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Leveraged ETFs – How to Trade, Guide, Tips and Strategies

(Updated October 2021)

Two times leveraged ETF is a vehicle calibrated to 200% or double the gain or loss of the price movement

Did you come across something called a leveraged ETFs? What is leveraged ETF and how it is different from other ETFs? We found a lot of questions like these thanks to visitors to our website. We’ll try to make this closer to you especially if you are a beginner in this field.

Let’s take time to jump in and explore these somewhat new securities.

Firstly, leveraged ETFs aren’t for long-term investors.

When you are buying a leveraged ETF, you must know that you have to make short-term trade. As we said, it isn’t a long-term investment. For newbies, a short-term trade lasts from one day to several weeks, not longer. Don’t try to buy a leveraged ETF for a long-term investment.

They became one of the most successful varieties of ETFs in recent times. So, we can easily say that leveraged ETFs are a novelty. However, they can be difficult innovation. Well, they are not either good or harmful, all you need is to know them better to be able to trade. Here are some basics about leveraged ETFs.

Let’s say the traditional ETF tracks one security in its underlying index, 1:1. As a difference, with leveraged ETF, you can strive for a 2:1 or even 3:1 ratio. A leveraged ETFs use financial derivatives to magnify the returns of an underlying index.

Leveraged ETFs are possible for the Nasdaq 100 and the Dow Jones Industrial Average, for example.

Where is the advantage?

Leveraged ETFs can help you to capitalize on the short-term momentum of a particular ETF. The main question is how to add leveraged ETFs into your portfolio?

For example, the trader is assured that a particular stock will drop. And trader is shorting that stock. Besides, shorting stocks are bought on margin and the trader has to borrow the money from the broker. That is leverage.

With leveraged ETF, you don’t need to buy the securities on margin, since it allows you to amplify your returns by multiples of over 1 up to 2 or 3 times. That depends on the ETF product you are trading. The amount of leverage will depend on your experience or temperament. Some less-experienced traders will choose lesser leverage, for example.

But be aware, they are designed to return three times the inverse of the S&P 500 index. So, if the S&P 500 drops by 1%, this fund should rise by approximately 3%. And contrary, if the index rises by 1%, this fund should drop by about 3%.

Leveraged ETFs have the aim to outperform the index or stock they track.

Also, there are inverse leveraged ETFs. They give multiple positive returns if some index decreases in value. They operate the same as normal inverse ETFs but designed for multiple returns.

Leveraged ETFs are not suitable for beginner’s portfolio

Please, don’t make a mistake. Yes, it is fascinating to have amplified returns but you should never add leveraged ETFs into your long-term portfolio. By buying them as a long-term investment you are making a foolish decision. To repeat, leveraged ETFs are not investments, they are speculation. Don’t mislead yourself.

Moreover, the payoff may not be as bright as you predict. So, they are risky. You will have to pay management fees, brokerage commissions, taxes on capital gains.

Leveraged ETF surely has its purpose for short-term investing. For example, you can use it as a hedge to protect a short position. Yet, long-term investors should be careful with leveraged ETFs.

Definitely, when things are going fabulous, leveraged ETFs are excellent investments. Over the first 6 months in 2017, the S&P 500 has returned a bit over 10% but the 3 times amplified leveraged ETF has returned approximately 30%.

But, think about what happens when the market turns down. For example, the S&P 500 falls by 10%. A leveraged ETF tracking the index could fall by approximately 30%. Just think about these figures.

How to make success in trading leveraged ETFs

As experts recommended, start with small if you aren’t experienced enough. When your portfolio becomes larger add more shares. There will be more risks, of course. But you will diversify your trades. Some elite traders recommend starting with an account of $25.000 minimum. Less isn’t recommended due to trading ability and margin rules for smaller accounts. Moreover, a smaller amount may cause conflicts in your decisions. You’ll need space to make them.

Further, trade when the sentiment is low. It is the best opportunity to profit. Set a stop-loss to, let’s say, minus 2% or 2.5%. Follow the trend and enter the winning position. If your profit goes up, sell some of your winning positions. Do it on spikes. If you reach 2% of profit very quickly, sell half of your shares to move stops up to breakeven. This can be a no-lose trade.

Read a lot about ETFs and leveraged ETFs and test some free trials to find the accurate one. Do your own homework, it is the best way.

