BetterTrades looks at the Privatizing of BCE - November 26, 2008

In what would have been the largest leveraged buyout in history, fell through the cracks today. Canada’s largest telecommunications company and parent company to Bell Canada, BCE Inc. (BCE), watched their hopes of privatizing the company dwindle, as solvency requirements may not be met.

As part of the $35B deal, the solvency clause within the agreement would not allow the private equity firm to continue with the privatization process. Within the clause, accounting procedures showed that with the current market conditions and the amount of debt the company would have on their books, it would not be feasible to continue with the previously stated process.

If the deal is not completed, numerous banks that have agreed to finance the deal will be out millions of dollars in fees related to the privatization. Citigroup (C), Deutsche Bank (DB), RBS (RBS), TD Securities and Morgan Stanley (MS) are projected to lose more than $61M in total fees lost.

The good news for those banks is that with the amount of debt that BCE would have had on their books, the banks would have had a terrible time trying to sell that debt in the markets. With the banks having to eat up some of the debt if the deal goes through, the banks sidestepped billions of dollars in losses if the deal does not go through.

The accounting firm KPMG, which was handling the deal, had originally granted their approval. After further examination of the assumptions and methodology of the accounting principles involved, KPMG now states that BCE would not be able to meet the technical solvency definition.

The definition of solvency states that a company must have the ability to pay one’s debt when it becomes due. Read more about the BCE deal at Yahoo! Finance.

If the private equity firm, which is trying to take the company private, is willing to walk away from the deal, they are in line to lose $1.2B in fees related to the termination of the deal. The termination date, also known as the “drop-dead” date is set for December 11.

News of the failed deal dragged the TSX (Toronto Stock Exchange) down during the trading session, pushing the telecom sector down more than 11% throughout the day.

At the time of posting, shares of BCE, traded on the NYSE, plunged more than 33%, giving up over $10, to trade at $20.64 per share. Over the past year, shares of BCE have traded in a range between $25 and $40.44.

For more information on the stock and options markets check out the wealth of information at BetterTrades.

Tuesday Trading Tutorial from BetterTrades - November 25, 2008

As with any speculative trade, options possess inherent risk. Investors need to be well aware of these risks when researching and choosing their plays. Similarly, numerous types of risk are involved and need to be explored before making your choice.

Risk is defined as the proven likelihood of a loss, or less-than-expected returns, or the uncertainty that an asset will possess in relation to an expected rate of return. Diversification of investments provides some protection against risk.

An example of diversification would be playing options in different market sectors or industries. With the markets trading wildly, putting plays in the energy sector, the building sector, and/or the retail sector, each play will move differently as compared to the direction of the overall markets.

One of the most important aspects of gauging risk is the Risk/Reward Ratio. Here, an investor calculates the inherent and perceived risk of an options trade against the overall potential for returns. The ratio is determined by dividing the amount of profit the investor anticipates to make when the position is closed, known as the reward, by the total the total the investor stands to lose if the price of the option moves in the opposite direction, known as the risk.

If a trader were to purchase 100 shares of QWE at $50 and places a stop-loss order at $40 then the total loss would not exceed $1000. If the investor thinks that the price of QWE will reach $70 over the next few weeks, the investor is willing to risk $10 per share to make an expected return of $20 per share after closing the position.

Since the investor stands to make twice the amount risked, this trade would have a 2:1 Risk/Reward ratio. Because a Risk/Reward ratio differs amongst various trading strategies, some experimenting is essential to determine which ratio is best used for any given trading strategy.

Another key to an option or stock investment is analyzing the instruments used to measure risk. Risk measures are statistical formulas used to interpret historical data in order to predict the risk and volatility of an investment. These measures are used to assess the performance of a stock or options compared to the benchmark index.

The most commonly used measures include Alpha, which measures risk relative to the market or benchmark index, Beta, which measures volatility or universal risk compared to the market or the benchmark index, and Standard Deviations, which measures how much return on an investment is deviating from the expected or average returns.

Each risk measure is exclusive in how it evaluates risk. When comparing multiple, potential investments in stocks or options, an investor should always weigh the risk measures against each investment in order to get a comparative characteristic of the performance from each investment.

Once an investor has acquired a Risk/Reward ratio that best suits their trading style and measured the risk involved, its now time to manage that risk. Risk management occurs everywhere in the financial world.

Risk management is the process of identifying and analyzing the uncertainty in all investment decision-making. Risk management involves two steps, determining exactly what the risks are in an options or stock investment, and then managing all of the risks in the best way suited to your investment strategy.

Risk management occurs when an investor analyzes the potential for losses in an investment and then takes the appropriate action given their investment objectives and risk tolerance. Risk Tolerance is defined as the degree of uncertainty that an investor can handle in regards to a negative change in the value of their portfolio.

In conclusion, when looking to trade options or stocks, it is essential to take into account the aforementioned information to better gauge your potential gains and losses. The identification, planning and analyzing of risks involved with options can prove to be a key factor when managing your portfolio.

Check back next week as we delve into when options expire, the process of exercising them, and what happens if the option is assigned to you. Enjoy the holidays and see you back here next Tuesday.

For more information on the stock and options markets check out the wealth of information at AC Investor

BetterTrades looks at the Economic Impact of the Auto Industry's Demise - November 24, 2008

Just how much impact on the economy does the auto industry have? Besides employing more than a quarter-million people directly, and another three-quarter of a million indirectly, the auto industry has a huge affect on the nation’s well-being.

In a statement released earlier today, President-elect Barack Obama affirmed that the auto industry is too vital to the nation to allow it to go away. “ We can’t allow the auto industry simply to vanish. What I also say is that we can’t just write a blank check for the auto industry,” Obama proclaimed in a news conference this morning.

Obama also went on to say, “Taxpayers can’t be expected to pony up more money for an auto industry resistant to change and I was surprised that they did not have a better thought-out proposal when they arrived in Congress.”

There appears a direct correlation between the auto industry and the financial industries as well. Although banks claim their exposure to the auto industry as being minimal, over the past three years, banks such as Bank of America (BAC), Citigroup (C), and JPMorgan Chase (JPM) have assisted automakers in selling more than $56B worth of new debt securities.

These securities include loans bought by insurance companies, hedge funds and pension funds, which have taken their own losses in other bad investments. Of the $56B in debt securities within the auto industry, $47B of that is directly linked to leases and car loans that are on the brink of being defaulted on as well.

Additionally, other industries are affected similarly. Suppliers are the first to feel the affects of a collapsing auto industry. Thus far, some 23 major auto-related companies have filed for bankruptcy. With automakers taking hits in sales, these companies are forced to file for bankruptcy due to lack of demand for their services along with the price of raw materials that continue to increase.

The Big 3 automakers, General Motors (GM), Ford (F), and Chrysler LLC, share nearly 70% of the suppliers throughout the nation. The Big 3 use many of the same producers of automotive products in the production of their automobiles.

In addition to the suppliers and financial institutions already affected by the demise of the auto industry, one cannot forget the advertising industry. The largest category for advertisers, the auto industry, saw ad spending decline 18% in the 2nd quarter of 2008. Totaling $1.37B for the quarter in ad sales, advertisers, domestically and abroad, have seriously reduced their spending as the economic turmoil spreads rampidly.

Foreign automakers are cutting ad spending as well. Overseas automakers decreased their advertising budgets in the U.S. by 5.4% during the 2nd quarter. The decline in the 2nd quarter marked the 12th consecutive quarter in which overseas ad sales have declined. Foreign spending on ads, thus far, is down 11%, totaling $3.27B in overall capital spent.

