeenth and eighteenth century English writers that he knew so well (see below).
Imagine the last day of an option's maturity it is still ATM, a very small move in the underlying spot rate, say +0.0005, may swing the option ITM. In that case the option writer needs to have 100 of the underlying ready for the option holder not if, but when, they exercise. Twenty minutes later the spot rate has moved back 0.0007, the option is now OTM. The option writer now needs to hold 0 cover. Every time the market moves, even in very small amounts, the delta may swing from zero to one with nothing in between, this is the classic high gamma position (see Figure 13.9).
To the option writer this risk premium is highest when the option is at the money, because at this point there is the greatest uncertainty over whether the option will expire worthless or have some value at maturity. If the option moves into the money, the writer can be more sure the option will be exercised, if it moves out of the money the opposite applies. The more deeply in or out of the money the option moves the greater the confidence of the option writer in the final outcome will it or won't it be exercised In simple terms the longer the time to expiry the more an option is worth. As time passes, the option writer can define the risk more accurately, and in the last few days before expiry the time value diminishes rapidly. The time value of an option decays as expiry approaches.
Life of the option up to and including its expiration date Assignment Notification to the option writer requiring him to fulfil his contractual obligations Call option An option which gives the holder the right to buy, and the writer the obligation to sell, a predetermined amount of a currency to a predetermined date at a predetermined exchange rate market price of the underlying Intrinsic value The value of an option relative to the outright forward market price, i.e. it represents the difference between the strike price of the option and the forward rate at which one could transact today Margin, initial margin The amount required to be put up as collateral by the option writer to the clearing-house. It is equivalent to a performance bond. Should the option position move against the writer, then variation or maintenance margin would be required Mark-to-market The daily adjustment of an account to reflect accrued profits and losses Option A contract between the buyer (or holder) of...
Petty had brought to the fore a subject that was already implicit in the mercantilist conception of the economy. After him productive labour became a topical subject in economic literature. In the period running from Petty to Cantillon, some analyses, like that of Gregory King, are a step backwards compared to Petty's. Other writers, such as Briscoe, Barbon, Child, etc. do no more than repeat some of Petty's arguments. Others, like Petyt, Cary, Locke, Davenant, Bellers and Littleton add something new. Gregory King inverted Petty's idea in a pre-humanistic vision. National wealth is supposedly increased by nobles of all levels, by the clergy, merchants, men of the law, landowners, land administrators, artisans, officials in other words, by all the higher social classes. This wealth is consumed by common seamen, wage workers, servants, paupers and foot-soldiers, none of whom produce wealth.27
Some letter writers are very smart, but taken as a group they are no better than average traders. They become very bullish at major tops and very bearish at major bottoms. Their consensus is similar to that of the trading crowd. Most letter writers follow trends because they are afraid to appear foolish and lose subscribers by missing a major move. The longer a trend continues, the louder letter writers bay at it. The advisors are most bullish at market tops and most bearish at market bottoms. When most letter writers become strongly bullish or bearish, it is a good idea to trade against them. lisher. Investors Intelligence monitors about 130 stock market letters. It tabulates the percentage of bulls, bears, and fence-sitters among letter writers. The percentage of bears is especially important because it is emotionally hard for stock market writers to be bearish. When the percentage of bears among stock market letter writers rises above 55, the market is near an important bottom....
However, there has been a tendency for business cycle theorists to emphasize one or the other aspect in their models. The problem as to whether the business cycle is monetary or real has a deeper aspect. Given the observance of cyclical behavior on the part of the economy, is this behavior due to an 'inherent' instability in the economic process, or is it due to the imposition upon a stable process of outside stimuli The inherent stability school, in its primitive form, takes the guise of a harvest, weather, or even of a war cycle. The more sophisticated writers of this school have emphasized monetary instability. Their position is that the economy is inherently stable and that the perverse behavior of the monetary system is the fundamental cause of observed cycles.5
Many contacts with potential customers that are permitted of a registered company may be prohibited from a hedge fund that relies on exemption from registration. For example, a news release, interview or speech at a conference might be considered a prohibited solicitation or advertisement if the speaker writer works for an unregistered hedge fund and mentions the fund. Many hedge fund operators restrict web site pages to registered users that could legally invest in the funds.