Always monitor leveraged ETFs on a daily basis. If you have to use a limit order on a position it is reasonable to sell your position since you can’t follow market makers strictly. If you want to turn trade, it is better to trade traditional ETFs. that will give you less profit, but more freedom. For leveraged ETFs, you will need to sit and look at the screen or phone almost all day long. Trading isn’t for everyone, at all. That job can be addictive. Take a break from time to time but don’t give up. If you made some mistakes, keep in mind why, when, what caused them. And learn how to avoid them.

And buy when the ETFs are positive.

Disagreements

The leveraged ETFs are new and still developing, and the disagreements will change as time goes by.

Yes, they will provide you 2 times bigger returns but not always.

The typical fault is that leveraged returns are on a yearly basis. This is false. They provide multiplied returns on a daily basis. So, don’t look at the index’s yearly return of say 2% because the leveraged ETF will seemingly not have a return of 4% per year. Rather take a look at the daily returns during the year. However, something is more important. The multiple returns don’t mean you will have multiple profits. You may have multiple negative returns also.

Leveraged ETFs are high-risk due to their design. Also, some index-tracking malfunctions may occur as well as some other limitations.

Bottom line

These the most attractive ETFs in the market today have a great advantage of using. Traders can overcome some of the risks through diversification and leveraged ETFs are very suitable for that. Still, they are still adjusted for stocks only. Therefore if the stock market falls the ETFs will fall too. Anyway, you can enhance your trades if you spread the risk across other assets besides stocks. It’s easy to find ETFs assets like currencies, bonds, or commodities. That will help you to improve your portfolio diversification buying power (the last mentioned is for really aggressive traders).

Leveraged ETFs are new products but they are providing more choices to manage risks and take profit.

They are a good option but what if you don’t want to enhance your buying power if the bear market is in play? That would require short positions to take advantage of the downside potential in the market. A leveraged ETF could be a great answer in this situation, also.

9th January 2020
Buy More Stocks, And Here Is Why

Your money should stay in stocks as bond yields and savings accounts interest rates are being held down

by Guy Avtalyon

Let’s explain why should you buy more stocks in 2020. The first stock market rally this year started with a lot of momentum. The S&P 500 index had its best year in 2019. The last such good year was 2013.

2019 was really an active year. For all investors, the end of the year was a great opportunity to figure out what happened and how well they were doing. Well, it’s normal to make some mistakes but the point is to find any that has had a great influence on your investments. The most important is that these mistakes didn’t hurt your long-term investing goals and when you figure out what you did wrong you’re able to avoid repeating them.

So, you will be prepared for new investments which is very important.

The beginning of the year is the right time to make plans on how to position your portfolio. Since no visible or specific cause could cause the stock market downturn it is the right time to buy more stocks in 2020.
Actually, buying great stocks at reasonable prices should let us build our wealth firmly in the future.

Let’s take a look ahead to 2020 for stock picks

Many analysts are skeptical about the stock market’s gains will proceed with two-digits percentage, that’s true. So, we can conclude they are expecting volatility. This means the stock prices could go down.

And here is where the opportunity comes.

Cheaper stocks represent a buying opportunity and some investors are waiting for that. Some companies are ready to outperform and continue to grow despite the economy slows.

According to analysts from Wall Street, some well-known companies and brands could be the right choice.

Buy more stocks in 2020 to get profit

Picking stocks can be difficult so let’s see what is our choice for potential opportunities.

Kohl’s (KSS)

Kohl’s has over 1.100 stores and represents the largest U.S. department store chain. For some investors, its stock may look too cheap after the company posted the last quarterly results. KSS trades 20% under its five-year average and 25% below its average price-sales ratio. But the company is expected its revenue to grow 1.8% to $19.3 billion. The earnings would stay at $4.88 per share. But Kohl’s performed something else really great: it generated $10.81 per share in free cash flow last year. Its annual dividend payout is $2.68 per share. Just compare these two figures. The current yield is 5.3%.

Visa (V)

It is one of the most powerful payment companies in the world. The company processed 180 billion in transactions worth $11.6 trillion. Net revenue was up 11% in 2019, and net income increased by 17% year-over-year and is about $12 billion. Remarkably, this large company reported two-digit growth both top and bottom line and a free cash flow yield of 3%.
Some new initiatives should provide steady growth for Visa in the future and allow the company to take advantage of and beat competitors. This stock isn’t cheap but the high-quality is costly.