All that remains now is when, and exactly how much, is the government willing to part with in order to revive America’s auto industry. Automakers are scheduled to resubmit their proposal to Congress on December 2 in hopes of securing the $25B in bailout funds previously asked for.

For more information on the stock and options markets check out the wealth of information at BetterTrades.

BetterTrades looks at the Unemployment Benefit Extension - November 21, 2008

Are you out of work? If so, and your benefits have been exhausted, then today’s news from Washington might brighten your day.

Early Friday morning, President Bush signed into law the Unemployment Extension Act of 2008, providing those with expired benefits to prolong their assistance for an additional seven weeks. Depending on the state, benefits are most often granted for a minimum of 26 weeks.

Today’s action, approved with little opposition, by the U.S. Senate comes as the second extension for jobless benefits. The first plan took effect during the July to October period. It was extended for 13 weeks and covered all 50 states. Read more about the unemployment benefit extension at CNNMoney.

The new act extends benefits for another 13 weeks to those states that have an unemployment rate above 6%. That would include 18 states, including the District of Columbia. Currently, Michigan and Rhode Island have the highest unemployment rates in the country, with 8.7% and 8.8% respectfully.

If not for the extension, an estimated 1.2M people would have lost their benefits. The cost of the extension is estimated at $5.7B.

Much of the reasoning behind the extension was due in large part to yesterday’s dismal unemployment report. The Labor Department provided information stating that new jobless claims, for the week ending November 15, surged to a 16-year high.

In the report, claims increased by 27,000 claims to a seasonally adjusted rate of 542,000, up from last week’s 515,000. Economists were looking for total claims to come in at 505,000 and are now anticipating that these figures will get worse going into 2009.

In addition, the number of people continuing to receive unemployment benefits increased as well, now totaling more than 4M claims. With an increase in claims, the unemployment rate in October was 6.5%, more than 41% higher than the rate of 4.6% this time last year. The Federal Reserve projects that the rate for unemployment could reach between 7.1% and 7.6% sometime next year.

“Putting money in the hands of unemployed families means they will be able to pay their rent and utility bills, buy groceries and clothes for their children,” Sen. Dick Durbin, D-Ill., said after the vote in the Senate late last night. “It is money that will create economic growth in America.”

Prior to today’s signing of the bill by the President, on Congress’ approval, the House had already passed the legislation back on October 3 by a 368-28 vote. Congress has enacted federally funded extensions seven times in the past 50 years; 1958, 1961, 1972, 1975, 1982, 1991 and 2002.

For more information on the stock and options markets check out the wealth of information at BetterTrades.

BetterTrades looks at Demand for Crude Oil - November 20, 2008

How far will the price of oil fall by the end of the year? In today’s trading session, the price for a barrel of light, sweet crude for December delivery traded as low as $49.75 before rebounding slightly. The low for the day marks a 3-year low for crude when oil was trading at $46.80 a barrel in May of 2005.

The December contract for crude expires today. The more active contract, for January, fell more than 8% in trading today, priced at just over $49 a barrel.

Much of crude decline can be attributed to the lack of demand. In turn, the lack of demand can be attributed to the decline in the global economy and the nation’s financial crisis. With demand down, consumers are spending less, which has sent the price for oil down nearly $100 per barrel since its record high of $147 in mid-July.

Since July, global demand for oil has fallen to its lowest levels in nearly 23 years. On average, futures contracts for crude have fallen 67% since its peak in July. Futures contracts for oil first began trading above the $50 mark in late September of 2004. Leading up to the climax of oil’s price over the summer, the surge in its price and demand was directly linked to emerging economies, namely China.

It has been said, by world economists, that the price of crude could fall below the $40 mark by next April. In order to prevent that from happening, the Organization of Petroleum Exporting Countries (OPEC) would potentially need to reduce production by 2.5M barrels a day in order to lessen output into an already oversupplied market.

Analysts from Sanford C. Bernstein & Co. predict that crude demand will decline this year and next, before rebounding sometime in 2010. By the end of this year, demand will fall by 260K barrels a day, and by 600K barrels per day throughout 2009. Not until 2010 will demand bounce back, increasing by 620K barrels per day. Read more about Sanford C. Bernstein & Co. forecasts at Bloomberg.com.

In their weekly report, released yesterday, the Energy Department’s Energy Information Administration (EIA) reported that crude inventories increased by 1.6M barrels to total 313.5M barrels. Gasoline inventories jumped by 500,000 barrels to total 198.6M barrels, while supplies of distillates, which include heating oil and diesel fuel, inventories declined by 1.5M barrels to total 126.9M barrels.

A continuum of dire economic forecasts and the never-ending market slump has taken its toll on demand for oil. Oil companies plan to store millions of barrels of oil in hopes the economy will recover soon. Although the equity markets and the oil markets are separate entities, they have begun trading in the same direction of late. Investors can only sit and wait to see which direction both markets take before getting back in.

For more information on the stock and options markets check out the wealth of information at BetterTrades.

BetterTrades looks at the Big 3 Bailout - November 20, 2008

Will the Big 3 fall at the hands of an economic recession? In Washington D.C., talks about plans to aid the U.S. automakers with billions of dollars reached its third day. Debate over the topic has slowed drastically as hopes of dipping into the $700B rescue fund seems improbable.

In the proposal, the automakers, Ford (F), General Motors (GM), and Chrysler LLC, have stated their case for the government to step in and provide some $25B in aid to the struggling industry.

In efforts to shed light on the situation, the Big 3 brought to the attention of the public the severity of the situation and the impact on the economy and the country as a whole if aid is not provided.

"A bailout is not a solution to the fundamental problems of the Big Three automakers," said Representative Spencer Bachus, Republican of Alabama. "A bailout of the auto industry will just push the problem further down the path. To survive, the Big Three will have to become more efficient and competitive. I am not sure if management and labor are ready to make that sacrifice."

Lawmakers are overly concerned that the financial aid will do little or nothing at all for the auto industry. Members in Congress have suggested that the companies involved file for Chapter 11 protection while they restructure and reorganize their operations in order to return to profitability.

The outcome posses grave consequences. Detroit’s automakers employ more than 250,000 people, and with another 700,000 workers producing materials used in assembly, the catastrophic effects of the government not helping the industry is immense. With an additional one-million people working in dealerships nationwide, if one company filed for bankruptcy, the potential of unemployed workers could climb as high as 2.5 million.

Not only does one, if not all three, major auto producer going under affect the country, but it also has a direct aftermath to any company producing cars and trucks within the U.S. This would include, Toyota (TM), Honda (HMC) and Nissan (NSANY), which all make autos within the states.

Since the beginning of the year, sales within the U.S. auto markets have tumbled terribly. Through the first ten months, sales have fallen nearly 15%. During October, the worst recording in 25-years showed that sales of autos plunged nearly 32%. With or without the help from the government, the auto industry is bracing themselves for the remainder of the year that will most surely continue to present difficulties.

For more information on the stock and options markets check out the wealth of information at BetterTrades.

BetterTrades looks at Talbots' potential sale of J. Jill - November 19, 2008

Is your favorite clothing retailer going out of business? Well, if you are a frequent shopper at Talbots, it just might be. In an announcement made recently, Talbots Inc. (TLB), which is majority owned by Japan’s Aeon Co., is pursuing a sale of its J. Jill clothing brand amid worsening economic conditions.

Coming off a poor sales release for the 3rd quarter, Talbots posted total revenues of $357M, down nearly 14% from last year’s total of $414M. Retail sales were also mired, falling 12%, from $345M to $303M. Year-to-date, same store sales have plummeted nearly 11%, with total revenues declining almost 9%, from $1.28B to $1.17B.

