Archive for October, 2011

by Tom Doan

Winter.  The word alone brings images of kids playing in snow (unless you’re from Texas), Santa Claus, and a plethora of religious holidays such as Christmas, Hanukah, and Kwanzaa. However, to Snider Method investors, the word “winter” causes people to cringe and have premonitions of the Apocalypse. Winter is a term used in the Snider Method to describe a position that is not able to generate any option premium. Winter positions are never fun and I get many calls from clients asking how to get their positions out of winter, if there is some way to strategize their way out, or simply sell the position and move on. However, the question you should be asking isn’t “How do I escape winter?” but rather “What are the alternatives and is it better than waiting?” There are three main alternatives: selling the position and starting over, buying more stock to reduce the cost basis, and Transmogrification.

The most common suggestion from clients is to dump the stock, take the losses, and start over. The rationale is that taking the loss and starting over with an income generating position is better than having a position sit and do nothing. However, the numbers may tell a different story. For example, say you have 1,000 shares of stock XYZ with an average cost of $34 and the stock is trading at $12. By liquidating, you are realizing a $22 loss per share, or $22,000. By opening a new position, you are asking this new position to make up the $22,000 loss just to get you back to where you were. In addition, there is no way to predict how well the new position will perform; in ten months the new position can also be in winter, causing a reverse compounding effect on your portfolio. When you sell the position, you also reduce the Stake by the amount of the loss. As a result, you may not even be able to open a new position after liquidating a winter position because of the lack of unallocated cash.

Another alternative clients suggest is to go past ten times the purchase limit to further reduce the cost basis or continue trading options. For example, if you have 1,000 shares of XYZ with an average cost of $30 and the stock is currently trading at $15, you could purchase an additional 1,000 shares at $15 to reduce the cost basis to $22.50. This would mean that if the stock price increases to $22.50, you could break even. However, the key word in the previous sentence is “if.” Like most important decisions in life, risk vs. reward is weighed. If the reward is worth the risk, then most of the time it’s a good decision and vice versa. Throughout the life of the position, we are dollar cost averaging into our exposure to the position. However, the limit is set at ten purchases because we are not willing to contribute any more capital beyond ten purchases as a way to limit our risk in any one position. The reward of lowering the cost basis even more may be appealing, but we do not believe it is worth the risk to do so. True, if the position increases you may be able to get out of it sooner, but if the position spirals downward you would lose more capital than you would have if you didn’t continue purchasing.

Any time a position undergoes a merger, acquisition, or if something happens to a company that impacts Snider Method trading, we may send out a position alert to Transmogrify the position into another one. Many clients ask if they can do the same with their winter positions. On the surface it seems like a good idea; swapping a position you’re sick and tired of seeing for a new one, but the end result may be no different. Transmogrification swaps out your current shares for shares of a new position.  So, if you have 1,000 shares of XYZ and Transmogrify to BCE, you will purchase 1,000 shares of BCE and BCE will assume the same average cost of XYZ and similar purchases prices on the Individual Stock Purchase Record. The price of the Transmogrified position is similar too, so if XYZ was trading at $10, BCE is also trading in the same range. As a result, Transmogrifying a winter position will most likely require the same time and patience waiting for the price of the new position to appreciate.

Although it is unknown if winter positions will recover, we have seen many of them bounce back. It may be tempting to sell a position that’s buried deep into winter.  But keep in mind, you are falling into the same trap of buying high and selling low, the opposite of an effective investment strategy.  Waiting may not be an exciting or fun thing to do, but looking at all of the options from dumping the stock and lowering the cost basis to Transmogrification, we recommend waiting as the best option.

This is not financial, legal or tax advice. Our goal is your financial success, but all investments involve risk including the possible loss of principal and results will vary. If you are interested in the Snider Investment Method, please read the Owner's Manual for a complete discussion of risks and benefits. More information can be found on our website or by calling 1-888-6SNIDER. Past performance is not indicative of future results.

Reading: Winter: The Season Before Spring

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by Shelley Seagler

On October 14, 2011, the Secretary of Health and Human Services, Kathleen Sebelius announced that the U.S. government will no longer move forward with its plan to offer publically-administered long-term care insurance. The Community Living Assistance Services and Supports Act (CLASS Act), which was part of the healthcare reform package passed by Congress in 2010, was designed to be a voluntary and self-sustaining long-term care insurance program. But after substantial analysis by both government and non-government entities, it was determined that creating an actuarially solvent benefit program that meets required legal statutes is not feasible. In a letter to Congress, Sebelius stated that she does not “see a viable path forward for CLASS Act implementation at this time.”

