SEC to limit shorting of Fannie, Freddie, brokers

by Alistair Barr

The Securities and Exchange Commission said Tuesday that it will try to limit so-called "naked" short selling of shares in Fannie Mae, Freddie Mac and big brokerage firms.

The SEC will issue an emergency order stating that all short sales of shares in these companies will be subject to a "pre-borrow" requirement, said Christopher Cox, chairman of the SEC. This will last for 30 days, he said. The SEC is also planning more rule-making focused on short selling in the broader market, Cox said.

In a typical short sale, traders sell borrowed shares, hoping to buy them back at a lower price and return them to the lender. The difference is kept as profit. In naked shorting, a trader shorts a stock without first making necessary arrangements to borrow shares. That sometimes means the seller fails to deliver the stock to the buyer and the trade can't be settled, running afoul of securities laws.

Imposing a "pre-borrow" requirement on short sales of some shares will force traders to make sure they have located securities before putting on negative bets. That may limit the pressure on the stocks included in the emergency order.

Fannie and Freddie shares have slumped roughly 70% in the past month as investors worried they may need to raise more capital to cover losses from their huge mortgage exposures. The government stepped in over the weekend, proposing a bigger line of credit for the companies and possible equity investments.

Lehman has also been hit hard by the mortgage-fueled credit crisis. Shares of the brokerage firm have slumped more than 45% in the past month.

Lehman shares rebounded 6.6% to close at $13.22 on Tuesday. However, Fannie and Freddie stock continued to plunge, losing 27% and 26%, respectively, despite the SEC's plans to limit naked shorting. The Dow Jones Industrial Average closed below 11,000 points for the first time in two years.

source: http://www.marketwatch.com/news/story/sec-limit-shorting-fannie-freddie/story.aspx?guid=%7B2B08DEE5-8D5F-47D6-A2D4-7DD5ECEE0D5B%7D&dist=msr_40

bull call strategy part 2

With this strategy, your potential loss is limited to the premium you paid for the calls less commissions and the premium you collected for the calls you sold. Unlike the outright purchase of a call option, your potential profits are limited to the difference between the strike prices multiplied by 100 times the point value of the contract, less the cost of establishing the position. An option calculator such as Option-Aid performs these calculations for you instantaneously.

When we initiate a Bull Call Spread, the call that we purchase is normally at-the-money. We try to allow enough time for the market to make the anticipated move. The call we sell has the same expiration date, with a higher strike price (at a price point that we feel the asset can easily move to within the time period until expiration, yet not too high because it lowers the premium we are collecting to lower our cost basis).

It is important to discuss an additional benefit of doing a Bull Call Spread instead of buying just a call option when the issue you are considering has high volatility. If you purchase a call option on an asset that has high volatility, the asset price could go up, as you expected, yet at the same time, the option price could drop if the implied volatility of the asset declines significantly during that time. So although you were right about the directional movement of the asset, you would have lost money in a straight call option play. A Bull Call Spread could ameliorate that risk, because it is the spread between the call option prices that determines your profit. The call that you sold would also go down in value as volatility declined, but the spread between the call prices would increase as the price of the underlying asset increased. That would give you a profit instead of a loss.

It is also important to cover risks and caveats of this strategy.

The risk of this position is limited and known as described above. Remember that the commission you pay for this position will be higher than the commission for a straight option play, because you are initiating two related option transactions.

When you initiate a Bull Call Spread rather than outright purchase of a call, you are limiting your upside potential. If the asset price rockets skyward, then you aren't able to fully participate in that gain because the higher strike price call that you sold will probably be exercised, limiting your gain.

The major benefits of this strategy occur when volatility is high, making the purchase of calls expensive and increasing the risk of a drop in volatility.

It is important to analyze your expectations for the underlying asset and for the market before selecting your strategy.

source: www.mindxpansion.com
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bull call strategy part 1

according to www.wikipedia.com, a bull spread is a bullish, vertical spread options strategy that is designed to profit from a moderate rise in the price of the underlying security.

Because of put-call parity, a bull spread can be constructed using either put options or call options. If constructed using calls, it is a bull call spread. If constructed using puts, it is a bull put spread.

A bull call spread is constructed by buying a call option with a low exercise price, and selling another call option with a higher exercise price.

Often the call with the lower exercise price will be at-the-money while the call with the higher exercise price is out-of-the-money. Both calls must have the same underlying security and expiration month.

When the market is volatile and you are moderately bullish on it, you can minimize your cash invested in a position, and minimize your risk while still reaping high profit potential by utilizing a Bull Call Spread. This strategy involves buying a call option at one strike price and selling a call on the same asset at a higher strike price. Usually both options will have the same expiration date.

Your cost in establishing this position is less than it would be in just buying a call option, because you are also selling a call at a higher strike price. So you are taking in some money from that sale which reduces your cost outlay and raises your ultimate return-on-investment.

source: www.mindxpansion.com
check out site for more free option tips

selling puts strategy

With this strategy, you are selling someone the right to sell you the underlying asset at a fixed price (the strike price), on or before the expiration date of the option.