Over the past year, Talbots has dismantled more than 81 stores and nearly 9% of their workforce. The company has done away with their Talbots Kids stores, Talbots Men’s stores, and all of their United Kingdom stores.

With consumer spending reaching record lows, Talbot’s has began to refocus on the company’s core brands, and selling the J. Jill brand will allow the company to do this. Analysts have recently stated that with the sale of J. Jill brand, that Talbots could be poised for a turnaround.

Analysts, within the retail sector, have labeled Talbots as a “market perform,” but concerns have risen since the company’s announcement of selling their J. Jill clothing line. After the company’s announcement on sales totals for the past quarter, the company pulled their second half of the year forecast pending the sale of J. Jill.

To back the sentiment of the analysts, representatives from Talbots have stated that with a better product and tighter cost controls, earnings for the year should remain on track.

In total, Talbots currently owns and operates 876 stores across America and into Canada. Of those stores, 282 locations sell the J Jill brand of clothing. Read more about Talbots at Talbots at Yahoo! Finance

During the past 52-weeks, shares of TLB have traded as high as $18. However, by the time of this posting, shares of Talbots had fallen to $2.27 per share. Today’s price equates to an 87% decline in the company’s stock price.

For more information on the stock and options markets check out the wealth of information at BetterTrades.

Tuesday Trading Tutorial from BetterTrades - November 18, 2008

Following last week’s discussion on the differences between Puts and Calls, this week’s tutorial will focus mainly on how options are priced.

Once a trader has their strategy in place, it is paramount to understand exactly what goes into the perceived value of an option and how to benefit from it. The value of an option is derived partly from the value of the underlying stock. The price of the option will increase and decrease in correlation to the stock’s performance in the marketplace.

Options are mainly classified as being in-the-money (ITM), at-the-money (ATM), or out- of-the-money (OTM).

An in-the-money is an option contract on a commodity wherein the current market price is above the strike price of a call option, or below the strike price of a put option. For example, if an investor were looking to buy an option on QWE, which was trading at $30, then a Dec 25 Call would be considered in-the-money. This option would also be said to have $5 of “intrinsic value.”

Intrinsic Value is the actual value of a security, as opposed to its market price. For options, intrinsic value relates to the in-the-money portion of an options’ premium. It also refers to the difference between the price of the underlying security and the strike price of the option. Learn more about intrinsic value at Wikipedia.

At-the-money is a situation when the strike price of that option is the same or equal to the current price of the underlying security for that option. An example of an at-the-money option would be looking to buy an option on QWE when it is trading at $40. A Dec 40 Call option would an example of at-the-money.

The reasoning behind at-the-money options costing less than in-the-money is that the buyer of an in-the-money option could potentially purchase the underlying stock below market value. This in turn requires the buyer to pay a premium for these options. Moreover, in-the-money options may move nearly tick-for-tick with the underlying stock, which provides the buyer greater returns on a percentage basis.

Finally, out-of-the-money options pertain to a call options’ strike price being higher than the market price of the underlying security, or a put options’ strike price being lower than the market price of the underlying security.

Someone buying an out-of-the-money option hopes that the option will move in-the-money or at least in that general direction. If an investor were looking to buy an option on QWE trading at $20, an out-of-the-money option would be a Dec 25 Call. Out-of-the-money options posses the lowest amount of premiums. However, they may also provide the greatest amount of returns for the amount invested should the stock move in its desired direction.

A premium for options refers to the price, above par value, a put or call buyer must pay out to the seller in order to obtain the option. There are two major components to an options’ premium, the aforementioned intrinsic value and time value. Time value refers to any premium above intrinsic value prior to the expiration of the options. Time value is the amount an investor is willing to pay above its intrinsic value.

One example of a premium would be if a call option on QWE for March 50 expiration traded in January with a $4 premium, the seller of the option would receive $400. In exchange for receiving the premium, the seller has agreed to deliver the shares of QWE at $50 per share to the options buyer.

There are other components imbedded in the pricing of options. Included is volatility. Volatility is a characteristic of all options, securities, commodities, and markets concerning the price or volume of those traded that increase or decrease sharply within a short period of time.

Volatility is calculated by using the annualized standard deviation of the daily price changes of the underlying stock. A stock has high volatility if the price moves up and down rapidly during a short stretch of time, and has low volatility if the price remains relatively flat over the same amount of time.

Options have become one of the most multipurpose trading tools out there. Options can be used for hedging or speculation, along with being used in conjunction with stocks currently owned or with other options. However, options are not for everyone, as they posses risk just like any other trading instrument. Check back next Tuesday as we discuss the benefits and risks related to trading options.

For more information on the stock and options markets check out the wealth of information at BetterTrades.

BetterTrades looks at Ohio's Unemployment Concerns - November 17, 2008

As the nation witnesses a rise in unemployment claims, individual states are posting claims higher than the national average. For instance, Ohio, which now views unemployment at 7.2% statewide for September, seems not so bad compared to the 7.4% it saw in August. The national unemployment rate currently stands at 6.5%.

During September, more than 434,000 Ohio residents filed for jobless benefits, albeit down from the previous months’ reading of 445,000. Ohio state officials made an announcement early Monday morning that the state is quickly running out of capital used for benefits, and may be totally out of cash by the end of next month.

Over the past month, claims in Ohio have surged more than 55% over last year’s totals, with more than 21,000 people filing claims for the week ending November 1. Totals are expected to increase for the upcoming week as shipping company DHL plans on laying off more than 700 workers in the Wilmington, Ohio area. The DHL cuts in Wilmington will reduce their workforce by 60% as the company plans on cutting more than 9,500 jobs nationwide.

In addition to DHL cutting jobs, regional jobs in Butler County and Warren County have already seen more than 2,000 positions leave town. More cuts are expected as a paper processor and a medical center within the counties plan on making additional cuts.

The only viable option the state can look forward to is borrowing money from the federal government. With just over $308M remaining in the state’s Unemployment Compensation Trust Fund, the state has written a letter of intent to Congress and the Department of Labor requesting emergency financial aid. In the letter, the state applied for $550M in funds to help cover benefits through the end of February 2009.

Paying out more than $100M in benefits monthly, Ohio is dangerously below the state’s safe level of $2.5B. With consumer spending declining, the state is paying out more than it they are taking in on taxes.

One suggestion made to alleviate the state’s problem was increasing state taxes. Representatives from the Ohio Department of Job and Family Services claimed that if taxes remain at its current rate, that the unemployment fund would post a deficit of $3.3B by 2016.

In a similar crisis, the state of Michigan has already borrowed money from the government, with interest of course, in order to cover their required unemployment benefits program. Other states, such as Indiana, South Carolina, California and New York are all on the verge of running out of cash in order to pay state benefits.

For more information on the stock and options markets check out the wealth of information at BetterTrades.

BetterTrades looks at Japan's Economic Woes - November 17, 2008

Is the United States’ economy bringing the world’s economy down with it? It appears that way, as economists reported early this morning that Japan, the world’s second-largest economy, has fallen into a recession. Not since 2001 has the country seen such huge cuts in consumer spending as the financial crisis knows no borders.

During the 3rd quarter, Japan’s economy contracted at a 0.4% clip, following a 3.7% decline in the 2nd quarter. Defined as two consecutive quarters with negative growth, Japan has officially entered into a recession. Find out more about Japan’s, and the world’s largest economies, and how they are projected to perform in the coming months at BetterTrades Blog

Today’s news comes as a shock to world economists who projected Japan’s GDP to advance 0.1%. However, the worst may be yet to come. As the country views steep declines in demand for autos and electronics, companies, small and large, are cutting forecasts for upcoming quarters, slashing sales and spending predictions.