From the get-go, CLASS Act has been the subject of much-deserved scrutiny. Most notably, the Chief Actuary for CMS predicted that CLASS Act would be an, “insurance death spiral.” And Democratic Senator Kent Conrad referred to it as “a Ponzi scheme of the first order, the kind that Bernie Madoff would be proud of.”

CLASS Act’s fatal flaw was its inevitability of falling victim to the terminal financial drain of adverse selection. Adverse selection means those who are most likely to need insurance are those who are most likely to participate in the program. Insurance companies make money off of healthy people – not those who make costly and/or lengthy claims.

Private insurance companies are able to protect themselves from adverse selection by imposing rigorous underwriting guidelines. But CLASS Act would have been available to anyone, including those already suffering from long-term disease or disability. Without excessively high premiums and government subsidies, CLASS Act could have never remained solvent for the 75 years mandated by the Patient Protection and Affordable Care Act.

The future of healthcare in the United States has been heatedly debated for many years. But what is not debatable is that nearly 70 percent of those 65 and older will need long-term care services or support in their lifetime – and the price is steep. The national median rate for one year in a nursing home is almost $80,000, which is over $17,000 more a year than it was in 2005. (Read more about the cost of long-term care.) It’s estimated that 53 million Baby Boomers will eventually need some form of long-term care, so you can only expect long-term care costs to increase at a rapid rate over the next several decades.

How do you plan to pay for long-term care? Contrary to popular belief, Medicare does not offer long-term care coverage. Medicaid does, but only after you’ve exhausted all other resources and can meet state income and poverty levels. If you haven’t looked into private long-term care insurance, there is no better time than the present.

Yes, long-term care insurance requires you to go through underwriting, but in my opinion, this is a good thing. If you’re concerned about underwriting, give me a call. Each insurance company has slightly different underwriting requirements and you may be pleasantly surprised to find a carrier that will work with your specific situation. If you’re tempted to wait, read my article The Cost of Waiting to Buy Long-Term Care Insurance. The worst time to decide how you will pay for a long-term care event is when it happens, the best time is now.

This is not financial, legal or tax advice. Our goal is your financial success, but all investments involve risk including the possible loss of principal and results will vary. If you are interested in the Snider Investment Method, please read the Owner's Manual for a complete discussion of risks and benefits. More information can be found on our website or by calling 1-888-6SNIDER. Past performance is not indicative of future results.

Reading: Governement Abandons CLASS

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by Josh Stelzer

Today I’d like to spread the word about a free service I discovered about a year ago. I was making my monthly student loan payment and just happened to be talking to my sister at the time. She asked if I was enrolled with Upromise, and I asked her what many of you are probably thinking, “What in the world is Upromise?” She then gave me information that I wish I had known several years ago, and I’m happy to pass that along to you today.

Upromise is a program that partners with Sallie Mae, to assist users in paying back student loans by offering credits for your everyday purchases. So how does the program work? The program is very similar to a credit card rewards program and actually will work with any credit card or bank card, in addition to any rewards you are currently receiving.

In short, you simply register your current debit or credit card with your free Upromise account, select “credit” at the checkout, and then you will begin to receive free credits from participating companies that you do everyday business with. The credits are applied automatically after registering your card, and the amounts can really build up over time. What was surprising to me was the amount of companies that participate in the Upromise program. Everyone from your local gas station, to privately owned restaurants are most likely participating in this program.

Don’t have a student loan? Another interesting feature with Upromise is the ability to accumulate credits off of friends and family. If your children or grandchildren have student loans, you can register your credit card with their Upromise account, and automatically assist them with paying down their loans by making your everyday purchases. In fact, the program allows up to 10 different credit cards to be registered to each account, which could be a very powerful tool in assisting your loved ones with tackling their student loans.

As your credits begin to build up you have four options on how to use the funds. First, you can elect to have the funds transferred on a monthly basis to a high-yield savings account offered through Sallie Mae. This is an online savings account very similar to other high-yield savings accounts offered by various financial institutions. These types of savings accounts can be a great option due to their higher yields associated with the online bank’s lower operating costs. This option could assist you with creating the crucial emergency fund that everyone should have.

Secondly, you can elect to have the funds deposited in a 529 plan for you, your children, or your grandchildren’s use later on down the road. A great feature of the 529 plan option is to link the Upromise savings with your currently established 529 plan. This allows you to avoid the hassled of setting up a new account, while still taking advantage of the free contributions. Not all 529 plans allow for this link, but there is a detailed list of participating 529 plans on the Upromise website.

