Can your Investment gain 2000% within a month?

I am not from Zimbabwe to say that my investment of 1 dollar (Zimbabwean Dollar) at the start of the month would fetch me more than 21 dollars at the end of month, nor this is published from the book authored by me from a mental asylum. Also this can happen when most of the asset prices you see around you have seen a cut in prices increasing your purchasing power too. This is possible due to a Financial Instrument called Option, It is a form of Derivative (a thing which derives its value from something else, which we call underlying asset), there are two variants, a Put Option (PE and PA) and a Call Option (CE and CA), when the prices of the asset deflate, investment in a put option on that asset is profitable while when prices of an asset inflate, investment in a call option on that asset inflate. Now here are some examples wherein you could have seen your investment grow by 2000% in just a matter of some days if you would have being able to identify the trend before hand by using technical analysis, If you want to learn all this subsribe through paypal buttons at the top of the page, for any queries you can contact click_dotcom@rediffmail.com.

A Put Option Contract on Nifty having a strike price of 3800 and set to expire to 30th October 2008 was quoting at a day low price of 53/- Rs on 22nd September 2008, on 24th October 2008, the same 58 Rs invested were attracting buyers at a day high price of 1298.8/- Rs.

A Call Option which gave the holder, right to buy Nifty at 4000 until 28th May 2009, was quoting at 12/- Rs on 28th April 2009, when the markets opened on 19th May 2009, the same investment could be exchanged for cash at a price of 572.85, which was the day high for the contract.

An investment made in Nifty Put Option for 31st January 2008 Expiry having a strike price 5700 would have cost you 28.1/- Rs on 15th January 2008, if you would have purchased it at that days low, the same investment could be offset for 1310/- Rs on 22nd January.

3/- Rs invested in Nifty Put Option having a strike price 3200 and expiry date 25th April 2006 would have made you rich by 317/- Rs on 22nd May 2006

Gold, is it a Candidate for Investment?

Like any another Commodity, prices of precious metal Gold depend on demand and supply, when the prices of Gold move up from say 1000 dollars per ounce to 1200 dollars per ounce, it means that earlier 1000 dollars invested were sufficient to buy 1 ounce Gold, but now an investment of 1200 Dollars can let you own 1 ounce.

Now if we consider investor demand for Gold has not changed then

• Either the informed investors are betting supply of Gold would be reduced against the number of dollars likely to float around the world in future and have bought Gold in anticipation.

• Or The informed investors are betting that there would be a huge supply of dollars in future which the supply of Gold would not be able to match up, loaded with dollars the investors would be bidding up the price of Gold, in anticipation of the future Informed Investors have bid up the prices of Gold

Looking at the charts, we get a picture that for the 2 years between 2007 and 2008, new investors buying the gold and old investors selling the Gold were equally placed in a price war and whenever new investors got a hold of Gold at near 860 dollars they would buy the Gold while whenever the prices rushed above 970 dollars, old investors would sell to book profits in there investment, A small period of 2-3 months between september to november 2008 saw sellers gaining an upper hand, new investors seemed as loosing patience and triggering stop loss, prices crashed unto 700 Dollars an ounce, but the introduction of TARP (troubled asset relief program) in october 2008 saw the informed investors bidding the prices of Gold above the previous high of 1040 dollar.

Looking to invest in Gold, wait for your desired investment target to witness a price of 970 Dollars, or the other way round cross the previous 2009 high, there are many ways (fundamental and technical) through which you can zero in on the price to invest in an asset and then book your profits and exit from the asset, also you can leverage through options if you have worked out and know exactly the time by which you expect your investment to reach a level where you can book profits, I have shown you the most basic identifications, if you wish to know the advanced ways subscribe through the PayPal link given at the top, for further queries, write to click_dotcom@rediffmail.com

CAN POSITIVE RETURN ON INVESTMENT IMPLY PROFITABILITY?

If you invest 100 Dollars and get 120 Dollars after 5-7 years is your investment really profitable, what a stupid question, read further on and it might not be the case.

Mark (frictional), a resident of New York, a normal person just like you and me had a dream of having a home of his own in the city, but his savings were not enough for him to materialize his dream, credit or borrowing were not the words present in his vocabulary, so he decided to stay off in his rented home and being a risk averse, invested his funds in US treasuries at early 2000, nominal house prices prevailing at that time were $225000, The collapse of the Nasdaq boom made sure he did not have to curse his decision, but while the Nasdaq lost its 70% and Dow Jones lost its 20% value by 2002, the housing prices just refused to retreat, and Mark decided to prolong his stay in the rented home, monetary easing by the US Federal Reserve, ultra low interest rates paved the way for housing boom, nominal home prices in New York doubled and topped out at just below $500000, Mark’s dream was shattered

What is the definition of investment, it could be generalized as, to divert our excess money from our safety to a person/institution who guarantees a return more than what was originally invested, Are we God, Knops, so we can have excess money at some timeframe, but we do have expenses in future which we cant just spend on for immediately, we can have excess money which would suffice future expenses real-time, but who knows about future, so now can we generalize an investment as a vehicle which will make sure that the excess money we invested now, which can suffice for expenses on items we might require in future but we cant spend on them right now, would be able to buy all those things which we can buy now, plus add some more.