Case in point, the country’s largest automaker, Toyota Motor Co. (TM), already cut full-year profit projections to $5.5B, nearly a third of last year’s overall profits. Same for the country’s leading electronic producer, Sony Corp. (SNE), who saw their profits for the past quarter plummet more than 70%. Sony has stated that the company expects to post a 59% decline in earnings under last year’s results. On top of the economic strains, Sony was also involved in a recall that pushed earnings lower.

In the county’s GDP report, released today, data showed that Japan’s net exports receded by 0.2%, while imports increased 1.9% due mainly to the cost of importing crude-based products. Consumption, which amounts to nearly half of GDP, advanced 0.3%. However, economists believe that that trend will not continue into the 4th quarter as spending will be curtailed ever further.

Drastic measures have been set in motion over the past several weeks as the country tries to stimulate the economy. Since the beginning of October, Japan has implemented two separate stimulus packages. The first, worth $275.7B, was used to expand credit to small businesses, while the second one, worth $20.4B, was given directly to households in order to increase consumer spending.

An additional step taken by Japan came last month, when the Bank of Japan cut their interest rates to 0.3%. That day marked the first time in nearly seven years that the bank has cut interest rates.

Trading on the Nikkei 225 index saw a slight increase of 0.7% at 8,522.58. However, year-to-date, the Nikkei has lost nearly 42% of its total value and analysts forecast the index will fall further if it does not receive an infusion of fiscal policy in order to jump-start the economy.

For more information on the stock and options markets check out the wealth of information at BetterTrades.

BetterTrades looks at Citigroup's Job Cuts - November 14, 2008

Exactly what state are America’s financial institutions in? Citigroup Inc. (C) announced earlier today that the nation’s fourth largest bank would be slashing jobs in order to keep the company afloat.

During the company’s 3rd quarter, management released a statement that proclaimed that the bank was eliminating more than 40,000 jobs. As of today, the company still needs to cut an additional 9,000 positions to meet their goal.

Concerns are escalating within certain departments of Citigroup, namely bankers. Investment bankers are expected to receive the brunt of the company’s actions, as senior managers were asked to cut expenses dramatically. Not only is that segment on the chopping block, so is the legal department within the bank as well as human resources. Final decisions are expected to take place in the coming weeks.

Over the past year, Citigroup has lost more than $20B in revenues, and more than $120B in market cap. During that time, the company has eliminated more than 30,000 jobs. One way the company can offset these massive losses is to increase their interest rates on their credit cards. Read more about Citigroup job cuts at MarketWatch

The bank currently has more than 54 million credit card accounts. Not all of Citigroup’s credit card customers will feel the rate increases. Reportedly, one out of every five card holders will see an increase in their rates. It was stated that the increase could be as much as three percentage points higher.

Citigroup also reported a loss of $1.4B in the last quarter from credit card losses, and estimates for 2009 could see losses at record levels.

With about $280B in deposits here in the states, and another $780B worth worldwide, investors are concerned whether the company is able to compete with much larger banks such as Bank of American (BAC), Wells Fargo (WFC) and JPMorgan Chase (JPM). Many believe that the only way for Citigroup to compete domestically and internationally is by acquiring smaller firms in order to increase their capital and deposit reserves.

This could be a viable possibility seeing how Citigroup was one of the few banks that received bailout money to the tune of $25B from the federal government.

Over the past year, the company’s stock is down more than 68% to date. In today’s trading session, shares of Citigroup rebounded in the afternoon session but not before dipping below the $9 mark. Shares of the company have not been below $10 since the early 1990s. At the time of this posting, Citigroup’s stock was up $0.16, or 1.7%, at $9.61 per share.

For more information on the stock and options markets check out the wealth of information at BetterTrades.

BetterTrades looks at the World's Economic Crisis - November 13, 2008

Just how bad is the world’s economy? Well, in a statement made by the Organization for Economic Cooperation and Development (OECD), the developed countries of the world have been blindsided by the financial crisis as many countries have already slipped into a recession.

Consisting of 30 countries, the OECD was established in 1948 in France to help implement the Marshall Plan following World War II. The organization serves as an exchange between governments comparing domestic and international policies, economic practices, and environmental and social issues. Learn more about the OECD at OCED at Wikipedia

During the press release, the OECD forecasted that, of the 30 member countries, GDP would most likely decline by 0.3% on average for 2009. Of the largest members, the U.S. was projected to contract by 0.9% next year, with the Euro zone slipping 0.5% and Japan falling 0.1%.

Today’s worldly economic predictions are in sharp contrast to its previous statement in June. It was believed, at that time, that the worst of the financial crisis was over and that GDP expansion would bolster a 1.7% growth rate. Now, the OECD expects that there will be negative growth in GDP for the member countries though the 2nd quarter of 2009.

For the upcoming 4th quarter, the OECD expects a contraction of 1.4% for its members, with the U.S. posting a reduction in GDP of 2.8%. Japan and the Euro zone are projected to recede by 1%.

Not since 1974-1975 has Europe, Japan and the U.S., all posted negative growth. At that time, the countries were all at the mercy of the Arab oil embargo, which pushed America’s stock markets into a bear market and into a recession.

One of the key factors for the success of the world’s economy to rebound relies on financial stimulus efforts from member countries. After a series of rate cuts by central banks around the world, the OECD proclaims that the financial tension should be short-lived. The most difficult hurdle to overcome will come within the housing industry.

The U.S. is not expected to post positive growth rates until the 3rd quarter of 2009. The OECD cites an expected 0.6% rate increase during the quarter for the U.S. By 2010, the organization feels that the U.S. will record a 1.6% expansion rate for the year, while Japan will see growth of 0.6% and the Euro zone will bolster a 1.2% growth rate.

For more information on the stock and options markets check out the wealth of information at BetterTrades.

BetterTrades looks at American Express and the Credit Crunch - November 12, 2008

In an announcement made earlier this week, the Federal Reserve approved the request of credit card company, American Express Co. (AXP), to become a bank holding company. The benefit of becoming what could be considered a commercial bank is that AmEx can now build their reserves from deposits along with gaining access to financing from the Fed.

With the credit card business deteriorating, AmEx relied solely on packaging substantial amounts of credit card debts and selling them to investors in the open markets. While investors have moved away from unsecured debt and into safer forms of debt, AmEx lost massive amounts of capital.

Investors are beginning to wonder whether the company’s move to a being a bank will solve American Express’ problems. AmEx currently has two bank subsidiaries within the U.S., American Express Centurion Bank, an industrial loan bank chartered in Utah, and American Express Bank FSB, a federal savings bank.

Even with a high level of competition for deposits these days, AmEx’s two aforementioned institutions are too small to bring in the amount of deposits needed to use the capital received.

Back in September, Merrill Lynch (MER) and Goldman Sachs (GS) both became banks. There are very few companies remaining out there that are lenders, which fund themselves through the bond markets. This fact leads other companies similar to AmEx, notably CIT Group (CIT), to the conclusion of wanting to become a bank.

After obtaining the right to switch to a bank holding company, AmEx petitioned the Federal government today seeking $3.5B in capital. This would help to relieve themselves from their current funding problems, which in turn, could boost reserves in order to protect against future losses.

As unemployment continues to climb, along with increases in home foreclosures, the credit card business could post huge losses in 2009 that could set all-time highs. Losses within the industry have totaled between 5% and 7% of the total value of the portfolio for loans overall.

In order to curtail the company’s hemorrhaging of capital, AmEx made job cuts just two weeks ago due to the credit crunch.

Profits for the company remain pressured, as increases in consumer debt has skyrocketed. American Express needs nearly $11B over the next six months to remain solvent. Since the beginning of the year, AmEx has lost more than 60% if its market value due to bad credit.