The third option for using your savings is to link your Upromise account with your Sallie Mae student loan. By choosing this option, your Upromise account will automatically transfer the funds you have accumulated to your Sallie Mae loan on a quarterly basis. This transfer will reflect in your Sallie Mae loan as a payment, and can significantly reduce your loan over time. You can either reduce your minimum payment in the month of the quarterly payment, or count the Upromise credit as an additional payment toward paying off your student loan. Anyone with a student loan should take advantage of these free payments.

The final way you can use your accumulated funds is to have Upromise simply send you a check in the mail each month. Any accumulated savings over $10 will be mailed directly to you, and can be used in any way that you desire. As a financial advisor I feel that this is the least attractive option of the four, based on the probability of spending the additional funds. It would be a much better choice to act as if these funds never existed, and allow them to work for you in one of the three previous ways discussed.

As you can see, Upromise can be a very useful tool in creating emergency savings, working to pay down student loans, or starting a college savings plan for those you love. I encourage you to research the program for yourself and pass this valuable information on to children, grandchildren and friends who may benefit from this free service. You can find out more by visiting www.Upromise.com.

This is not financial, legal or tax advice. Our goal is your financial success, but all investments involve risk including the possible loss of principal and results will vary. If you are interested in the Snider Investment Method, please read the Owner's Manual for a complete discussion of risks and benefits. More information can be found on our website or by calling 1-888-6SNIDER. Past performance is not indicative of future results.

Reading: Upromise: Free credits toward student loans

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by Jesse Anderson, CFA

At the close of the third quarter, the S&P 500 was down just over 10% for 2011. Retirees living off their portfolios may face tough decisions over the next few months when it comes time to make their next withdrawal. The standard 4% withdrawal rule faces added scrutiny each and every time the market declines. When portfolio income becomes a priority, it is time to abandon your customary mutual fund portfolio and find an investment strategy aligned with your objectives.

Read more: http://community.nasdaq.com/News/2011-10/creating-cash-flow-in-retirement.aspx?storyid=99194#ixzz1bMTHwblc

This is not financial, legal or tax advice. Our goal is your financial success, but all investments involve risk including the possible loss of principal and results will vary. If you are interested in the Snider Investment Method, please read the Owner's Manual for a complete discussion of risks and benefits. More information can be found on our website or by calling 1-888-6SNIDER. Past performance is not indicative of future results.

Reading: Creating Cash Flow in Retirement

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by CareyAnn Peterson

As Online Banking has become more accessible and easy to use, I have found myself using my debit card more and more and rarely using cash. This is becoming a common trend among Americans. We are choosing to use plastic even for small purchases. Banks have capitalized on this trend by offering merchant services to small, medium, and large businesses and it is becoming very rare to find an established business that does not accept plastic. Although using a debit card is typically more convenient, retailers and consumers are carrying the burden of the added costs of processing these transactions. Recent legislation has taken effect that might make you think twice about using your debit card in the future.

The Durbin Amendment was proposed by Illinois Senator, Dick Durbin, to lower the fees that large banks are charging for merchant services. Before this Amendment took effect on October 1st, retailers paid as much as 44 cents for every debit card transaction placed. Now, banks that have more than 10 billion in assets will only be able to charge retailers a maximum of 24 cents per transaction. The intent of this amendment was to help retailers lower their expenses and be able to offer discounts to customers using cash or a debit card. In the end, retailers might be the only ones that see the cost benefit of this change. Large banks are looking for ways to make up their expected loss in revenue which could end up costing you.

You the consumer need to be aware of new fees that may arise from using your debit card. Bank of America is planning on adding a $5 monthly fee for using your debit card to make a purchase. You will still be able to use the ATM freely, but be prepared to start carrying cash or you will see an increase in debit card fees. Bank of America will however waive the fee for anyone who also has at least $5000 in a linked savings account, a large investment account, or a mortgage with the bank. Other big banks are taking away free checking and their various reward programs. They will be encouraging you to use your credit card instead of checking account so that they can increase revenue from credit card transactions and fees.

It is important for you to evaluate your checking account services with your bank to see if you will see an increase in fees. If your bank account will or has already seen changes, and you are not comfortable with only using cash or credit for purchases, you may consider changing to a smaller bank or credit union that offers free checking. Although the Durbin Amendment took effect October 1st, banks may not make changes to their account fees until 2012, so be on the lookout for any changes in your account over the next two quarters.