Dow Jones 1929 Correlation Current Dow Jones

Investors trading the Dow Jones at 14000 in October 2008, were seen exchanging the Index for money, or the other way round money for the Index at below 7000 in October 2009, If we keep a track of Dow Jones Index from 1980 to 2008, this was the biggest negative return the Index gave to the investors in the close to 3 decades between 1980 to 2008, but the losses the investors digested in Dow Jones Index were comparatively less compared to the losses the Investors holding ETF’s of Emerging Markets had to digest, for e.g. The Sensex which stood at 21000 in January 2008, the investors exchanged money for the Index at below 8000 in Oct 2008, and if currency is taken into consideration then the loss was even for magnified as while 38 Rupees were equivalent to 1 Dollar in January 2009, the investors by Oct 2009 felt that 50 Rupees should be paid to buy a 1 Dollar worth Investment. This meant that the Sensex gave 70% negative return on investment, but still the losses made by the investors having there investments placed in stock markets could not outpace the Great Depression period losses, As during the Great Depression period the Investments made in Dow Jones Index saw loosing close to 90% of there value in more than 2 years between 1930 to mid 1932.

Now here starts our real topic, after the initial crash the Dow traced back more than 50% of its loss and then onwards the investors not owning the index could not pile up the cash or were hoarding cash instead of the Dow Jones Index, at the same time the Government policies at that time might have given the investors already invested in the Dow the willpower to hold the investment, as the investment would cut down losses and create profits, so what if the investment comes cost to cost 25 years latter. The Dow Jones traded narrowly for the next 15 years an could break past the initial cost of investment made in 1930 only 25 years latter in 1930.

Now how is the current situation comparable to 1929, If we make some adjustments then it is, Dow Jones has been trading in a narrow range for the period between 2000 to 2006, The investors who had invested in 2000 saw some profits on investment by 2007, but those who didn’t book profits by 2008 end, and then did not wish to exchange cash for index till they saw 14000 again are still holding the investments, so if we consider 2007 end as 1929, early 2009 as 1932, then by 2025 the Dow Jones could break past 14000 and it could be the time to trade between 10 to 11K for 5 years and other 10 years between 6.6K to 10K.

Nifty Day Forward (24th December, 1.35 pm)

Nifty after languishing for most part of the day in the positive territory has just as of my writing dipped into negative territory, this is the 4th time in the day that it has dipped into the negative territory but has everytime managed to pull back, yesterday the nifty never gave substantial corrections to the intraday up move now and thus unless it gives some sort of correction or atleast consolidation further upmove doesn’t looks to be materializing, hence there are 4 possibilities

1) Nifty might trade as down as 5080 (35% Probability)

2) Nifty would attract buyers at 5115 – 5120 (35% Probability)

3) Nifty would rather remain quiet (15% probability)

4) Nifty would manage to trade at 5175 (5% probability)

Option Open Interest Movement and Nifty Fluctuations

In the Futures & Options Month i.e From September 25th 2009 – October 29th 2009, Nifty traded from the high of 5181 to the low of 4738 and finally closed at 4750, in the previous month i.e on September 24th 2009 Nifty closed at 4986, Now lets see how the Open Interest in various Options built up, and how the Nifty fluctuate when the open interest started subsiding

1) Nifty 5100 PE Option

Nifty 5100 PE option saw the highest built up on 17th October, Open interest stood at above 37 Lakh, Nifty saw its highest closing for the month on the same day, Open interest in Nifty 5100 PE which was above 8 lakhs on 6th October saw open interest built up above 37 Lakhs on 17th October, 5100 PE saw a high price of 232.65 and a low price of 61 when this built up took place, on the other hand when the Open Interest started decreasing from 20th October to 29th October, to settle at just below 7 Lakh option interest, the Option traded between a low of 46.1 to a high of 353.05

Conclusion when there is an built up in Open Interest normally prices of the option move down and when the Open interest starts cooling down the prices starts moving up, the option tends to trade between the prices it traded when it saw open interest built up till the same level of open interest is not reached again, we can conclude the same from other options listed below