Shares of American Express were down more than 10% on the day, losing $2.27 at $20.16 by the time of this posting.

For more information on the stock and options markets check out the wealth of information at BetterTrades.

BetterTrades looks at Toy Recalls - November 12, 2008

As the holiday season quickly approaches, the shopping season officially kicks off on Black Friday, the day following the observance of Thanksgiving. This time last year, the biggest concerns came from countless parents who were warned about toys containing lead paint. With mass hysteria, the U.S. initiated a recall of more than 112 different toys made abroad that contained the poisonous paint.

In the mid-1970s, the U.S. implemented partial bans on the use of lead-based paints, but that has not excluded foreign manufacturers from using the cost-effective paints in the products they make. With no control over products produced abroad, the U.S. remains at the mercy of those manufacturers still using the deadly substance.

Last year’s recalls were not the faults of domestic toy makers, such as Mattel (MAT) or Hasbro (HAS). However, these toys were the direct products of countries such as China, India, Korea, Taiwan, Vietnam and Peru.

Lead poisoning is a potentially devastating hazard for the American public. It can cause severe and irreversible behavioral problems and learning disabilities, along with seizures and potentially death.

Currently, there is a limit on the usage of lead-based paints within the U.S. that states that a product cannot contain more than 600 parts-per-million (ppm) on any children’s toy. Although there is no federal regulation on this, there is congressional legislation that will lower the ppm content from 600 to 300 by next August, and then to 100 ppm if it warrants further reductions.

So far this year, the number of recalls is less than half what it was a year ago. However, the 64 recalls so far this year, are still more than three times that in 2006, and four-and-a-half times the total for 2005.

According to the National Retail Federation, it was estimated that consumers would spend more than $470B this holiday season on the purchases of toys. That represents more than a 2% increase over last year’s figure, but still comes in below the 10-year average of a 4.4% increase in holiday spending.

With progress being made with the strict testing of lead-based toys, parents need to remain cautious about the products they are buying for their loved ones. Be aware of brightly painted toys, even plastic ones, as there are still products out there that contain lead paint.

For more information on the stock and options markets check out the wealth of information at BetterTrades.

BetterTrades looks at Toll Brothers and the Housing Slump - November 11, 2008

In a recent release by the Federal Housing Finance Agency earlier this morning, the government stated that new actions regarding the mortgage industry would be implemented in order to help the sector. The two biggest benefactors, Fannie Mae (FNM) and Freddie Mac (FRE), stand to gain from the new approach, as lenders will now be able to modify delinquent loans in order to speed up the repayment process.

This is great news for the mortgage industry. However, what about those companies that build the houses for which those loans are applicable? One such company that has been battered by the housing industry is Toll Brothers Inc. (TOL).

Set to release the company’s full results for the 4th quarter on December 4, Toll Brothers provided preliminary data related to the company’s home building sales for the 4th quarter. The data showed that revenues plunged more than 40% during the past three months. During this time, sales dropped from $1.17B last year to $691M.

Numerous figures showed the lack of spending within the housing industry. The company’s backlog, those homes waiting to be built, declined 54% from last year to $1.33B. Signed contracts for new builds fell 27%, from $365M to $266.7M. Find out more about Toll Brothers at Yahoo! Finance

The decline in new contracts was a large blow to the company, as back in September, the company felt that a bottom within the industry was finally reached. With today’s news, the sentiment throughout the company was upended as the financial crisis continues to cripple the housing sector.

A silver-lining for the company is that despite the free-fall in the housing industry, Toll Brother’s stock has outperformed the Dow Jones Home Construction Index Fund. Although the stock is down over 6% for the year, the index is down more than 40%.

The only logical response to the downturn in the housing markets was for Toll Brothers to call upon Congress to step up and address the problem. In a statement released by chairman and CEO Robert Toll, he stated “We believe the government's efforts must concentrate on stopping the decline in home prices by bringing potential buyers back into the market: stabilization of home prices will help stem foreclosures, shore up the value of mortgage-backed securities, and, ultimately, stabilize the balance sheets of the world's financial institutions.”

Congress plans to put today’s action into effect on December 15. However, the government could not comment on exactly how many people will qualify for the new program. Although lenders have increased their efforts to assist borrowers, the overwhelming affects of the housing crisis may be too difficult to overcome with any new initiatives.

For more information on the stock and options markets check out the wealth of information at BetterTrades.

Tuesday's Trading Tutorial from BetterTrades - November 11, 2008

Last week’s tutorial touched on the differences between purchasing stocks versus buying options. Throughout the article the terms “Calls” and “Puts” came up numerous times. Today’s topic will deal more in depth with those two terms and hopefully lend you some insight and education within options trading.

Call options are contracts that give the holder the right to buy a certain quantity, usually 100 shares, of an underlying security from the writer of the option, at a specified price, the “strike price,” up to a specified date, the “expiration date.”

Buying calls is the most basic of options trading. Here, an investor believes that the underlying stock will increase in value. Buying calls is much cheaper than buying the stock itself, and offers both leverage and limited risk to the buyer.

An example of buying a call would be an investor who thinks that Google’s stock will increase in the near future. If the stock were trading at $300, a buyer of calls may decide to purchase a $310 call (out-of-the-money) say for $15 a contract, or $1,500. In this case, the trader now owns the right to buy 100 shares of Google at the $310 price.

If, at any time up through the options’ expiration date, Google were trading above $310 per share, the buyer of the options contract would still be able to buy the shares for $310. In this case, since the buyer purchased the option for $15, he would be profitable if Google is trading above $325. Anything above $325 would be pure profit for the call buyer.

The option contract buyer would not have to hold on to the option until the expiration day in order to exercise the option. The option can be exercised at any point prior to its expiration. If the holder of the option does not wish to buy the shares in Google, then they are free to sell the option itself. As the stock increases in value then it is likely the option has also increased, so the $15 spent on the option may now be worth $20. The seller of the option would profit $5 on that trade.

The key to buying calls is that the buyer must be confident that the price of the stock will increase because options expire. Unlike stocks, which do not expire, an investor cannot sit and wait for the price to increase. There will be times that the options expire worthless or below the price in which the buyer originally paid.

Put options, on the other hand, gives the put holder the right to sell a specific security at a specified price within a designated period. The put buyer pays the seller, known as the “writer,” a premium for this right.

The buying of puts is a bearish strategy that investors use in order to gain from a stock’s downward movement. Put buying, like calls, has a limited loss potential and limited risk as well. The limited risk refers to the maximum loss of the option itself, which will only go as far as zero.

An example of buying a put option would be an investor believing that the price of a stock, in this case IBM, will decline. If IBM is trading at $80 per share and the contract for a $75 put (out-of-the-money) is priced at $2 per contract, then the investor would pay $200. Again, the key to this investment is that the trader in convinced that the underlying stock price of IBM will decline in the near future.

If, at any time prior to the puts expiration, the IBM is trading below $75, the put buyer has the right to sell the stock to the seller for $75. In the scenario above, the trade would be profitable if IBM is trading below $73 (since $2 was paid for the put).

Just like in the call example above, however, the put buyer does not have to wait until expiration day to profit from the trade. The buyer could exercise the put at any point prior to the expiration date.

As the IBM stock decreases in value, there will likely be a corresponding increase in the value of the put option so the option buyer could sell their put at any time prior to expiration and profit this was as well. Therefore, for instance, if IBM decreases in value from $80 to $77, the $2 put may now be worth $3 and the put buyer could sell the put and pocket the $1 profit.

An important fact to understanding buying calls and puts is that the potential for losses is based on the total amount invested. At no time in buying calls and puts, can an investor lose more than the total that was originally invested.