This is not financial, legal or tax advice. Our goal is your financial success, but all investments involve risk including the possible loss of principal and results will vary. If you are interested in the Snider Investment Method, please read the Owner's Manual for a complete discussion of risks and benefits. More information can be found on our website or by calling 1-888-6SNIDER. Past performance is not indicative of future results.

Reading: Moving Away from Plastic

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by Tom Doan

When people mention the Greeks, images of Zeus, Athena, and Hercules may come to mind.  However, in the finance industry, the Greeks are a set of variables used as measures of risk sensitivity.  The Greeks consist of delta, theta, gamma, vega, and rho.  This article will provide an overview of each variable and what they represent.

Delta (∆) – Delta represents the price sensitivity of an option.  In other words, it is the rate which an option’s price changes as the underlying asset’s price increases $1.  If a call option for XYZ has a delta of .6, then for every $1 XYZ increases, the call option for XYZ will increase by $.60.  The delta is also a rough estimate of the probability the option will expire in-the-money.  According to equal probability, there’s a 50% chance a stock will increase in value and a 50% chance a stock will decrease in value.  As a result, the delta will approach .5 as a call option approaches closer to the strike price.  In addition, as a call option nears expiration, in-the-money calls will approach a delta of 1 and out-of-the money options will move towards 0.  Since premiums for put options have an inverse relationship with the stock price, the delta is negative for put options.

Gamma (Γ) – This variable is a derivative of delta.  Gamma is the rate of which delta changes for each dollar the underlying stock increases.  If a long XYZ 30 call option has a gamma of .62, then the delta for the long XYZ 30 call will increase by .62 for each dollar XYZ increases.  Long options have a positive gamma and short options will have a negative gamma.

Rho (Ρ) – Rho measures the change in option value based on changes in interest rates.  For example, if an option has a rho of .1043, then for every 1% increase in the risk-free interest rate, the value of the option will increase by 10.43%.  Although in theory a risk-free investment does not exist, the three month U.S. Treasury bill is typically used as the risk-free interest rate in the finance industry.

Theta (Θ) – As expiration nears, the time value of an option declines.  Theta measures the rate of which an option’s value declines each day.  Since the last 30 days before expiration is when time value decreases at the greatest rate, the theta is usually highest during that time frame.  If an option has a theta of .3421, then with all other factors remaining the same outside of time, the option will lose $.3421 per day.

Vega – Option premiums are heavily influenced by implied volatility.  When implied volatility of a stock changes, the value of the option associated with the stock also change.  Vega is a variable that shows the extent of which an option’s value will change for every percentage point change in implied volatility.  Since option sellers benefit from decreased volatility while option buyers benefit from increased volatility, a short call will have a negative vega and a long call will have a positive vega.  If a short XYZ 30 call has a vega of -.6719, then for every 1% increase in implied volatility for XYZ, the short XYZ 30 call will lose $.6719.

The Greeks help us evaluate options and other derivatives by giving us data on its price, time, and volatility sensitivity.  Understanding these variables allow us to better evaluate how derivatives react as market conditions change.

This is not financial, legal or tax advice. Our goal is your financial success, but all investments involve risk including the possible loss of principal and results will vary. If you are interested in the Snider Investment Method, please read the Owner's Manual for a complete discussion of risks and benefits. More information can be found on our website or by calling 1-888-6SNIDER. Past performance is not indicative of future results.

Reading: The Greeks: From Past to Present

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by Tyler Curtis

Investors who adopt a disciplined strategy and manage their emotions make better decisions over the long run.  Taking control of your emotions in relation to investing seems like an easy task, but in practice it proves to be quite difficult if not impossible to achieve in perfection.  I recently came across Kiplinger’s investor psychology quiz which addresses the ways our minds often sabotage financial decisions.  As I have mentioned before the first step to mastering your emotions is awareness.  This quiz is a great reminder of the subconscious tricks the brain likes to play on us in order to alter our perception of a situation.

Here are some topics from the quiz that I find the most intriguing.

Herd Behavior

As markets rise investors begin to pile in one after another.  Correspondingly portfolio values climb and investors begin to think primitively toward their investment decisions because the market has become an “easy” place to make money.  The more money that is made and higher the market goes, it only gets harder to think logically.

One of the first things we all learn while growing up is that something is not safe just because everyone else is doing it, though it seems we quickly forget this mentality when it comes to investing.  The smart investor will tread cautiously as the market is making new highs and everyone is piling in, as these are the times when you must stick with your investment plan and not chase after higher riskier returns.