Apple (AAPL)

It is expected that the demand for Apple’s 5G iPhone will boost the company in 2020. AAPL stock price, according to some analysts could reach $300 in the next 12 months. Well, some are expecting the price to climb up to $440 in the year ahead and after 5 years to increase up to $1427.148. Even if you think the price is “overrated” Apple is confirmed as a good investment. Buy more stocks if you have enough capital to invest in.

Amazon (AMZN)

Amazon’s stock could be a top bet fort he next year. Strong growth in its cloud-computing and advertising businesses is expecting. The analysts are rating the stock as a “buy”. The predicted price could pass a $2,000 target this year. Shares could rise by 34% over the year, which is the experts’ opinion.

Walmart (WMT)

Walmart has been modifying. It has been investing in online. The company could take advantage of the growth in the middle class in China. Yes, Walmart’s market value is 40% of Amazon’s, but the difference is lowering. At the end of last year, the price of WMT stock was $120.440 but the price has been in an uptrend for the past 12 months. The future price of the stock could increase by 23%, said analysts, and predicted to be worth over $200 this year.

Kronos Worldwide (KRO)

This company from Dallas (Texas) produces and sells titanium dioxide pigments for broadly used in auto-industry, traffic paint, appliances, interiors, and exteriors. But the investors’ attention is focused on its revenue. It is expected to grow by 3.4% this year or to $1.8 billion. The earnings should rise $0.88 per share or by 14%.
Despite this growth, Kronos shares trade nearly 40% under its five-year average P/E ratio. The quarterly dividend has increased by 20%. The stock yield is 5.4% at $0.18 per share.

Tesla (TSLA)

Tesla Inc will present its first Chinese made Model 3 sedans publically on January 7, reported Reuters. The deliveries came a year after Tesla build its only plant outside the US. The target is 250,000 vehicles a year. Tesla’s China General Manager Wang Hao said the plant had achieved a production target of 1,000 units a week, which is the production of around 280 per day, and that sales for the China-made vehicle had so far been “very good”. If Tesla’s earnings become firm, thenTesla’s stock could rise amazingly. Right now, Tesla stock trades at $418.33 but analysts are expecting to raise over $720 this year.

Starbucks (SBUX)

Starbucks has a great performance last year. Its shares increased by 37.5%. The company has reported revenue growth, an increase in total net revenues to $26.5 billion and net income grew to around $3 billion. Starbucks ended the past year with 31,256 stores in 82 markets. The company continues to grow in China as well as in the US. Starbucks has clear goals for its expansion. That provides a great level of certainty to investors and they could recognize Starbucks as favorable stock to buy.

Why buy more stocks in 2020?

For stock investors, this year already appears like a happy new year.
Investors buy more stocks for many reasons. For example, capital appreciation could be one of them. Also, dividend payments or the ability to vote and control the company.
Several reasons are behind choosing to buy more stocks in 2020. In this stock market condition, stocks provide the best potential for growth as always.
The beginning of the year is an amazing time to decide where to invest. Since there is no 100% sure way to predict the stock market movements why not invest in assets with the greatest returns?

What could we do instead?

All we should do is to create diversified portfolios and adjust them to the market’s movements, to save a value in down markets. The general suggestion is to not look often at your portfolios. Take your time and read books about investing. You can find plenty of them packed with wisdom.

Traders-Paradise wishes you happy investing in the stock market this year.

2nd January 2020
Stock Market Correction – The Storm Is Coming

A lot of mergers and acquisitions, drop trade investment and lack of business trust indicate a coming stock market correction Bear in mind that markets will not disappear, so you can get back

By Guy Avtalyon

The dark sign of an upcoming stock market correction might be when the companies are buying back their stocks and use them for buying other companies. In this example, the stocks are used as currencies. We can see that so many companies are doing exactly that. Further, we are witnesses of a lot of mergers and acquisitions. The companies are uniting to survive something. But what? What they are expecting?

Is the logical answer that they are expecting stock dumping and the stock market correction?

Some analysts say YES.

The first sign of possible stock market correction they see in companies buying other companies, in mergers with rivals and financed by shares exchange is the signal that the market is close to the end of its bullish period. The opposite opinion befalls when the companies invest in new activities, new operations, development. That would be a good signal for the stock market. But when the companies are using their own shares to buy growth it only can be a sign of the lost confidence.

Yes, the economy runs in cycles. The sunny days will always follow after rainy days. But we have to be worried when the economy’s condition pattern indicates the coming storm just as we are in a hurry when the real storm is coming.

