|
|
We believe
it is imperative that you
read and fully understand the following
risks of trading and investing:
|
| GENERAL RISKS OF TRADING
AND INVESTING |
All
securities trading, whether in stocks,
options, or other investment vehicles,
is speculative in nature and involves substantial
risk of loss. We encourage our subscribers
to invest carefully and to utilize the
information available at the websites of
the Securities and Exchange Commission
at http://www.sec.gov and the National
Association of Securities Dealers at http://www.nasd.com.
You can review public companies filings
at the SEC's EDGAR page. The NASD has published
information on how to invest carefully
at its website. We also encourage you to
get personal advice from your professional
investment advisor and to make independent
investigations before acting on information
that we publish. Most of our information
is derived directly from information published
by companies or submitted to governmental
agencies on which we analyze and/or rate
from other sources we believe are reliable,
without our independent verification. Therefore,
we cannot assure you that the information
is accurate or complete. We do not in any
way warrant or guarantee the success of
any action you take in reliance on our
statements, ratings, or recommendations.
|
| 1. You may lose money trading
and investing. |
| Trading and investing
in securities is always risky. For that reason,
you should trade or invest only "risk
capital" -- money you can afford to
lose. While this is an individual matter,
we recommend that you risk no more than 10%
of your liquid net worth -- and, in some
cases, you should risk less than that. For
example, if 10% of your liquid net worth
represents your entire retirement savings,
you should not use that amount to buy and
sell securities. Trading stock and stock
options involves HIGH RISK and YOU can LOSE
a lot of money. |
| 2. Past performance is not necessarily
indicative of future results. |
| All investments carry
risk and all trading decisions of an individual
remain the responsibility of that individual.
There is no guarantee that systems, indicators,
or trading signals will result in profits
or that they will not result in losses. All
investors are advised to fully understand
all risks associated with any kind of trading
or investing they choose to do. |
| 3. Hypothetical or simulated
performance is not indicative of future results. |
| Unless specifically
noted otherwise, all profit examples provided
in the our websites and publications are
based on hypothetical or simulated trading,
which means they are done on paper or electronically
based on real market prices at the time the
recommendation is disseminated to the subscribers
of this service, but without actual money
being invested. Also, such examples do not
include the costs of subscriptions, commissions,
and other fees, or examples of other recommendations
as to which there were losses utilizing the
timing at the time of the recommendations.
Because the trades underlying these examples
have not actually been executed, the results
may understate or overstate the impact of
certain market factors, such as lack of liquidity
(discussed below). Simulated trading programs
in general are also designed with the benefit
of hindsight, which may not be relevant to
actual trading. We make no representations
or warranties that any account will or is
likely to achieve profits similar to those
shown, because hypothetical or simulated
performance is not necessarily indicative
of future results. |
| 4. Don't enter any trade without
fully understanding the worst-case scenarios
of that trade. |
| Trading securities like
stock options can be extremely complicated,
so make sure you understand these trades
before entering into them. For example, aggressive
positions in options have a greater probability
of losing, while less aggressive positions
are less likely to yield substantial profits.
Similarly, far out-of-the-money options are
unlikely to finish in the money, and options
purchased close to their expiration dates
are very high-risk and, thus, likely to win
big or lose big very quickly. Don't enter
any trade without fully understanding the
worst-case scenarios of that trade. |
| 5. We are a financial publisher
and do not provide personalized trading or
investment advice. |
| We are a financial publisher.
We publish information regarding companies
in which we believe our subscribers may be
interested and our reports reflect our sincere
opinions. However, the information in our
publications is not intended to be personalized
recommendations to buy, hold, or sell securities.
As a financial publisher, we are not legally
permitted to offer personalized trading or
investment advice to our subscribers. If
a subscriber chooses to engage in trading
or investing that he or she does not fully
understand, we may not advise the subscriber
on what to do to salvage a position gone
wrong. We also may not address winning positions
or personal trading or investing ideas with
subscribers. Therefore, subscribers will
need to depend on their own mastery of the
details of trading and investing in order
to handle problematic situations that may
arise, including the consultation of their
own brokers and advisors as they deem appropriate. |
| 6. Profits can be lost if they
are not taken at the right time. |
| Subscribers are advised
to take profits at whatever point they deem
optimal, regardless of the profit target
set in any given recommendation. Advisory
services such as those we offer provide recommendations.