Regret

Behavioral experts agree that it is regret not excitement or envy that ultimately drives people into rising markets when they see others making money.  It can be hard to stand by and watch others who have made a killing on the most recent investment trend, and the regret of not enjoying the ride up can cause you to jump in at just the wrong time.

Recency Effect

The recency effect is a cognitive bias where we assign too much merit to an observation that occurred recently in comparison to earlier observations or the trend represented by the entire record of observations.  For example following a recession it seems as though the stock market only keeps getting lower.  Headlines are cluttered with bad financial news and corruption.  We forget that in the long term, the stock market has been the best way to grow your money.  The result of this brand of thinking is to abandon the stock market and miss out on the gains when the economy recovers.

Confirmation Bias

Sometimes we will ourselves to believe certain things.  Confirmation bias is our tendency to favor information that confirms our preconceptions or hypotheses regardless of whether the information is true.  As a result, we gather evidence and recall information from memory selectively causing us to interpret it in a biased way.  For example, an investor may get a call from a broker pushing his most recent penny stock pick and be intrigued by the return potential.  That investor may then choose to research the stock in order to prove that the hyped potential is valid.  During the process the investor may find many green flags about the stock while glossing over any devastating financial red flags.

These are just a few of the cognitive hurdles investors face when making decisions.  It’s important to adopt an investment strategy that both recognizes these emotional factors and doesn’t allow you to give in to them.

This is not financial, legal or tax advice. Our goal is your financial success, but all investments involve risk including the possible loss of principal and results will vary. If you are interested in the Snider Investment Method, please read the Owner's Manual for a complete discussion of risks and benefits. More information can be found on our website or by calling 1-888-6SNIDER. Past performance is not indicative of future results.

Reading: The Investors’ Psyche

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by Shelley Seagler

Medicare’s open enrollment window is a full month earlier this year. It starts on Saturday, October 15th and ends December 7th. This open enrollment period allows you to make changes to your Part C (Medicare Advantage) and Part D (prescription drug coverage) coverage.

Also known as Medicare Advantage, Medicare Part C is offered through private insurance companies that are approved by and under contract with Medicare. A Medicare Advantage Plan can be an HMO, PPO, Private-Fee-for-Service plan, Specialty Needs plan, or Medical Savings Account. With most plans, you must use in-network services providers. Part C includes both Medicare Part A and Part B and might also offer additional coverage like vision, dental and prescription drugs.

During the enrollment window, you can do the following:

• Change from a Medicare Advantage Plan to original Medicare.*

• If you switch to original Medicare, you should consider purchasing a Medicare Supplement Plan, as well as prescription drug coverage.

• Change from original Medicare to Medicare Advantage.

• Switch Medicare Advantage plans.*

• If you switch from a plan that offers prescription drug coverage to one that does not, you should also consider signing up for a Medicare Part D plan.

*If you are canceling or switching Medicare Advantage plans, you will more than likely be required to notify your current carrier in writing.

It’s important to understand that Medicare Advantage plans are not the same thing as Medicare Supplement Insurance (Medigap). You can have either a Medicare Advantage plan or Medigap, but not both. Combined with original Medicare, Medigap plans always offer more coverage than a standard Medicare Advantage plan. While many Medicare Advantage plans offer some additional coverage, they are essentially just a method of getting Medicare.

Although the premiums for Medicare Advantage plans are typically cheaper, the overall cost of coverage may not be cheaper after you factor in out-of-pocket expenses like deductibles, copayments and coinsurance. For most people, a Medigap plan probably makes more sense. However, if you have limited income, a Medicare Advantage plan may be a better choice for you. If you need Medicare Supplement insurance, Snider Advisors can help. We can show you a variety of plans from different carriers so you can make an educated decision about which plan is best for you.

Medicare Part D is prescription drug coverage and it helps pay for outpatient prescribed medications. Part D is sold through private companies that are approved by Medicare. You have several choices for prescription drug coverage. Nationally, the average Part D monthly premium is $31.92. Some Part D plans also have a deductible, which is currently limited to $310. Most Part D plans have some amount of cost-sharing through copayments or coinsurance for each prescription you have filled. There are plans that offer significantly more coverage with fewer out-of-pocket expenses, but these plans will have a higher monthly premium. Click here to read our NASDAQ.com article, 10 Things You Should Know about Medicare Part D.