How to manage the stock market correction?

A stock market correction is an alarming condition but quite normal. Some might be surprised, but it is a sign that the market is healthy. Well, in most cases.

How could we know that the stock market correction is coming? When the stock prices are dropping 10% or higher from their most current peak but not more than 20%. In such a case, we would have a bear market.

Firstly, don’t try to “time the market.” Avoid swing trading even though trading the ups and downs may give you some profit but for a short while. Many investors are trying to avoid losses by putting money in some other investments where they think there is a better possibility of profiting.

Most people lose money by trying to move their money around to participate in the ups and avoid the downs. This is a documented behavior studied by academics around the world. The field of study is called behavioral finance. That is a behavioral bias.

Our two cents

When you build your investment portfolio it should be based on knowledge and your education, not on prejudices. It is normal to expect that for every quarter of the year, you will have some negative returns. Tn order to lessen those negative returns or to control them you have to have a diversified portfolio. That means you need to combine your investments. Pick a mix of assets that have more potential for upsides and fewer chances for high returns because that means less risk.

During the market correction, savvy investors have more discipline, less fear, and stay with their investing playbook. Don’t trade at those times because you may catch larger losses. Behind these words lies the stats, you can easily check it.

Follow the old Wall Street pattern: Never catch a falling knife.

Be mentally prepared

A market crash may happen. When? It doesn’t matter. You have to be mentally prepared for that because the markets are unpredictable and it had happened before. Yes, we all like to be rich even on the paper and it’s really hard to chew a big bite. And the stock market correction is just that – a big bite. Some investors might feel fears, be frightened, and start selling their stocks at the worst time.

If you are a long-term investor type, you must have trust that the stock market will adjust eventually.

Corrections can last from several days to months or longer but the last mentioned are rare. Remember, a correction may damage your investment for short, but it is a great opportunity for adjusting overvalued stocks. So, buying opportunities are undoubted. So, just keep adding stocks to your investment portfolio while others are selling in a panic.

Can we predict a stock market correction

Nope. No one can predict a stock market correction. They aren’t predictable. Moreover, they can be generated by different matters. For example, we know the Great Recession has erupted on the housing bubble. But we know that after everything was finished. But predicting the main cause of the next correction just isn’t possible.

What we know for sure comes from research. According to one conducted on the example of the Dow Jones, the average correction lasted about 72 trading days or three and a half calendar months. And the correction is when the overall stock prices drop more than 10% and if the decline of more than 20% it is a so-called market crash. That’s all.

For whom the market correction matters?

Stock market correction matters for short-term traders. If you stay focused on the long term you will survive anyway. When correction occurs those who’ve adjusted their trading as the short term or those who have leveraged their account with the use of margin, should be worried.

Traders that used margin had bigger losses during the market downturn. Also, active traders had increasing costs united with their losses during the correction. Holding long-term investment was the best way to survive the stock market correction. At least such investors had a peaceful life.

Don’t be afraid of a stock market correction. It is usually a great time to buy high-quality companies at a lower price. So, you can add stocks to your portfolio for long-term investments, even the one that previously appeared to be a bit too pricey. Also, a market correction is a good time to examine again what you hold. Sell your position only if you see that your investment, but each in your portfolio, couldn’t meet the cause of keeping it.

A stock market correction doesn’t need to be terrifying. If you don’t want to taste it, it is best to stay away from investing in the stock market. Instead, stick with safe investments.

Keep your balance.

27th December 2019
Levi Strauss On The Market Again

Levi Strauss & Co. trades on the NYSE under the ticker symbol LEVI.
This famous brand promises to be a good investment

By Guy Avtalyon

Levi Strauss is riding again.
We are sure you have several of Levi’s products. When say Levi’s you mean eternity. Levi’s jeans is always IN. This denim cloth producer went public in March this year. The jeans on the trading floor. Sounds good even if it didn’t change the dress-code there. Actually, that decision was the second appearance of Levi’s on the stock market.

Firstly, the company was listed in the 1970s. But 15 years later, the company was taken private. Descendants of Strauss, well-known the Haas family bought it out. In March this year, that decision was changed and Levi’s is listed again on the NYSE under the ticker symbol LEVI. Levi’s started trading publicly for the second time in its 165-year history.

At that time, the shares were priced at $17 and grew 32% in the first trading day. On the closing bell, the price was $22.41 and the valuation was over $8.5 billion.