Check back in next week as we delve into pricing of options, including in-, at-, and out-of the money trades, along with the trade-offs between potential risks, the probability of profits, and the total potential of profits.

For more information on the stock and options markets check out the wealth of information at BetterTrades.

BetterTrades looks at American International Group Inc. - November 10, 2008

In what appears to be the largest government bailout plan for a private company ever, news that insurance mogul American International Group Inc. (AIG) will receive $150B in a financial-rescue package shocked the markets during today’s session.

Included in the bailout proposal, part of the $150B total, $40B to be exact, will be used to purchase partial ownership of the company by the government. The $40B will come from the recently endorsed $700B financial package passed just a few weeks ago.

Within the deal, the Federal Reserve is making available $60B in loans, down from the $85B first offered to AIG. The government also substituted a $37.8B loan with a $52.5B worth of financial aid. Discover more about American International Group at Yahoo! Finance

Many believe that the current state of the economy’s turmoil began with the collapse of the U.S. housing market. With that, AIG was a huge player in investments of mortgage-backed debts and if not for the government stepping-in back in September, the company would have had to file for bankruptcy.

With the company on the verge of bankruptcy, AIG confirmed early Monday morning that the company recorded a loss for the 3Q due to the aforementioned conditions within the financial markets, which nearly led to the company’s demise.

For the quarter, AIG posted a loss of $24.47B, or $9.05 per share, versus a profit of $3.09B, or $1.19 per share a year ago. Despite the recent aid given to AIG by the government, the company continues to struggle in today’s environment.

During the quarter, AIG’s revenues plummeted more than 97%, from $29.84B the prior year to $898M this year. In the company’s main segment, insurance, losses totaled nearly $1.4B due to claims received from victims of Hurricanes Gustav and Ike.

Analysts, in the meantime, were looking for the insurer to post a quarterly loss of $0.90 per share on overall revenues of $18B. Despite massive losses, shares of AIG traded higher in today’s session, adding $0.16, or 7.1%, at $2.27 per share. Over the past 52-weeks, shares of AIG have traded in a range between $1.25 and $62.30.

For more information on the stock and options markets check out the wealth of information at BetterTrades.

BetterTrades looks at Circuit City's Bankruptcy - November 10, 2008

In response to an article written last week concerning the bleak outlook for Circuit City, today the company announced that they are seeking bankruptcy protection from the government. With the filing, Circuit City still plans to remain open for the upcoming holiday season in order to help pay down some of their debts.

Early Monday morning, the company petitioned the government for Chapter 11 protection, disclosing that Circuit City currently has $3.4B in assets and $2.32B in liabilities. Despite the ever-increasing difficulties the company is seeing with their biggest rivals, Best Buy and Wal-Mart, Circuit City owes Hewlett-Packard (HPQ) nearly $120M, and Samsung Electronics Co. $116M in unpaid debts. The total amount owed to purveyors amounts to more than $650M.

With substantial debt, the company decided to file for bankruptcy partly because venders, in which the company owes money to, were threatening to withhold goods pending the upcoming holiday season.

Chapter 11 is a chapter within the United States Bankruptcy Code that allows corporations or sole proprietorships time to reorganize their business practices when the company is unable to pay its debts or creditors. Find out more about Chapter 11 at Wikipedia.

One positive the company can hold on to is the ability to secure financing. Circuit City has locked down some $1.1B in loans in order to preserve operating cash while the company goes through bankruptcy proceedings. The new loan agreement replaces the $1.3B loan acquired back in January. Circuit City stated that the company should return from bankruptcy protection by the first half of 2009.

In today’s trading session, shares of Circuit City were down more than 56% before the markets opening. Due to that, the NYSE halted trading as shares lost $0.14 and currently stand at $0.11 per share.

For more information on the stock and options markets check out the wealth of information at BetterTrades.

BetterTrades looks at General Motors - November 7, 2008

In a report released this past Tuesday, U.S. automakers confirmed that sales in October dropped to a 25-year low. In the report, General Motors (GM) stated that their sales dropped 45% for the month. With that, many workers at the Michigan plant, and worldwide, are bracing for additional job cuts.

GM currently has about 6,000 workers in the Lansing, Michigan area. Those include the Lansing Grand River and Lansing Delta Township assembly plants, Lansing Regional Stamping plant and a service parts warehouse.

Despite cutting their work force, analysts within the automotive industry estimate that GM is spending more than $1B per month above their revenues gained. Moreover, with the credit market the way it is, borrowing is difficult which could lead GM to the possibility of running low on cash.

The threat of job losses became apparent today when the company reported results from their 3rd quarter. GM reported a loss of $2.54B and stated that the company could run out of cash sometime in 2009. Revenues for the quarter fell from $43.7B to $37.9B, a 13% decrease. Learn more about GM’s earnings here.

An analyst, from Barclays Capital, estimated that GM spent more than $6B in cash during the 3Q. GM may end up with under $16B in total cash by the end of 2008. With no assistance from the government, GM is expected to have only $5B on their books by the end of 2009. Well below the company’s $14B needed to maintain operations.

Although the company does not plan to close any assembly plants, they will most likely announce factory job losses. GM plans to enact shift reductions and temporary stoppage of production at certain plants.

Over the past 5 years, GM has gone through a massive reduction of factory workers. In 2003, GM had more than 125,000 hourly employees, and by the end of 2008, that number may be reduced to just over 62,000.

The biggest concerns from GM employees come from those who work at the company’s parts stamping factories. Based in Indianapolis, workers there appear to be on the front line of the cutbacks. With no confirmed announcement made by GM today regarding job cuts, thousands remain on edge waiting for the axe to fall.

GM’s shares, which were halted in trading ahead of their earnings announcement, resumed after the release and was trading down more than 7% at $4.49 at the time of this posting.

For more information on the stock and options markets check out the wealth of information at BetterTrades.

BetterTrades looks at the Unemployment Rate - November 7, 2008

Is the country in a recession? Today’s job report appears to suggest that we are. In the report, released by the Labor Department, the nation’s unemployment rate jumped to 6.5% in October, up from 6.1% in September. The current rate is the highest since March 1994. Economists were anticipating a reading of 6.3%.

The unemployment rate eclipsed the high in June 2001 of 6.3%, the last time the country was in a recession. So far this year, employers have cut jobs in every single month. With that, there have been more than 1.2M jobs lost this year, with more than 650,000 since August.

By the end of last month, there were over 10M people without work. That is an increase of nearly 3M people from this time last year. Last year, the unemployment rate stood at 4.8%, a far cry from today’s reading.

Analysts are now predicting that the unemployment rate could reach as high as 8% some time next year. That figure is comparable to the 10.8% rate seen during the 1980 to 1982 recession.

During October, payrolls were reduced by 240,000. This comes on the heels of a revised figure for September that states that job losses for that month totaled 284,000, nearly double what had previously been reported.

The industries hit the hardest were factory jobs, which lost 90,000 workers. Construction jobs declined by 49,000 as the housing crunch continued to stagger that industry. In addition, business services cut 45,000 jobs, while retailers cut 38,000 jobs.

Although the average hourly rate increased to $18.21 in October, it still does not help since the price of food and energy has risen at an alarming rate. Even with wages increasing 3.5% over the past year, it still does not keep pace with inflation, which sits just below 5%.

For more information on the stock and options markets check out the wealth of information at BetterTrades.

BetterTrades looks at the International Monetary Fund - November 6, 2008

With the world’s financial system in serious trouble, currencies are being devalued and economies fall into recessions, the International Monetary Fund (IMF) comes to the forefront. The international organization becomes a final attempt for countries to borrow from in order to steady their economies.

