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Futures & Options For Dummies PDF

387 Pages·2006·3.41 MB·English
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01_752835 ffirs.qxp 3/6/06 2:29 PM Page i Futures & Options FOR DUMmIES ‰ by Joe Duarte,MD 01_752835 ffirs.qxp 3/6/06 2:29 PM Page i 01_752835 ffirs.qxp 3/6/06 2:29 PM Page i Futures & Options FOR DUMmIES ‰ by Joe Duarte,MD 01_752835 ffirs.qxp 3/6/06 2:29 PM Page ii Futures & Options For Dummies® Published by Wiley Publishing, Inc. 111 River St. Hoboken, NJ 07030-5774 www.wiley.com Copyright © 2006 by Wiley Publishing, Inc., Indianapolis, Indiana Published by Wiley Publishing, Inc., Indianapolis, Indiana Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permit- ted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-646-8600. Requests to the Publisher for permission should be addressed to the Legal Department, Wiley Publishing, Inc., 10475 Crosspoint Blvd., Indianapolis, IN 46256, 317-572-3447, fax 317-572-4355, or online at http://www.wiley.com/go/permissions. Trademarks: Wiley, the Wiley Publishing logo, For Dummies, the Dummies Man logo, A Reference for the Rest of Us!, The Dummies Way, Dummies Daily, The Fun and Easy Way, Dummies.com and related trade dress are trademarks or registered trademarks of John Wiley & Sons, Inc. and/or its affiliates in the United States and other countries, and may not be used without written permission. All other trademarks are the property of their respective owners. Wiley Publishing, Inc., is not associated with any product or vendor mentioned in this book. LIMIT OF LIABILITY/DISCLAIMER OF WARRANTY: THE PUBLISHER AND THE AUTHOR MAKE NO REP- RESENTATIONS OR WARRANTIES WITH RESPECT TO THE ACCURACY OR COMPLETENESS OF THE CON- TENTS OF THIS WORK AND SPECIFICALLY DISCLAIM ALL WARRANTIES, INCLUDING WITHOUT LIMITATION WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE. NO WARRANTY MAY BE CRE- ATED OR EXTENDED BY SALES OR PROMOTIONAL MATERIALS. THE ADVICE AND STRATEGIES CON- TAINED HEREIN MAY NOT BE SUITABLE FOR EVERY SITUATION. THIS WORK IS SOLD WITH THE UNDERSTANDING THAT THE PUBLISHER IS NOT ENGAGED IN RENDERING LEGAL, ACCOUNTING, OR OTHER PROFESSIONAL SERVICES. IF PROFESSIONAL ASSISTANCE IS REQUIRED, THE SERVICES OF A COMPETENT PROFESSIONAL PERSON SHOULD BE SOUGHT. NEITHER THE PUBLISHER NOR THE AUTHOR SHALL BE LIABLE FOR DAMAGES ARISING HEREFROM. THE FACT THAT AN ORGANIZATION OR WEBSITE IS REFERRED TO IN THIS WORK AS A CITATION AND/OR A POTENTIAL SOURCE OF FUR- THER INFORMATION DOES NOT MEAN THAT THE AUTHOR OR THE PUBLISHER ENDORSES THE INFOR- MATION THE ORGANIZATION OR WEBSITE MAY PROVIDE OR RECOMMENDATIONS IT MAY MAKE. FURTHER, READERS SHOULD BE AWARE THAT INTERNET WEBSITES LISTED IN THIS WORK MAY HAVE CHANGED OR DISAPPEARED BETWEEN WHEN THIS WORK WAS WRITTEN AND WHEN IT IS READ. For general information on our other products and services, please contact our Customer Care Department within the U.S. at 800-762-2974, outside the U.S. at 317-572-3993, or fax 317-572-4002. For technical support, please visit www.wiley.com/techsupport. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. Library of Congress Control Number: 2005935160 ISBN-13: 978-0-471-75283-7 ISBN-10: 0-471-75283-5 Manufactured in the United States of America 10 9 8 7 6 5 4 3 2 1 1B/SS/QT/QW/IN 01_752835 ffirs.qxp 3/6/06 2:29 PM Page iii About the Author Dr. Joe Duarteis a widely read market analyst, writer, and an active trader. His daily Market IQ column is read by thousands of investors, futures and stock traders, information seekers, intelligence aficionados, and professionals around the world. Dr. Duarte is well recognized as a geopolitical and financial market analyst combining a unique set of viewpoints into an original blend of solutions for his audience. His daily columns appear at www.joe-duarte.comand are syndicated worldwide by FinancialWire. He is author of Successful Energy Sector Investing, Successful Biotech Investing, and coauthor of After-Hours Trading