This strategy has several great benefits.

If the asset price is above the exercise price at expiration, the puts will not be exercised and you just pocket the option premium. You can do this over and over again and may never get the asset "put" to you if the asset is above the exercise price at expiration of the option. This generates continuous income for you, increasing your portfolio and generating cash flow for other investments.

If the puts you sold do get exercised, then you are obligated to purchase the asset at the exercise price. But you essentially get it at a discount. You have already agreed that you would like to purchase the quality asset at the exercise price and the price is further discounted by the option premium that you collected.

If the asset does get put to you, you could then also sell covered calls on it to reduce your basis in the asset even further.

If you are thinking about purchasing an asset anyway, this strategy can be used to purchase the asset at a discount, or generate income for you as you stand ready to purchase the asset at a discount.

source: www.mindxpansion.com
check this site for more free option tips

tips about calls and puts strategy

here are some more things you need to know before jumping in the trading arena.

The most basic option strategies involve buying calls or puts, depending on your market view.

When you are very bullish on the market, you can buy calls to profit from an upward movement that occurs while you own the option.

A call is the right, but not the obligation, to purchase an asset at a specific price (the strike price), on or before a specific date (the expiration date).

The person who sold you the option actually holds the underlying asset, so they would absorb the rest of the loss.

When we purchase calls, we generally purchase them at-the- money or in-the-money, because it lowers our risk of losing the premium. Although out-of-the-money options are much cheaper and provide greater leverage, there is a greater risk of loss. We generally buy them several months out to provide enough time for the market to make the anticipated move.

Options are not like stocks where you buy them and hold them. Decay will continually erode your position and a change in trend can evaporate your profits quickly. It is important to set a specific target price for the option when you initiate the position. When we reach our target, we sell and take our profits. Beware that greed can be a strong motivator and make you want to increase your price target as it is rising. However, doing that can sometimes turn a winning position into a losing position.

It is important to analyze your expectations for the underlying asset and for the market before selecting your strategy.

When you are analyzing potential option positions, it helps to have a computer program like Option-Aid that swiftly calculates volatility impacts, probabilities, statistics, and other parameters of interest. These programs can pay for themselves with the first trade that they help you with.

source: www.mindxpansion.com
check site for more free option tips

Commodities enjoy stellar week

By Chris Flood

Commodity markets enjoyed an extraordinary record breaking week with new price peaks being achieved in energy, precious metals and agricultural products.

Investor inflows into commodity markets appear to be gathering pace. Standard & Poor’s expects assets benchmarked to the S&P GSCI commodity index to increase by more than 20 per cent this year from an estimated $80bn to $85bn at the end of 2007.

Exchange traded products, one of the fastest-growing sectors for commodity investments, saw a strong start to 2008 with net inflows of $3.4bn in January, more than three times the monthly average for 2007, according to Barclays Capital. Barclays estimates total assets under management in commodity ETPs have swollen to almost $40bn.

“There is a growing awareness that natural resources are getting scarce,” said Professor Lex Hoogduin of Robeco, the Dutch asset management group: “The combination of demographic trends and rising global welfare will result in rapid growth in the consumption of commodities, energy, food and water in the decades to come.”

Oil hit a record $101.32 a barrel on Wednesday, staging a strong rally over the past two weeks from a low of $86.24 on February 7, as hedge funds put aside concerns over a possible US recession and significantly reduced their bets via short positions that prices would fall.

Nymex April West Texas Intermediate rose 77 cents to $99.00 a barrel yesterday, up 3.7 per cent this week while ICE April Brent gained $1.11 at $97.35 a barrel, up 2.9 per cent this week.

US petrol prices hit a record $2.6169 a gallon on Tuesday, helped by talk that physical players were tightening the market by sending gasoline cargoes from New York to Mexico where demand growth is stronger. Nymex March RBOB unleaded gasoline slipped 3 cents to $2.4916 a gallon yesterday, off 0.1 per cent this week.

Gold hit a record $953.60 a troy ounce on Thursday, helped by disapointing US inflation data and mounting concerns that the US economy could be heading for a period of stagflation. Gold eased 0.1 per cent to $943.20 a troy ounce yesterday, up 4.5 per cent this week .

Platinum slipped 0.1 per cent to $2,148 a troy ounce after hitting a record $2,192 in yesterday’s session, with a significant supply deficit expected this year due to production problems in South Africa. Over the week, platinum gained 4.8 per cent, helping tow palladium up 12 per cent to $498 a troy ounce.

“Insufficient power generating capacity in South Africa means the domestic mining industry is set for production growth constraints for the next 4 to 5 years with immediate repercussions for the prices of its key commodity outputs, platinum, ferro-chrome, gold and thermal coal” said Tama Willis of Deutsche Bank

Copyright The Financial Times Limited 2008
www.ft.com

Getting Started in Forex Trading

interested in joining the world of forex trading? here are some tips:

The web is absolutely full of ways in which you can make money for doing no work. Or so it is claimed.