The LEVI price history

The LEVI price history isn’t long but we can see that it had a few good trading weeks after went public. The price dropped in August and was traded at about $16. In October, the price increased to almost $20 but dropped again at $17 and stabilized in that area.

On November 21 the LEVY was traded at $16.57 which was an increase of 0,20% from the previous day.

The experts’ forecast for Levi Strauss & Co.’s median target at $23.50, with the highest price at $28.00 and the lowest at $18.00. That would be a 41.82% rise from the current price of $16.57. Their estimation shows a buy signal for Levi Strauss & Co. stock.

The forward P/E ratio is 15.49 and P/E growth is 3.79, the dividend yield is 3.62%.

Levi Strauss & Co. posted its quarterly earnings report on October 8th. The company reported $0.31EPS for the quarter, beating analysts’ estimates of $0.27. Levi Strauss & Co. earned $1.45 million during the quarter. The company had a return on equity of 37.44% and a net margin of 6.85%. The revenue was up 4.3% related to the same quarter in the previous year. Levi Strauss & Co. issued its revenue guidance of $5.882-5.909 billion.

Selling of Levi Strauss & Co. stock

The company’s main shareholder Walter J. Haas sold 73,845 shares on Wednesday, November 20th at an average price of $16.53, for $1,220,657.85.
Previously, on November 13th, Walter J. Haas sold 37,290 shares of the company at an average price of $16.96, for $632,438.40.
Two days earlier, on November 11th, Walter J. Haas sold 22,321 shares of stock at an average price of $17.06, for $380,796.26.
On November 8th, Walter J. Haas sold 50,749 shares at an average price of $17.10, for $867,807.90.

Hedge funds have new holding positions in the Levi’s

Commerzbank Aktiengesellschaft FI got a new position in Levi Strauss & Co. at approximately $253,000.
Acadian Asset Management LLC took a new position at around $174,000.
Parallel Advisors LLC took a new position at approximately $96,000.
Aperio Group LLC took a new position at around $62,000.
NumerixS Investment Technologies Inc got a new position at about $58,000.
Institutional investors hold 9.21% of the Levi Strauss & Co. stock.

Experts’ ratings on LEVI

Bank of America boosted its price target on LEVI from $20.00 to $22.00 and marked the stock as a “buy” in October.
Guggenheim repeated a “buy” rating in September.
ValuEngine upgraded Levi Strauss & Co. from a “sell” rating to a “hold” in October.
Levi Strauss & Co. currently has a consensus rating of “Buy” and a price target of $24.43.

About Levi Strauss

The company is founded by Levi Strauss, an immigrant from Bavaria who came to San Francisco in 1850 during the Gold Rush. He brought dry goods for selling to the miners. he recognized the miners’ need for durable pants and hired a tailor to sew clothes out of tent canvas. Denim came later.
A partnership of three Strauss brothers was built in 1853.
After Strauss died the leadership of the company passed to the Haas family. By the 1960s, Levi’s jeans became popular globally. In 1971, when the company went public it was operating in 50 countries.

Levi Strauss & Co designs, and markets jeans, casual dress, pants, skirts, jackets, footwear, and accessories for women, men, and children under the brands: Levi’s, Dockers, Signature by Levi Strauss & Co, and Denizen. The company also authorizes Levi’s and Dockers’ trademarks for many product categories, like footwear, belts, wallets and bags, outerwear, sweaters, dress shirts, kids wear, sleepwear, and hosiery.

Levi’s is a famous brand but the stock needs a price accumulation before it keeps the advance. Anyway, this is the stock to be watched. Its trends in Europe are strong, rising at 20% a year for the past two years and 14% in 2019. Levi proceeds to diversify its distribution in Europe and it is now 50% direct-to-consumer sales. But the U.S. sales are down and now it represents 30% of Levi’s overall sales.

22nd November 2019
Fiat Chrysler and Peugeot Merger

Fiat Chrysler Automobiles will merge with PSA Groupe, owner of Peugeot automobiles

Fiat Chrysler (FCA) and Groupe PSA (Peugeot is the largest PSA brand), have agreed to continue a merger. That would form the fourth-largest carmaker in the world. Their boards are working together on a new relationship. The Wall Street Journal reported the companies are moving forward with a merger. Both companies confirmed this news.

The merger will give shareholders of each group equal ownership in the new entity.