Subscribers are free to follow the recommendation,
follow it in part, or ignore it altogether.
If a subscriber believes a given profit is
at risk, the subscriber should take the profit.
Similarly, if a subscriber feels a position
is likely to lose value, or a losing position
is likely to fall further, the subscriber
can choose to exit at any time to preserve
capital. The final decision as to when to
take profits remains in the sole discretion
of the subscriber, keeping in mind that profits
can be lost if they are not taken at the
right time. |
|
|
| RISKS OF FUTURES TRADING |
| A futures
contract is a legally binding agreement between
two parties to buy or sell in the future,
on a designated exchange, a specific quantity
of a commodity at a specific price. Because
of the volatile nature of the commodities
markets and the use of leverage, trading
in futures involves a high degree of risk.
Futures trading is not suitable for many
members of the public. Such transactions
should be entered into only by persons who
understand the nature and extent of their
rights and obligations under futures contracts
and the risks involved in the transactions
covered by those contracts. |
| 1. Because of the
impact of leverage, your losses may exceed
the entire amount deposited in your account,
or more. |
Leverage
is the ability to control large amounts of
money with much smaller amounts of risk capital.
In futures trading, the amount of money you
are required to deposit is a small percentage
of the value of the futures contracts you
trade. If you buy and hold a futures contract,
a small positive movement in price can have
a large positive impact on your account;
a small negative movement in price can have
a corresponding large negative impact on
your account. Therefore, leverage can work
against you as well as for you.
Because of leverage, it is possible to lose all the money in your account
very quickly. Even worse, if the funds in your account fall below the amount
required by the futures broker, you will receive a margin call. A margin
call is a demand from the clearing house to deposit the difference in funds
by the following morning. The difference in funds can be substantial. If
you cannot timely comply with this request, your positions may be liquidated
at a loss and you will be liable for any remaining difference. Keep in
mind that the funds in your account may fall for reasons outside your control.
Therefore, you should manage leverage by limiting your trading as necessary
to maintain sufficient excess margin in your account.
|
| 2. Stop orders
may reduce, but not eliminate, your trading
risk. |
A stop
market order is an order, placed with your
broker, to buy or sell a particular futures
contract at the market price if and when
the price reaches a specified level. Stop
orders are often used by futures traders
in an effort to limit the amount they might
lose. If and when the market reaches whatever
price you specify, a stop order becomes an
order to execute the desired trade at the
best price immediately obtainable.
There can be no guarantee, however, that it will be possible under all
market conditions to execute the order at the price specified. In an active,
volatile market, the market price may be declining (or rising) so rapidly
that there is no opportunity to liquidate your position at the stop price
you have designated. Under these circumstances, the broker's only obligation
is to execute your order at the best price that is available. Therefore,
stop orders may reduce, but not eliminate, your trading risk.
|
|
|
| GENERAL
RISKS OF FUTURES OPTIONS TRADING |
| Buying
or selling futures options or stock options
is not suitable for many people, and you
should not trade options unless you fully
understand the risks, rights, and obligations
of options trading. Use only money you can
afford to lose in options trading. |
| 1. You should not
sell options on futures unless you can meet
margin calls and survive large financial
losses. |
| When you
buy an option, you risk losing the entire
purchase price plus the commissions paid,
but not more since purchasing options on
margin is not allowed. The amount you spend
up front is the maximum you can lose. When
you sell an option, you may be required to
deposit additional margin if the price of
the commodity moves adversely. You should
not sell options unless you can meet margin
calls and survive large financial losses.
In cases where the exchange has difficulty
finding buyers, the option seller is subject
to the full risk of the position until the
options expire. |
|
|
| SPECIFIC
RISKS OF FUTURES OPTIONS TRADING |
| An option
on a commodity futures contract is a legally
binding agreement between two parties which
gives the buyer, who pays a market determined
price known as a "premium," the
right (but not the obligation), within a
specific time period, to exercise the option.