2) Nifty 5000 PE

Open Interest in this option stood at just below 6 Lakhs on 18th September 2009, the option saw the highest built up on 17th October 2009, it was above 51 Lakhs, in this period it traded between a high price of 210 and a low price of 35.05, further on the open interest started decreasing and on settlement stood above 8.6 Lakhs and the contract saw its high price of 250 on the same day, the low price in the period between 20th October to 29th October was 25.10

3) Nifty 4900 PE

On 16th October 2009 this option saw a highest built up of Open Interest which stood at above 70 Lakhs, as of 18th September 2009 this Open interest just stood at just below 8 Lakhs, in the meantime it traded between a high price of 135.95 to a low price of 19.10, when the open interest started subsiding it started gaining price and saw a high price of 150 on expiry i.e 29th October 2009, in the period between 20th October 2009 to 29th October 2009 it registered a low price of 12.10, and the open interest on expiry stood at just above 13 lakhs

In my further post I will deliberate on what the current conditions are and also how we can increase the chances of a successful trade using open interest as one of the mechanism

Can the USD and the US Markets both underperform Emerging Markets Currencies and Emerging Markets Assets?

Visit any financial website, ask any financial commentator or investment guide or expert about where the Dollar is headed, there would be no debate, the answer would be unanimous, the jury would be don’t buy the dollar, don’t buy any assets having there value in dollar, you will also find that gold bulls advocating buy the gold, but don’t buy it in dollars, buy physical gold, but are the dollars fundamental so weak against every currency in the world, have the analysts forgot that while the United States might be the debtor nation of the world, it is the investor nation of the world, have you read the explanation given by these same analysts for the boom and busts in the emerging stock markets, Isn’t any rally in the stock markets explained as foreign investors dumping the dollar and running for riskier assets in the emerging markets, what about the crash, isn’t it explained as foreign investors dumping the riskier assets for the safety of the safe haven called US dollar, now who are these foreign investors definitely they are not we Indians, nor are they our neighbors Chinese, and the Brazilians who have seen there stock markets skyrocket, are definitely not looking for inflation outside, so who are they? They are the Investment banks, hedge funds, fund managers and whose funds are they investing, the funds of US citizens or developing world nation citizens, what is there share in the market capitalization of the Emerging Markets space, lets have a look at Indian Stock Market, the Market Capitalization of all the firms listed on the Bombay Sock Exchange (BSE) is above 1 Trillion USD, the biggest Indian Company by Market Capitalization is Reliance Industries and Foreign investors hold about 16.5% of the Company, ICICI Bank, its one of the largest banks, Foreign Investors hold about 35% of this Bank, HDFC the biggest home mortgager of India, Foreign Investors hold about 59% of the Companies Market Capitalization, The biggest Outsourcer of IT solutions from India, Infosys, Foreign investors hold about 36% of Infosys, Except the PSU’s like ONGC, BHEL, NTPC which together have around 20% weightage in the Sensex and public shareholding is just about 20% and hence the Foreign Investors holding is quite low, most other largecap and midcap companies have more than 15% of there equities in possession of Foreign Investors, If we take 15% as an average estimate of Foreign investors holding in India’s Market Capitalization, Foreign investors hold about 150 billion USD equity assets in India.

Now the Foreign Investors are not just investing in India but all over the world, if we take the average estimate as 15% market capitalization of emerging markets is hold by foreign investors, then lets calculate how much the Foreign Investors hold, China and Hong Kong have market capitalization of around 2 Trillion USD, Korea has total value of equities on its bourses as 1 Trillion USD, Brazil has market capitalization of around 1 Trillion USD, also a point to be noted here is that the total market capitalization of the World might be standing close to 50 Trillion Dollars and out of that close to 40% would be contributed by emerging markets, so around 20 Trillion Dollars is the total market capitalization of the emerging markets space and 15% of that is hold by US and developed nations citizens so around 3 trillion USD is what the US citizens can get if they sell all there holding in the Emerging Market space.

According to http://en.wikipedia.org/wiki/United_States_public_debt China with 800 Billion USD is holding 23.35% of the total US Foreign debt, which means The United States owe the World around 3.3 Trillion USD, while they can recover near about the same amount if they sell there assets all over the world, So its not just that United States is Fishing in troubled waters, All the World is fishing in the troubled waters, albeit US is in the drivers seat so in fact it knows beforehand when the vehicle is going to crash, now I am not telling that the USD wouldn’t crash, I am just suggesting that USD wont crash with the Emerging Markets Stock Indices rallying, it could be like the USD crashing and the Dow Jones Index gaining 2% while the Emerging Markets Index rally 1%, why because If US Federal Reserve prints money, The USD would crash, The US would face inflation, and inflation more than what the world would be facing, which means the US assets would be inflating more than the assets round the world, which means investors in search of more returns on there investment would park there money in US assets while dumping the Emerging markets space. Summing up don’t dump the USD and the US assets at the same time.