During the enrollment window, you can do the following:

• Join a Medicare Part D plan
• Drop a Medicare Part D plan
• Switch Medicare Part D plans

Typically, you do not have to notify your current carrier that you are dropping your plan. Your old coverage will end when your new coverage begins.

Unless you qualify for an exception, the open enrollment period is the only time you will be able to make changes to your Part C and Part D coverage. Any changes you make will become effective on January 1, 2012.

Medicare Advantage and prescription drug plans are not all created equally. You should have already received notification about any changes to your current coverage. Make sure you take the time to review your current plan and compare it to others available in your area. There are many resources available to help you evaluate plans including Things to Think about when You Compare Medicare Drug Coverage and the Medicare Plan Finder.

Unfortunately, Medicare is not always easy to understand. If you have questions or need help deciding what the best options for you are, we’re happy to help. We can also help you find a Medigap plan. Feel free to contact us at 888-6SNIDER or support@snideradvisors.com.

This is not financial, legal or tax advice. Our goal is your financial success, but all investments involve risk including the possible loss of principal and results will vary. If you are interested in the Snider Investment Method, please read the Owner's Manual for a complete discussion of risks and benefits. More information can be found on our website or by calling 1-888-6SNIDER. Past performance is not indicative of future results.

Reading: Medicare Open Enrollment 2011

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by Shelley Seagler

The thing I didn’t know before I became a parent is that 98% of my child’s quirky (and/or annoying) habits will come directly from me. For example, my 2 ½ year-old refers to all forms of currency as not just money, but money-honey. The first time I heard her use this expression, I was slightly appalled. But then I figured out that she learned it from me. I pick a penny off the ground, put my debit card in my purse, or mention how expensive gas is and she automatically says, “It’s money-honey, Mama.”

Read more:  http://community.nasdaq.com/News/2011-10/resources-to-teach-your-kids-about-money-honey.aspx?storyid=97668#ixzz1bu1t3wwv

 

This is not financial, legal or tax advice. Our goal is your financial success, but all investments involve risk including the possible loss of principal and results will vary. If you are interested in the Snider Investment Method, please read the Owner's Manual for a complete discussion of risks and benefits. More information can be found on our website or by calling 1-888-6SNIDER. Past performance is not indicative of future results.

Reading: Resources to Teach your Kids about Money, Honey

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by Tom Doan

In the Snider Investment Method, we sell options for a premium, which is the amount we receive for selling someone the right to purchase our shares at a particular price over a given period of time. This is the second of a series, with each article explaining a different component that helps determine the premium of a stock option. The last article discussed time and how the Snider Method uses the time value to its advantage. Today’s focus will be on volatility, another important factor that determines option premium.

As a stock price fluctuates up and down, the extremity of these movements is known as volatility. A stock with a higher volatility can have its stock price spread out over a larger range of values than a stock with a lower volatility. There are also different types of volatility: historical volatility and implied volatility. Historical volatility is the degree which a stock price has varied in the past while implied volatility is the estimated volatility of a security’s price in the future. Although historical volatility is important, option premiums are based off the stock’s implied volatility.

For example, say you have two positions in UVW and XYZ and as of today both are priced at $20 and tomorrow UVW will either be at $19 or $21 and XYZ will either be at $17.50 or $22.50. XYZ has a higher implied volatility because it has greater uncertainty and a larger range of potential prices. Because of the wider range of prices, the option premium will be higher for a volatile stock than a less volatile stock. Investor “A “may be bullish and decide to buy calls on UVW and XYZ and Investor “B“ may be bearish, thus selling UVW and XYZ calls. However, since XYZ has a higher degree of uncertainty to the direction and extremity of the price for XYZ, Investor “A” will be paying more for the call options and Investor “B” will be receiving more in option premium for the XYZ position.

The Snider Method is designed to take advantage of volatile stocks by reaping the higher option premiums those positions generate while simultaneously managing risk. The Snider Method incorporates measures such as the Band Rule, purchase Level, diversification, and screens in Lattco to help mitigate the risks associated with volatility. With these measures in place, the Snider Method utilizes the time and volatility factors in option premiums.

UP NEXT: Underlying Stock Price and an Intro to the Greeks.

This is not financial, legal or tax advice. Our goal is your financial success, but all investments involve risk including the possible loss of principal and results will vary. If you are interested in the Snider Investment Method, please read the Owner's Manual for a complete discussion of risks and benefits. More information can be found on our website or by calling 1-888-6SNIDER. Past performance is not indicative of future results.

Reading: Option Premiums Part II: Volatility

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