Buying or selling futures options is not
suitable for many people, and you should
not trade futures options unless you fully
understand the risks, rights, and obligations
of commodities options trading. |
| 1. The futures
option, if exercised, will result in the
establishment of a futures position. |
| Both the
purchaser and grantor of an option on a futures
contract should realize that the option,
if exercised, will result in the establishment
of a futures position, subject to all the
risks such contracts carry (see above). The
buyer of a call option will be assigned a
long position in the underlying futures if
exercised, while the buyer of a put option
will be assigned a short position in the
underlying futures if exercised. The purchaser
of an option should be aware that some option
contracts provide for only a limited period
of time during which an option may be exercised. |
| 2. You may be unable
to liquidate your position because of lack
of liquidity in the futures or options market. |
| Exchange
trading mechanics are designed to provide
for competitive execution and to make available
to buyers and to sellers a continuous market
in which an option once purchased can later
be sold; and in which an option, once granted,
can later be liquidated by an offsetting
purchase. Although each exchange's trading
system is designed to provide market liquidity
for the options traded on that exchange,
there can be no assurance that a liquid offset
market on the exchange will exist for any
particular option, or at any particular time,
and for some options, no offset market on
that exchange may exist at all. In such an
event, it may not be possible to effect offsetting
transactions in particular options. Thus,
to realize any profit, a holder will have
to exercise their option and have to assume
all risks and to comply with margin requirements
for the underlying futures contracts or,
in the event of an option on a physical commodity,
incur the costs and risks of holding the
physical good. A grantor could not terminate
its obligation until the option expired or
the grantor was assigned an exercise notice.
You may exercise your option but be unable
to liquidate your resulting futures position
because of daily price limits or lack of
liquidity in the futures market. |
| 3. Lack of pricing
limits on some options. |
| The trader
should be aware that an option may not be
subject to daily price fluctuation limits
even if the underlying futures position has
such limits and, as a result, normal pricing
relationships between options and the underlying
futures may not exist. Also, futures positions
assigned as a result of an expiring option
may not be capable of being offset if the
underlying futures contract is at a price
limit. |
| 4. Additional risks
of writing or granting futures options. |
| The grantor
of a call option who does not have a long
position in the underlying futures contract
(i.e. a "naked" sale or short)
is subject to risk of loss should the price
of the underlying futures be higher than
the strike price of the option, and this
loss may exceed the premium received for
the initial sale of the call option. The
grantor of a call option who has a long position
in the underlying futures (i.e. a "covered" sale
or short) is subject to the risk of decline
in price of the underlying futures, less
the premium received for granting the call
option. In exchange for the premium received,
the call option grantor gives up all of the
potential gain resulting from an increase
in the price of the underlying futures above
the strike price of the option. The grantor
of a put option who does not have a short
position in the underlying futures contract
(i.e. a "naked" sale or short)
is subject to risk of loss should the price
of the underlying futures be below the strike
price of the option, and this loss may exceed
the premium received for the initial sale
of the put option. The grantor of a put option
who has a short position in the underlying
futures (i.e. a "covered" sale
or short) is subject to the risk of a rise
in price of the underlying futures, less
the premium received for granting the put
option. In exchange for the premium received,
the put option grantor gives up all of the
potential gain resulting from a decrease
in the price of the underlying futures below
the strike price of the option. |
|
|
| RISKS OF
INVESTING IN STOCK |
| Investments always
entail some degree of risk. Be aware that: |
1. Some
investments in stock cannot easily be sold
or converted to cash. Check to see if there
is any penalty or charge if you must sell
an investment quickly.
2. Investments in stock issued by a company with little or no operating
history or published information involves greater risk than investing in
a public company with an operating history and extensive public information.
There are additional risks if that is a low priced stock with a limited
trading market, e.g., so-called penny stocks.
3. Stock investments, including mutual funds, are not federally insured
against a loss in market value.