If you have been around as long as I have then you have probably come to view these claims with a degree of scepticism. You just don't get something for nothing. You will probably agree with me when I say, "You get out of life what you put into it".

Nowhere are these claims more exaggerated than in the sphere of foreign currency trading, otherwise known as the forex market.

In simple terms trading on the forex market involves buying and selling foreign currency and banking on a change in the prevailing exchange rate.

A few companies have been using the promise of high returns to drive customers to their sites. Clients are advised of the risks beforehand, but even so, many clients are not prepared for the rapid market movements and they find that within a short time their discretionary trading money becomes someone else's profits and they are out of the game!

This leaves a trail of dissatisfied customers with empty pockets and gives the forex industry a bad name. And this is not how it should be.

In fact investing a proportion of your money in the forex markets can be a very good way to diversify your investment portfolio. This is because there is very little correlation between the stock markets and currency markets.

But you need to know what you are doing if you are to survive. And by that I mean you should have some basic knowledge of how the market works, a strategy for getting into and out of your trades, some money management techniques and above all a reputable broker.

You wouldn't try and sell Real Estate without training, (the government wouldn't let you anyway).

You wouldn't open a car repair shop without training, (your friends wouldn't let you).

So don't start forex trading without getting some education and training so that you minimise the risks I talked about above.

Submitted by: Zymark Nelson
http://forex.spaces.live.com/Blog/cns!89B738DE95AE3F53!125.entry

a weak dollar does not mean doom for the us

i read an article from www.npr.org from eric weiner that says the a weak dollar does not necessarily translate to a doomed dollar and economy. mr. weiner states that It's difficult — impossible, some economists say — to tease out the effects of a weak dollar from all of the other variables affecting the economy at any moment. But one thing is clear: The weak dollar creates ripples around the world. Some of those ripples are good, some bad. But that, too, is relative. Where you stand on the weak dollar depends largely on where you sit.

The most obvious effect of a weak U.S. dollar is its impact on American tourists traveling to Europe. In Paris, $7 cups of coffee and $50 taxi rides are suddenly de rigueur. A weak dollar affects even those American consumers who never leave home. If you have a penchant for German cars or French wine, expect to pay more, as European manufacturers raise prices to compensate for the weak dollar.

In fact, some economists warn of an "umbrella effect" — the tendency for the prices of all goods and services to rise once a few do. Other economists, though, say the risk of inflation is exaggerated. The core inflation rate, they point out, remains low — about 2 percent — despite the dollar's recent slide.

A weak dollar is also good news for American manufacturers. Their products are now less expensive, so they can sell more. That's why companies such as Boeing and Caterpillar like a weak dollar. It's also why many economists like it: As these big U.S. manufacturers sell more, the U.S. trade deficit shrinks.

There is one downside, though, especially for smaller American manufacturers. The weak dollar means that the firms themselves are cheaper and, therefore, vulnerable to a hostile takeover by foreign companies.

but then again, i guess every country goes through ups and dows economy-wise. let's just hope the us bounces out of this one soon.

how's the dollar doing?

rght now, the dollar is weakening. this is a fact. we all know this. but the question is how bad will the dollar slide?

Kathy Lien, Chief Strategist of the www.dailyfx.com has this in her column.

With the exception of producer prices, we expect more dollar bearish news and would actually be surprised if Bernanke had anything positive to say about the US economy. The Federal Reserve has cut interest rates by 225bp since August and it will be interesting to see if this has helped existing or new home sales in the month of January. According to the NAHB housing market index, bottom fishers are slowly beginning to sniff out the inventory, but just because they are sniffing do not mean that they are buying. Durable goods, fourth quarter GDP, personal income, personal spending and the Chicago PMI reports are also expected to be released, which means that a volatile week is in store for the currency market. There is a good chance that another round of weak US economic data could drive the US dollar to a record low against the Euro. We continue to believe that the next 2 months of retail sales and non-farm payrolls data will be particularly weak because the last time that we have seen service sector ISM fall to the levels that it did back in January was in 2001 and at that time, non-farm payrolls dropped 300k. In some ways, the latest crisis to the US economy is worse than 2001 which means that the 17k job loss that was reported by the Labor Department in January could pale in comparison to the losses that we could see in February and March. The same can be said for retail sales.

according to eric weiner of www.npr.org

The dollar is in free fall, or so it seems. In 2002, you could buy a euro for 86 cents. Today, it will cost you $1.40. You'd have to go back at least a decade to find a time when the U.S. dollar was so weak. Against some currencies, such as the Canadian dollar (the "loonie"), you'd have to go back 30 years. It sounds ominous, but is a weak dollar really so terrible?
Not necessarily. A weak dollar can be good for the U.S. economy, because it makes American exports cheaper and, therefore, helps close the trade deficit. But over the long term, the value of a country's currency is seen as a verdict on the overall health of its economy.