Headquartered in Washington D.C., the IMF was created in 1944. Its main function was to even out exchange rates and to oversee the rebuilding of the world’s payment arrangements by the conclusion of World War II.

Consisting of over 185 countries, the IMF describes itself as "an organization working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty". Learn more about the IMF at Wikipedia

Hungary was the latest country to utilize the IMF by drawing finances from the fund to the tune of $25.1B. The funds were needed in order to stabilize their currency and banking systems. The IMF, the European Union and the World Bank were also a part of the loan agreement.

To date, the International Monetary Fund had a total of $250B worth of funds ready to be loaned. The IMF already has $18.3B of capital loaned out under numerous agreements throughout 65 countries. Recently, Iceland and the Ukraine also took provisions from the fund. Iceland obtained $2B and the Ukraine obtained $16.5B.

Many world economists anticipate that the next recipient of financial aid from IMF will be Pakistan, which is on the verge of an economic meltdown. Pakistan faces countless debts soon to be defaulted on, and the country’s value for its currency is rapidly deteriorating. Pakistan estimated their required funds to be in the neighborhood of $15B or more.

In less than a month, the IMF had to revise their World Economic Outlook report. In it, they forecasted developed countries’ economies to grow at a 0.5% pace, but now feels that growth will decline by 0.3%. Overall, the IMF predicts that the world’s economy will grow at a 2.2% pace in 2009, much lower than the 3% rate previously stated.

Domestically, the IMF predicts that the U.S. economy will contract by 0.7% in 2009, after first stating that the U.S. would grow 0.1%. Furthermore, the IMF also revised their predictions of the Euro zone growing at a 0.2% clip, and now expects a decline of 0.5%.

As the global financial crisis continues to take hold of the world’s economies, it has begun to take serious tolls on developed countries by restricting their spending practices. This, in turn, denies poorer nations the needed access to foreign investments. A vicious cycle the IMF says will not be able to rectify itself until the latter half of 2009.

For more information on the stock and options markets check out the wealth of information at BetterTrades.

BetterTrades looks at Rate Cuts by the Bank of England and the European Central Banks - November 6, 2008

With an ever-tightening grip on the world’s economies, the financial crisis has left no prosperous country untouched. To counteract against stagnant economies and a global recession, the Bank of England and the European Central Bank slashed interest rates today in order to revive their economies.

The European Central Bank (ECB) reduced their rates by 0.50%, which now stands at 3.25%. The move is in response to curb inflation as the 15-nation Euro zone saw interest rates as high as 3.8% in August. Lower rates increase growth but could also increase the potential for higher inflation if instituted at the wrong time.

Additionally, the Bank of England (BOE) took a more aggressive approach to stave back inflation as Britain reduced their interest rates by 1.5% as rates currently stand at 3%. Today’s rate reduction comes as the largest percentage cut in more than 27 years and marks the lowest rate since 1955. Find out more about the Rate Cuts Here

Britain’s move comes as economic reports released today showed that the country’s price for homes sold slipped 2.2% in October, with yearly selling prices down nearly 14% from last year. Furthermore, manufacturing output slipped 0.8% in September and new car sales plunged 23% in October, its largest single-month drop in more than 17 years.

In the Euro nation, inflation subsided a bit to 3.2% in October after climbing as high as 4% in July. These figures come in well above the rate of 2%, the rate the ECB tries to maintain.

The BOE and ECB both followed the lead of the U.S. Federal Reserve back on October 8, when all participating countries agreed to cut rates at their central banks in response to the economic pressures felt worldwide.

Analysts are forecasting that Britain’s economic woes will continue into next year and post an economic contraction of 1.3%. Within the Euro zone, a contraction of 0.5% is expected. It would not come as a shock if the ECB, the BOE, and possibly the Federal Reserve may lower key interest rates again in the coming months.

The rate cuts affected both the Euro and the British pound in trading against the Dollar today. The pound dropped nearly 1% on news of the rate reduction, while the Euro dropped over 1% after the announcement. Both currencies have rebounded slightly once the news settled.

For more information on the stock and options markets check out the wealth of information at BetterTrades.

BetterTrades looks at Phishing Scams - November 5, 2008

As the markets continue to show massive amounts of volatility, there appears to be one sector that shows great promise within the uncertainty of the financial world, that being phishing scams.

Phishing scams are defined as a criminally fraudulent action in which scammers attempt to receive personal information, including passwords, usernames, and financial data, from unsuspecting Internet users by posing as a respectable contact. Within the scam, users are asked to respond post-haste to inquiries regarding their financial or personal information in order to safeguard themselves against any imminent threats. Learn more about phishing at Wikipedia

One of the most recent influxes of phishing scams to reveal itself came on the heels of all the stimulus checks that were sent out over the summer. Playing on the hopes of receiving additional funds, scammers were sending out emails telling people that more checks are available if they send in their information. The scams included an official heading and links, redirected of course, from the IRS site to the phishing site. It is imperative to know that the IRS does not correspond via the Internet and that the only way to obtain funds from the IRS is by submitting the proper forms.

With the majority of stimulus checks sent out in May and June, the IRS reported that there were more than 700 claims of phishing emails. By the end of July, that number had jumped to over 1,600 reports.

The IRS is not the only government entity that is used in these scams. Over the past several weeks, the Better Business Bureau has reported countless incidents of phishing scams using their name to get businesses to “register software and update personal information” with the Better Business Bureau. If one were to respond to these emails, most likely, a harmful spyware or virus would immediately infiltrate their computer, thus giving the scammer access to their accounts.

In addition to the financial aspects of phishing, the most recent attempts have come from social networking sites. The most common ones include MySpace and Facebook wherein users are targeted for personal information that could be used for identity theft. It was estimated that nearly 70% of all phishing scams on social networks were successful.

A study released in July of 2005, which was conducted between May 2004 and May 2005, showed that more than 1.2M computer users were affected by phishing scams. This cost those users nearly $930M in lost funds. Businesses didn’t fare much better, during that same period, companies lost more than $2B. In 2007, more than 3.5M reports of phishing were reported, costing Americans an estimated $3.2B in losses.

Due to the surge in phishing scams, along with the ever-changing environment in which identity theft is evolving, several techniques have been put in place to help secure the user. Computer companies place spam filters in their operating software, while banks and Internet browsers compile lists of known phishing sites in order to protect the average user against harmful content. Therefore, when you come across an email that sounds to good to be true, more times than not, it is.

For more information on the stock and options markets check out the wealth of information at BetterTrades.

BetterTrades looks at the failed Google/Yahoo merger - November 5, 2008

In what appeared to be a never-ending story, the conclusion was finally written today as Google Inc. (GOOG) withdrew their intentions to collaborate with Yahoo Inc. (YHOO) in the Internet advertising business as the battle with antitrust regulators proved too much.

The proposed agreement, first stated back in June, would have given Yahoo the use of Google’s search engine to provide ads on their sites throughout the U.S. and Canada. The agreement would have allowed Yahoo to publish more affective ads, which in turn, would have been more valuable for the user, the advertisers and the publishers on their sites. Learn more about the failed arrangement at Official Google Blog

The biggest obstacle that Google faced came from the U.S. Justice Department. After hiring an antitrust lawyer in September to review the case, other officials from the Justice Dept. stated that with the merger of Google and Yahoo, the combined companies would have controlled nearly 80% of the online advertising market. Microsoft also stepped in claiming that with the merger, Google would have the power to increase advertising prices and take a greater presence over e-commerce.