Made Easy. He is a board certified anesthesiologist, a registered investment advisor, and President of River Willow Capital Management. Dr. Duarte has appeared on CNBC and appears weekly on The Financial Sense Newshour with Jim Puplavaradio show, where he comments on the energy markets and geopolitics. He has logged appearances on Biz Radio, Wall Street Radio, JagFn, WebFN, KNX radio in Los Angeles, and WOWO radio. One of CNBC’s original Market Mavens, Dr. Duarte has been writing about the financial markets since 1990. An expert in health care and biotechnology stocks, the energy sector, as well as financial market sentiment, his daily syn- dicated stock columns have appeared on leading financial Web sites, includ- ing Reuter’s e-charts, afterhourtrades.comand MarketMavens.com. His articles and commentary are regularly featured on Marketwatch.com. He has appeared in Barron’s, U.S.A. Today, Smart Money, Medical Economics, Rigzone.com, and in Technical Analysis of Stocks and Commoditiesmagazine. Dr. Duarte published the critically acclaimed market timing newsletter “The Wall Street Detective,” from 1990-1998, when it became an exclusively elec- tronic publication. His daily market commentary ‘Joe Knows’ appeared on Financialweb.comfrom 1998-2000. Dr. Duarte served as senior columnist for Investorlinks.comfrom 1998-2001. 01_752835 ffirs.qxp 3/6/06 2:29 PM Page iv Dedication This one goes to the usual suspects. Without you, life wouldn’t be as interest- ing. You know who you are. No matter what, you continue to do that voodoo that you do . . . so well. . . . Author’s Acknowledgments A book is as much about environment, accidents, incidents, and circum- stances as it is about research. This group of people fits the bill for creating all of the above, and I’d like to offer my sincere gratitude, because it is the sum of their interactions with me that often leads to interesting ideas and observations that make their way onto the written page. I’d like to thank the subscribers and sources of Joe-Duarte.comfor their continued interest and support. My wife, Lourdes, my son, Metheny, my mother and father, Raquel and Jose, and Angela, the book maven, are always there, no matter how grumpy I get near manuscript deadlines. Thanks to them. Sal, Lib, and the office gangs, this one was harder on all of us than I would have expected. Thanks as usual. Frank Kollar is as good a partner as anyone could have. Thanks, and enjoy that kafi. Greg Morris, thank you for lunch, and all kinds of intangibles. John Duke, for all the e-mails . . . and stuff. Marty, thanks for the annual pilgrimage to Starplex, where the soul gets renewed. And especially Grace, without whom there would be no book gigs. Keep them coming. And thank you for your ongoing support to: Jim, Mary, John, and Liz at Financial Sense News Hour. Tom Bemis at MarketWatch.com. 01_752835 ffirs.qxp 3/6/06 2:29 PM Page v Gail Essary at Financial Wire. Charly Butcher and the gang at WOWO. Jill Woerner at CNBC. A very special thanks to the new gang at Wiley — Stacy, Tim, Neil, and com- pany. It’s good to be back in the saddle. Very special thanks to Thom Calandra, whose early support allowed my writ- ings to go farther and wider than I could have ever imagined. Stay well, and no worries. Coffee and tea . . . fuel for life . . . and writing books. 01_752835 ffirs.qxp 3/6/06 2:29 PM Page vi Publisher’s Acknowledgments We’re proud of this book; please send us your comments through our Dummies online registration form located at www.dummies.com/register/. Some of the people who helped bring this book to market include the following: Acquisitions, Editorial, and Composition Services Media Development Project Coordinator:Jennifer Theriot Senior Project Editor:Tim Gallan Layout and Graphics: Carl Byers, Lynsey Acquisitions Editor: Stacy Kennedy Osborn, Alicia B.South Copy Editor: E. Neil Johnson Proofreaders: Leeann Harney, Joe Niesen, Techbooks Editorial Program Coordinator:Hanna K. Scott Indexer:Techbooks Technical