9780942641653 - Investing Without Fear: Options by Harvey C Friedentag

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Greed and fear refer to two intrinsic emotional states relating to the topic of unpredictability of stock market. Vulnerability to those two emotional states might be a result of investors' low comfort level due to the market instability.

Greed and fear relate to an old Wall Street saying: Giving in to these emotions can have an profound and deleterious effect on investors portfolios and stock market. Greed is usually described as options investing without fear irresistible craving to possess more of something money, material goods than one actually needs. According options investing without fear several academics greed, like love, has the power to send a chemical rush through our brains that forces us to put aside our common sense and self-control and thus provoke changes in our brains and body.

However, there is no generally accepted research on biochemistry of greed. Other academics tend to compare greed to an options investing without fear, because greed like smoking and drinking can illustrate that if a person can take over one's addictions it is options investing without fear to avert bad effects from resisting it. On the other hand, if one can not resist its temptations, he can easily get swept away by it. In other words, it can be deduced that certain traders who join the business world for the emotional agitation and desire of hitting that emotional high, are addicted to the release of certain brain chemicals that determine those states of happiness, euphoria and relaxation.

Before mentioned fact can also imply that such traders are susceptible to all addictions. Furthermore, humans' brains are naturally activated by financial awards, which in options investing without fear same way as drugs produce an incredible but perilous feeling and thus an addictive experience.

One of the most common examples of situations where greed took over people's actions is the s dot-com bubble. The Dot-com bubblealso known as Internet bubble, referenced the speculative investment bubble that was created around new internet startup companies between the years — In that time, exorbitant prices of new Internet companies motivated investors to invest into companies whose business plans included a "dot com" domain. Investors became greedy, creating further greed, resulting in securities being heavily overpriced, which eventually created a bubble.

Emotion of fear is usually characterised as an inconvenient, stressful state, triggered by impending peril and awareness of hazard. Internet bubble is not only a good example of investors' greed but also the period following the bubble can serve as a good characteristic for fear induced market. In pursuance of solutions to suppress their losses after Internet bubble crash, fearful investors decided to swiftly move out of the stock markets concentrating their attention on less uncertain purchases, spurring their capital into market securities, stable value funds and principal protected funds, all of low risk and return securities.

Such behaviour is an example of a complete negligence of long term investing plan which options investing without fear based on fundamentals. Investors disregarded their plans because of fear of committing persisting losses, which identically did not bring any profits and benefits. Some academics disagree with the notion that greed and fear are main emotions driving financial markets. According to psychologist Lola Lopes, while fear is indeed a crucial factor driving financial markets, majority of investors don't respond that much to greed but to hope.

Lopes indicates that fear unlike hopeprovokes investors to concentrate on unprofitable invests, while hope does the complete opposite. Furthermore, hope and fear are believed to alter the manner in which investors estimate other possibilities. Fear provokes investors to ask: How bad can options investing without fear get? How good can it get? In this case, fear drives investors to enhance security, while hope stimulates investors to emphasise potential.

It is usually used by traders to check the grade of investor complacency or market fear. In practice, VIX is usually called the fear index. In case of increased VIX index, investors' sentiment leans toward higher volatility which corresponds to higher risk. There is also another available index that can gauge greed and fear developed by CNNMoney.

This index is based on seven indicators: All options investing without fear indicators are separately gauged using scales from 0 to A reading from 0 to 49 indicates fear. A reading of 50 is neutral. Readings from 51 to demonstrate that investors are greedy.

To calculate this index, a computer takes an equal-weighted average of those seven indicators. From Wikipedia, the free encyclopedia. The new psychology of money. What is the Dot-Com Boom? Beyond greed and options investing without fear. Harvard Business School Press. Retrieved from " https: Business terms Stock market Behavioral finance. All articles with unsourced statements Articles with unsourced statements from February Use dmy dates from March Views Read Edit View history.

This page was last edited on 6 February options investing without fear, at By using this site, you agree to the Terms of Use and Privacy Policy.

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Assume you want to trade a gold binary options contract, because you believe the price of gold will rise today. If you are right, and gold is higher than the strike price (price level of gold that determines if you are right or wrong) when the option expires, the option will be valued at 100. Considerations for Real World Trading When you're starting out, calculate your ideal position size for each trade. Even when actively day trading there is time before each trade to quickly determine how much to wager based on your percentage risk tolerance and the trade you are considering.

This repetition will serve you well, and when you are losing money the dollar amount you can risk will drop (as the account value drops) and when you are winning the dollar amount you can risk will increase (as the account value increases).