Today’s announcement comes, as the second rejection for Yahoo, which follows Microsoft’s (MSFT) bailout in late May that was opposed by Yahoo’s CEO Jerry Yang. Yang’s decision was heavily influenced by shareholder Carl Icahn. Before entering into the agreement with Google, Yahoo was set to join forces with Microsoft, and with the recent happenings, shareholders of Yahoo may try to entice Microsoft back the negotiating table. In May, Microsoft offered $33 per share for the purchase of Yahoo, and with YHOO trading near $14 a share, pressures are mounting to get a deal done sometime in the near future.

As Yahoo continues to stagger with profitability, there may not be a suitable buyer out there at this time. With revenue growth of only 3% this past quarter, compared to a 14% jump this time last year, Yahoo is struggling to keep shareholders happy. One saving grace for the company, which has posted lower profits in 10 out of the last 11 quarters, is that they are in talks with AOL, another underperforming internet player, about purchasing the Time Warner Inc. (TWX) unit in order to maximize potential profits together. However, with those talks few and far between, that deal does not seem likely any time soon.

For more information on the stock and options markets check out the wealth of information at BetterTrades.

Tuesday's Trading Tutorial from BetterTrades - November 4, 2008

Last week’s tutorial on what an option is proved very beneficial to the novice trader. Today’s article will reflect on the differences and similarities between buying options and buying individual shares of a company. The biggest distinction between the two is this, a stock gives the owner a specific piece of the company, while an option gives the owner the right to buy or sell portions of the company’s stock at a specific price by a specified date, but does not give them the obligation to do so.

With an options trade, and also with stocks, there are always two sides to a trade, a buyer and a seller. However, options are fundamentally made up of three separate factors: price, time and volatility. Stocks, on the other hand, are made up of only two elements, price and volatility. When an investor purchases an option, the value of the option is directly tied to the price movement of the underlying instrument.

In purchasing individual stocks, the key ingredient is buying low and selling high. The value of a stock relies solely on the demand of that stock. The price of a stock has many determining factors, including fundamental and technical aspects, along with forecasts of whether the company’s profits are expected to decrease or increase in the upcoming quarters.

Options and stocks also differ in the length of time held for each position. For an option, it is most often held for a short period of time, as options, except L.E.A.P.S, long-term equity anticipation securities, expire the third Friday of every month. However, just like stocks, options can be exercised, or sold, at any time leading up to the expiration date. One key to holding options is that for every day the expiration date nears, the option losses a portion of its value. For stocks, they never expire and it is left up to the discretion of the investor on when a stock is to be sold.

There is also the difference of “leverage” involved in trading stocks and options. For stocks, purchasing individual shares can become quite expensive. If one were to buy 100 shares of XYZ stock at $50 apiece, then the total potential loss could amount to $5,000. If one were to buy an option, in which one contract equals 100 shares, for $5 then the maximum loss for that option would only be $500. Options provide a trade for less money, which could potentially earn a higher rate of return.

One advantage that options have over stocks is the versatility of options. When one buys stocks, their main attention is focused on the stock increasing in value. Although that is the case with options as well, options can also be bought by investors who have bearish views. Buying a “put” option gives the investor the opportunity to make money when the underlying stock decreases in value. If an owner of individual shares sees their stock decline in value, investors are at the mercy of the markets as to how far it will fall, wherein the “put” option will become profitable when that same stock decreases.

There are many possibilities involving today’s trading within the markets. Whether an investor participates in options trading or stock trading, there will always be extensive amounts of homework and research that will need to take place in order to maximize one’s profits. Stocks are beneficial to those who invest in the overall value of the stock and look forward to company dividends. While options traders love the versatility and the potential for outstanding profits that options provide.

Check back next week as we delve deeper into trading strategies and explain further the characteristics of options trading. Within the discussion, we will define in more detail what a “call” and “put” option is, and how exactly an option is priced.

For more information on the stock and options markets check out the wealth of information at BetterTrades.

BetterTrades looks at Circuit City's Store Closings

Another casualty of the economic slowdown, Circuit City Stores Inc. (CC), made it known late Sunday evening that the company will be closing some 20% of their U.S. retail stores. This will result in cutting thousands of employment positions in an attempt to revive the nation’s No. 2 electronics supplier to prosperity.

Of the more than 700 operational stores nationwide, Circuit City plans to cut that figure by 155, citing that those particular stores are underperforming and are not a part of the strategic outlook for the company at this point. This move by the company does not bode well for the upcoming holiday season, as Circuit City’s main rivals, Best Buy (BBY) and Radio Shack (RSH) stand to benefit greatly from the upcoming “Black Friday” sales. Learn more about Black Friday from BetterTrades.

The closings will begin on Tuesday, and the company will begin store-wide closeout sales on Wednesday to help alleviate most of inventories the closed stores are not able to sell. With these store closings, the company estimates that $1.4B in revenues will be lost from those outlets in fiscal 2008.

Not only is the company set on closing numerous stores, but plans for opening new ones have been placed on the back burner as well. Of the total number of stores set to open during the next fiscal year, at least 10 of those stores will not open during 2009 and the company has stated that no stores are slated to open for all of 2010. Find out more about Circuit City at RTTNews

Today’s release comes as a result of the ever-dwindling macroeconomic condition, as the company continues to take drastic actions in order to conserve cash, reduce expenses, and improve on the company’s liquidity. In regards to the overall impact of the closings, it appears that 17% of Circuit City’s workforce will now be out of work, and with the economy the way it is, this move will prevent the company from filing bankruptcy papers.

To make matters worse, the New York Stock Exchange sent a letter of notice to Circuit City citing that the company’s stock could be de-listed as CC has not been able to meet trading requirements set by the NYSE. To be listed on the NYSE, a company must not have an average trading price below $1.00 for 30 consecutive days. Additionally, if the company is under scrutiny, the stock must close above that $1.00 price before the end of those 30 days. Circuit City has not been able to comply with those standards and now has six months to get the company’s stock above the $1.00 threshold or face being taken off the exchange list. Over the past year, a share of CC has traded in a range between $0.17 and $8.24 per share, and is currently trading at $0.36, up $0.10 since today’s opening bell.

For more information on the stock and options markets check out the wealth of information at BetterTrades.

BetterTrades looks at Boeing's Worker Strike

After nearly a two-month strike, production workers the Boeing Co. (BA) plant returned to work yesterday. The No.2 commercial airline producer saw profits and deliveries dwindle due to the strike. Analysts estimate that one the world’s largest jetliner makers lost $100M a day in deferred revenues. Find out more about Boeing and the workers’ strike at Yahoo! Finance

The strike, which was the fourth such walkout in 20 years against Boeing, was the longest since 1995 and cost the workers, on average, $7,000 in base pay through the duration of the strike. The strike affected numerous divisions of workers throughout the plant, including painter, electricians, mechanics and other various professions.

Within the new agreement, the union agreed by nearly a three-quarters vote to approve the new four-year arrangement which gives the workers an immediate 16% pension increase, a 15% wage increase over the next four years, along with lump sum payments of $8,000 over the course of the agreement. Additional provisions of the newly signed contract stipulate the prevention of outsourcing certain health care benefits that will protect some 27,000 workers.

So how bad was the strike at Boeing? Well, during the company’s third quarter, net income for the aircraft producer declined 38%, overall revenues decreased by 7%, and final delivery of aircraft during the quarter declined by 35 units. It remains unclear just how long the affects of the strike will remain with Boeing, but company officials claim that production should be back to pre-strike status within the next couple of months.

While demand for Boeing’s top of the line commercial jetliners, the 737, 747, 767 and 777, were all hurt by the strike, the conclusion of the walkout provides the company, along with its workers, suppliers, and community, stability in the long-term. Currently, shares of Boeing are trading slightly lower, down $0.62, or 1.2%, at $51.65.

For more information on the stock and options markets check out the wealth of information at BetterTrades.