All About Financial Matters

Archive for October, 2007

If you are struggling with financial issues, it would be wise to see an accredited credit counselor. Counseling can help you determine if a debt management plan or another solution is right for you.

Most debt management companies offer credit counseling for those in need of it for little or no cost. The credit counselor can review your circumstances and offer options that might be a good fit. If your situation is mild, they may just recommend that you take several self-help tips. They can show you how to create a budget for your income as well as come up with a plan to pay off your debts in a systemized manner. They can also show you areas in which you can save money. These tips can also help those that are in need of more involved debt management.

Many people with debt problems are good candidates for debt management plans. If you are one who struggles with paying your credit card bills or can simply afford to make the minimum payment, this plan might be the right solution for you. A debt management plan allows you to save money on account fees as well as provide you accountability for getting your debt paid down. In most cases, you will be able to pay off your debt in five years or less under a debt management plan. You will want to talk to the credit counselor about this option to determine if it is a good fit.

In the most extreme of cases, bankruptcy may be advised. This is certainly not a good fit for most circumstances. You should try other possible solutions before coming to this.

Whatever debt management solution you and your credit counselor determine is best for you, stick to the plan. Start making new habits that will help you build financial skills that you can continue to use even after you are free of debt.

Ronnica Rothe graduated Magna Cum Laude from the University of Oklahoma. She is currently enrolled at Southeastern Seminary in Wake Forest, NC.

She is a regular contributor to educational information disseminated through Personal Financial Network. Related information can be found at pfni.net/faq.htm pfni.net/faq.htm

The butterfly spread is a conservative strategy with both limited profit potential and
limited risk. It is actually a combination of a bull spread and a bear spread. It can
be constructed using all calls, all puts, or a combination of each.

Three strikes are used: one high, one low, and one in the middle. You buy the upper and
lower strikes and sell the middle strike.

For example, suppose a stock is selling at 50 and your option pricing model indicates
the 50 strike front month options are “rich” and should be sold. Your opinion on the
stock is neutral. You sell the 50s and buy the 45 and 55 strikes.

Another way of looking at the butterfly spread is selling a straddle and buying a
strangle: Selling the 50 strike straddle and buying the 45/55 strangle, in this example.

If you took in a net credit of $3.50 per spread, that is your maximum possible profit
for selling the spread.

The risk is the difference between strikes (5 points) minus the credit received (3.50)
or 1.50 points per spread. Not bad.

Your profit range, in this example, is the middle strike (50) plus and minus the credit
received (3.50): 53.50 - 46.50.

The risk is limited should the underlying fall below the lowest strike or rise above the
highest strike. The maximum profit, as in all strategies involving the selling of option
premiums, is at the strike price of the options sold. In this case, the middle strike.

Should the underlying experience a large move in either direction, some strategists
close out the profitable side of the butterfly spread near its maximum profit point thus
preparing to capitalize on a price reversal, should one occur.

Caveat: In this, or any, strategy involving the shorting of options, avoid early
assignment by closing the position if the short options trade in-the-money, at or near
parity.

Always keep in mind the “time value” of money. By that I mean consider closing the
position early if most of the potential profit has been earned and there remains a
considerable amount of time left till expiration.

For instance, if you find that you’ve earned more than half of the maximum potential
profit in less than half the time to expiration, is it wise to stick around for the small
remaining profit?

Suppose, for example, you’re ahead 80% of the maximum possible profit in less than 50%
of the time remaining. Do you really want to stick around for the remaining 20% and risk
losing back the profit that you’ve already earned?

The butterfly spread is a favorite strategy of many traders.

Because No One Cares More About Your Money Than You

dynamic-stock-market-strategies.com dynamic-stock-market-strategies.com

Good trading,
Don Heggen