On Thursday morning both companies stated that their boards have a mandate to finalize the negotiations in the next few weeks, which means FCA will not tie-up with Renault as was thought this summer.

The merger would create a company with revenues of €170bn, with an operating profit of over €11bn and vehicle sales of 8.7m. That would lead them ahead of General Motors and Hyundai-Kia in sales. The new potential entity would have a market value of between €45-50bn.

The model of the merger is a 50-50 all-stock.

PSA is listed on the Euronext Paris stock exchange.

Since 2014, FCA is officially listed on the NYSE.

After the Fiat Chrysler and Peugeot Merger

When the two companies do a merger, PSA chief executive Carlos Tavares is assumed to lead that new group while John Elkann, Fiat Chrysler’s chairman will hold the same position at the new entity.
Despite this speed, a final agreement of merger needs time and regulatory scrutiny.

According to Reuters, a merger between FCA and PSA could build a “$50-billion giant better placed to tackle a host of costly technological and regulatory challenges facing the global auto industry.” Details were not published, but some aspects have known.

For example, the Journal published that the new company would be “legally domiciled in the Netherlands,” with “operational headquarters in the U.S., France, and Italy.”
Further details and any influence on employment are not yet transparent. The known fact is that FCA has plans to add nearly 5,000 jobs to the Detroit factory to build SUVs. So, the obvious conclusion is that a merger would eventually help FCA in Detroit.

It isn’t a secret that the Peugeot Group has plans to re-enter the U.S. market. The merger with FCA would provide it through the Chrysler/Dodge/Jeep/Ram dealer network.
To adjust the value of the two companies, the PSA shareholders should get about a €3bn dividend from the sale of the 46% stake in parts carmaker Faurecia.
FCA shareholders will receive a €5.5bn ($6.12 billion) cash payout and incomes from the sale of its robot-making Comau unit, estimated at between €200m to €300m.

New headquarters

The new group will be based in the Netherlands, a neutral location, where FCA is domiciled and listed in Paris, Milan and New York. The Financial Times reported the FCA will “continue to maintain a significant presence in the current operating head-office locations in France, Italy and the US.”

Around €3.7bn in predicted annual run-rate synergies are targeted, 80% during the first 4 years. The total one-time cost of achieving the synergies is estimated at €2.8bn, the two companies revealed in the statement.

Bottom line

Carmakers are facing large investments in electric cars. That is the reason behind the merge. Costs. This merger would create one of the biggest carmakers groups in the world with well-known brands Citroen, Jeep, Opel, Alfa Romeo, Peugeot, and Vauxhall. This has the potential to be a true rival to Volkswagen, Toyota and the Renault-Nissan Alliance.

The merger of those two companies looks as wise given the global competition, capital power, and industry complexity from autonomous technologies.

This could create a global automotive leader.

31st October 2019
UGAZ And DGAZ Stocks – How To Trade Them

(Updated October 2021)

UGAZ and DGAZ are ETNs tracking natural gas prices.
Energy exchange-traded products (ETPs) might be a good trading opportunity as much as energy ETFs.

UGAZ and DGAZ stock closely watch the US Natural Gas Fund (UNG) and UNG tracks the price movements in natural gas.

Let’s make a distinction between those two.

The main purpose of UGAZ (VelocityShares 3x Long Natural Gas) is to increase the daily performance of UNG by three times. That’s 300%. To make this clear, if UNG price grows 1%, UGAZ will display a daily increase of 3%. The best time to trade UGAZ is when you have a bullish sentiment on UNG.

The main aim of DGAZ (VelocityShares 3x Inverse Natural Gas) is to generate profits from the losses in the UNG fund. DGAZ will increase the losses by three times inversely. Meaning, if UNG price drops by 1%, DGAZ could bring you a gain of 3%. So, the best time to think about DGAZ is when you have a bearish sentiment on the UNG fund.
As you can see, both UGAZ and DGAZ have 3:1 leverage. That can notably boost your potential profit.

Trading UGAZ and DGAZ

If you want to trade them, it’s vital to watch the UNG fund. UNG fund is the basis of ETF that runs both of them. This can be a complex fund but you can go short in the long term and consider both UGAZ and DGAZ. Natural gas is a highly volatile commodity and UNG is not straight associated with natural gas in the physical sense. So, UNG isn’t a clever investment if you keep in mind it fell by more than 90% after its start. Also, it doesn’t pay dividends. Instead, UNG uses future contracts and OTC exchanges to find and copy the natural gas price. It doesn’t hold stocks. So, we can say that UNG isn’t a good investment by itself. There is where UGAZ and DGAZ come to the scene. If you don’t care for dividends and just want to keep the position for a short-time the long-term volatility of FUNG will not affect your investment.