As far as the first tendency is concerned, the major polemical targets of the Enlightenment thinkers were the unproductiveness of the aristocracy and of the clergy. These writers defended the increase in consumption among the common people and also the opulent consumption of the middle class, but bitterly attacked the traditional luxury and the idle habits of the nobility. The Plumard de Danguel devoted his book to the reassessment and expansion of productive workers, who include those in agriculture, manufacturing and trade, but also landowners. The rural classes are the basis for all the others but all productive sectors bring the nation a value which did not exist before. They are therefore 'never too numerous'. And yet, writes Plumard, it is precisely these classes in France that are most heavily burdened with taxes and the most miserable. This is why people try to enter the professions, the public administration and the church, which form the second class in society. This second...
When I was one of the lone voices talking up commodities and China heading into the new millennium, I ran into much skepticism among the press. The writers, reporters, and anchors around the world, the so-called business media who ought to have known better, were more likely to raise an eyebrow or even turn hostile when I wanted to talk about oil, lead, and sugar more than about the next big thing in stocks. I must admit that I find the press's behavior curious. They interview people like me because we're supposed to know things that they don't know, ayd then when we hand them news they can use they turn contentious. Occasionally, I like to tease these media types. During one breakfast interview in a Paris hotel, a congenial writer from a French business magazine who was much more eager to discuss the falling dollar and the surging euro for obvious reasons (Vive la France ) asked me what I would recommend for an ordinary investor like her. I plucked a wrapped sugar cube from the bowl...
If the market penetrates the trading range, option sellers are exposed to great risks. Recall that sellers of options (as long as they do not own the underlying stock) face a huge potential liability, a liability that can be many times the premium that they collected upon sale of the option. When such unlimited losses loom, these option writers run for cover, or buy back their options, accelerating the movement of prices.
Http www.coveredcall.com This somewhat specialized Web site was created as a forum for investors to acquire new ideas and exchange information about trading covered call options. As its name implies, this site concentrates on the various data many covered call writers deem as required reading and has quick links to other critical data fields all presented in an extremely easy to read and use format.
Because there is plenty written on the subject of crowd psychology, market psychology, and trading psychology, I don't want to repeat those banal and well-known truths of authors who already have written enough on these subjects. I'm essentially against citing any other peoples' opinions, and prefer to think and analyze everything myself. Reading those books, I have noticed that the authors usually have no problem diagnosing traders' common problems, but each writer offers his or her own unique solution. Sometimes, such a solution looks even worse than the problem itself. I have a strong feeling that some advice and recommendations that I have found can cause mental illness in even a previously healthy personality. It's a well-known fact that psychiatrists frequently become similar to their patients after long-term clinical work, and that is why their recommendations look strange from the point of view of an ordinary person.
Training, developing the trader's capacity to stay immersed in their craft. Simonton also examined the specific works of some of the most eminent creative individuals in different fields and came to a startling conclusion. The odds of generating a work of lasting merit did not increase over the creator's lifetime. That is, the greatest writers, artists, and thinkers produced the same ratio of clunkers to works of genius throughout their careers. They were successful, Simonton notes, because they simply produced more. Whether a given work becomes famous or not is a matter of natural selection. Creative talents who are more productive increase their odds of generating a memorable work.
2 This is a much quoted and misquoted study. A survey by Nutall and Nutall found that of 50 writers who quoted this study, 37 misread it to indicate that 93 of the total return came from asset allocation. (Nuttall, J.A. and J. Nuttall, 1998, Asset Allocation Claims - Truth or Fiction , Working Paper.)