4. Stock you own may be subject to tender offers, mergers, reorganizations,
or third-party actions that can affect the value of your ownership interest.
Pay careful attention to public announcements and information sent to you
about such transactions. They involve complex investment decisions. Be
sure you fully understand the terms of any offer to exchange or sell your
shares before you act. In some cases, such as partial or two-tier tender
offers, failure to act can have detrimental effects on your investment.
The greatest risk in buying shares of stock is having the value of the
stock fall to zero. On the other hand, the risk of selling stock short
can be substantial. "Short selling" means selling stock that
the seller does not own, or any sale that is completed by the delivery
of a security borrowed by the seller. Short selling is a legitimate trading
strategy, but assumes that the seller will be able to buy the stock at
a more favorable price than the price at which they sold short. If this
is not the case, then the seller will be liable for the increase in price
of the shorted stock, which could be substantial.
|
|
|
| SPECIFIC
RISKS OF STOCK OPTIONS TRADING |
| When you
open a stock option account, you should receive
a booklet entitled "Characteristics
and Risks of Standardized Options," which
is also available on the Chicago Board Options
Exchange website at http://www.cboe.com/resources/intro.asp.
This booklet contains an in-depth discussion
of the characteristics and risks associated
with stock options trading. We strongly encourage
you to carefully read and understand this
information. |
| 1. Assignment of
exercise to writers. |
| As a writer
of a stock option, you may be assigned an
exercise at any time from the date of sale
through approximately two days after the
date of expiration. The consequences of being
assigned an exercise depend upon whether
the writer of a call is covered or uncovered,
as discussed below. Since an option writer
may not be informed of the assignment of
exercise until up to two days after expiration,
special risks can come into play. For example,
an option writer who sells out their underlying
position upon expiration may find out the
next day that they have to surrender stock
they do not now own. |
| 2. Risk of unlimited
losses for uncovered writers of call options. |
| A "naked" or
uncovered writer of a call option is at substantial
risk should the value of the underlying stock
move unfavorably against the position. For
a naked call writer, the risk of loss is
theoretically unlimited. The obligation of
a naked writer that is not secured by cash
to meet applicable margin requirements creates
additional risks. A harsh adverse move in
stock prices can create steep margin call
scenarios in which a brokerage firm may liquidate
other holdings in the writer's account(s)
to cover the option. Since pricing of options
tends to be magnified relative to the underlying
stock, the naked writer may be at significantly
greater risk than a short seller of the underlying
stock. |
| 3. Deep out-of-the-money
options carry high risk of loss. |
Although
purchasing stock options at strike prices
significantly above or below the current
market price can be very inexpensive, you
are at high risk of losing your money. There
are two versions of deep out-of-the-money
options:
• A deep out-of-the-money call is an option to purchase 100 shares of stock
at a price far above the current market price.
• A deep out-of-the-money put is an option to sell 100 shares of stock
at a price far below the current market price.
Although these options seem inexpensive, the chances of making a profit
on such transactions are extremely low. Therefore, novice traders should
avoid buying deep out-of-the-money options.
|
| 4. Out-of-the-money
options near their expiration date carry
a high risk of loss. |
The closer
you buy an out-of-the-money option to its
expiration date, the less likely it is to
end up profitable. Although these options
are cheap, in order to win in such situations,
you will need precise timing and the occurrence
of a major event that significantly moves
the underlying future in your favor. Therefore,
the risk associated with these options is
high and you are likely to lose your entire
investment in these positions.
Each advisory service we provide will offer a special discussion of risks.
As you move through the educational materials that teach you how to use
each service, be sure to carefully read the risks section. It elaborates
on risks specific to the types of recommendations you might see in that
service. Do not enter any trade without understanding all risks associated
with that type of trading.
|
| Conclusion: |
| Once again,
we stress the importance of understanding
all of the risks of any form of trading or
investing that you choose to do. One should
fully understand the worst-case scenario
prior to trading or investing real dollars.
Past performance is not necessarily indicative
of future results. You take full responsibility
for all trading actions, and should make
every effort to understand the risks involved. |
|
|