As we said, UGAZ increases the UNG gains, while DGAZ goes up when UNG falls in price. But keep for the short-term, as long-term holding is never recommended.

UGAZ and DGAZ trading opportunities

These products can be risky. Well, you have to follow the news as ETNs give 3-time leverage in a single day. As we said, when the natural gas price rises by 1%, UGAZ will rise by 3%, and DGAZ will fall by 3%. To repeat, if you want to hold UGAZ or DGAZ the percentage performance will oppose your expectations.
A lot of circumstances may influence these products. For example, politics, global economy, supply and demand, weather, interest rates, and many others.
The way to trade USO or UNG is to trade options. That will allow you to achieve better risk-reward levels. The profit potential could be tremendous.

Bottom line

If you look at the historical data you will find peaks over winter, for example, but also, sometimes the price can make a sharp move down.
Why does this happen? The natural gas price depends on weather forecasts. So, you have to watch that. If you see the meteorologists are expecting a warm winter you can be sure the demand will be lower. So, pay more attention to DGAZ.
The other factor that may influence the gas price is the change in natural gas supply. So, you have to keep attention on weekly natural gas storage reports.
Both will give you the future course of the natural gas price. And, to add more pain, remember, UNG isn’t always successful while mimicking the gas prices. You have to be ready for the UNG price failure.
UGAZ is a tactical trading tool. It provides 3-time exposure to its reference index, the S&P GSCI Natural Gas Excess Return Index. This ETN is not designed like a buy and holds an investment. The return can differ hugely from its initial exposure.
It consists of complex effects and extreme concentration on quick period natural gas prospects.
DGAZ is the inverse product, it is intended to be a tactical trading tool, not a buy-and-hold investment. It is for a one-day holding period.

30th October 2019
Is PEG Ratio Really Useful?

The PEG ratio is one of the most popular metrics. It is so easy to calculate it. It never takes more than 10 secs even if you are not good at math.

But, what do you think, is this extremely simple metric, this PEG ratio really useful?

Let’s see. Let’s examine it a bit more on some examples.

First of all, the PEG ratio or the price/earnings to growth ratio is a stock valuation measure. Investors use it to evaluate a company’s performance and investment risk. It is a measure, so it can be calculated.

When the PEG ratio value is 1 we can say there is an excellent bond between the company’s market value and its expected earnings growth. If the PEG ratio is higher than 1, the stock is overvalued. But when the PEG ratio is lower than 1, the stock is undervalued.

The formula for PEG ratio is:

PE Ratio (Price/Earnings) / Expected Growth Rate = PEG Ratio

Assume we are examining two stocks with different characteristics

Stock A company:

price – $20/share
earnings – $4/share
expected EPS growth – 5%

Stock B company:

price – $40/share
earnings – $4/share
expected EPS growth = 20%

For stock A company

P/E ratio = $20/$4 = 5
PEG ratio = 5/5 = 1

For stock B company

P/E ratio = $40/$4 = 10
PEG ratio = 10/20 = 0.5

If we study the P/E ratio for valuation plans, we will discover that the stock B company has an advantage because it has a P/E ratio that is 50% less than that stock A company has. But if you find that company A is going to improve its earnings 5 times faster than company B, you may modify your opinion. If you use the price to earnings growth, you will see that the stock A company trades at a lower PEG ratio than stock B company. So, what can we conclude? Company A stock may give a better value.

But is that really true?

Well, there are some weaknesses connected to the PEG ratio. Earnings growth is not an isolated thing in the market minds. To get a whole picture of the stock value you have to take care of many factors such as cash flow, dividends, revenue growth, etc.

Further, when it comes to “growth” in the phrase “price/earnings to growth ratio” you will be faced with one problem when you are trying to value a company. You actually don’t know the rate of earnings growth. In the best case, you can guess or rely on Wall Street analysts. Having thin in mind, your PEG will be as good as your data is.

Well, something is good with the PEG ratio. It is very useful for smaller companies but for large companies (for example Disney or Ford) where the growth isn’t so important to total returns, it can cheat.