Editor: Noel M. Jameson Editorial Manager: Christine Meloy Beck Editorial Assistants:David Lutton, Nadine Bell, Erin Calligan, Cover Photo: © Steven Hunt/Getty Images Cartoons: Rich Tennant (www.the5thwave.com) Publishing and Editorial for Consumer Dummies Diane Graves Steele, Vice President and Publisher, Consumer Dummies Joyce Pepple, Acquisitions Director, Consumer Dummies Kristin A. Cocks, Product Development Director, Consumer Dummies Michael Spring, Vice President and Publisher, Travel Kelly Regan,Editorial Director, Travel Publishing for Technology Dummies Andy Cummings,Vice President and Publisher, Dummies Technology/General User Composition Services Gerry Fahey,Vice President of Production Services Debbie Stailey,Director of Composition Services 02_752835 ftoc.qxp 3/6/06 2:29 PM Page vii Contents at a Glance Introduction.................................................................1 Part I: Understanding the Financial Markets..................7 Chapter 1: The Ins and Outs of Trading Futures and Options......................................9 Chapter 2: Where Money Comes From..........................................................................17 Chapter 3: The Futures Markets.....................................................................................31 Chapter 4: Understanding the Not-So-Hair-Raising Truth about Options.................45 Chapter 5: Yeah Baby! Basic Stock Option Strategies..................................................71 Part II: Analyzing the Markets ....................................89 Chapter 6: Understanding the Fundamentals of the Economy..................................91 Chapter 7: Getting Technical Without Getting Tense................................................111 Chapter 8: Speculating Strategies That Use Advanced Technical Analysis............135 Chapter 9: Trading with Feeling Now!..........................................................................153 Part III: Financial Futures.........................................173 Chapter 10: Wagging the Dog: Interest-Rate Futures.................................................175 Chapter 11: Rocking and Rolling: Speculating with Currencies...............................195 Chapter 12: Stocking Up on Indexes............................................................................213 Part IV: Commodity Futures.......................................227 Chapter 13: Getting Slick and Slimy: Understanding Energy Futures......................229 Chapter 14: Getting Metallic without Getting Heavy.................................................253 Chapter 15: Getting to the Meat of the Markets: Livestock and More.....................271 Chapter 16: The Bumpy Truth about Agricultural Markets......................................285 Part V: The Trading Plan...........................................299 Chapter 17: Trading with a Plan Today So You Can Do It Again Tomorrow...........301 Chapter 18: Looking for Balance Between the Sheets...............................................309 Chapter 19: Developing Strategies Now to Avoid Pain Later....................................317 Chapter 20: Executing Successful Trades...................................................................327 Part VI: The Part of Tens...........................................341 Chapter 21: Ten Killer Rules to Keep You Sane and Solvent.....................................343 Chapter 22: More Than Ten Additional Resources....................................................349 Index.......................................................................353

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The days of buying and holding stocks and mutual funds for years are gone; nowadays, futures and option markets offer some of the best opportunities to make money trading in volatile times. But like all investments, high risk is involved, and in order to become a successful trader you must be prepar
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