So, is the PEG ratio really useful?

You have to keep in mind that it isn’t a mathematical result. The method is as good as its inputs. The future growth rate could be the main problem in this PEG formula. When you or any analyst make forecasts about the future it can be wrong.

To make it clear, it is easy to calculate the PEG ratio for companies with weak growth. But, mature companies with excellent earnings and great dividends, have a slow growth rate. So, such companies will never have a PEG ratio of 1 or less. Right?

It is almost the same for companies with fast growth.

For instance, a company growing in a surplus of 30% per year will be incapable to maintain such a growth rate. Can you see how the PEG ratio is as good as its inputs? A huge amount of failures in the future earnings growth rises from a too optimistic or too pessimistic viewpoint for the company or industry. Getting an exact PEG ratio depends on what factors you use in the calculation. You may find that the PEG ratio is incorrect if you use historical growth rates. This one especially can lead to mistakes when future growth varies from the past.

Bottom line

Traders-Paradise wants to give some spotlight on the pros and cons of using the PEG ratio. As the answer to a question Is PEG ratio really useful, we can say: the PEG ratio is useful but only when you use it to improve a more precise discounted cash flow analysis or relative valuation.

23rd October 2019
How To Know If a Stock is Worth Buying

How to recognize if a stock is worth investing in?
What causes a stock to be good or bad?
What things to consider?

By Guy Avtalyon

How to know if a stock is worth buying? Let’s assume you are new in this field and how you can decide what stock to buy. For some investors, it is a tricky part. To be honest, it is hard for everyone. The risk is involved, the volatility of stock or market, the investment goal. Everything is on the table. But if you follow some rules connected to the estimation you can figure out how to know if the stock is worth buying. Yes, many people will tell you stock investing is like a wheel of fortune. And they are wrong. Investing is like solving the problem. Everyone has its own way, own style, but the goal is the same: solving a problem.

Prudent investors must enter the stock investing as if they have to solve a problem. Step by step.

Buying stock isn’t like buying a new sofa and when you find it isn’t for your room you can take it back. When you buy stocks, you have to be convinced they will hold their value, increase in value, and you will gain profit when you sell or deliver to you notable dividends over time. The main point is to know when a stock is worth buying.

Look at the price

When you have to decide if some stock is worth buying the first thing you will find is its price. You have to figure out how much the ownership of shares in some companies will cost you.

The amount of money you have in your hands will determine how many shares you can buy but the most important is to know historical data about particular stock prices. If you find the stock has steadily increased over time you will know that you can expect a good value in the future.

Pay attention to revenue growth

Share prices will grow if a company is growing. A company is growing when rising its revenue. Increasing revenue will show you if the company is strong. We can say it is a major indicator often called top line. The important part is not looking at revenue isolated. You have to observe all rise and drops in each quarter and year. And here is the tricky part. The positive trendline is good for the stock price but the revenue may be dropping or be flat and it is important to understand why that is.

You should check the company’s current holdings, projections for future operations and stability. If you hear or read some news, no matter if they are local or even rumors that the company is doing bad, it is better to step back. You wouldn’t like to hold stocks with so much stress. Your money is involved and you could lose everything invested. So, check the company’s revenue, it is easy since almost all companies have their official websites where you can find all this info.

But keep one thing in mind. If it is a temporary situation and historical data shows its stock was good in price that can be good for you to buy a stock at a low price and wait for it to rebound over time.

Some stocks may temporarily drop in price and it can be a good deal to buy them now because they have the potential to recover.

What is the company’s earnings per share

This info is important and you can easily count it. Just divide the leftover amount at the end of each quarter by the number of shares the company has sold, and you get the earnings per share. For example, if a company made $100 million in profits in the prior year and has 52 million shares, the earnings per share is $1.92. As an investor, you should pay attention to this since the higher earnings per share (EPS) shows you that the company is in good shape. And the tricky part again arises. Some companies can manipulate with EPS. The process is simple. They do it by buying back their shares. In that way, they are boosting EPS but not increasing profits.

Use the technical and fundamental analysis to know if a stock is worth buying

You will have some idea about stock’s quality if you check the prices over the past 200 days, for example. And you will see the trends. Trends are repeating.

Analysts think that by observing the movement over a determined period, you can define the baseline, the point where the stock should recover. Here the advice, don’t buy the stock at its highs, wait to come close to the baseline or to hit it. Some may ask how is good stock if hits the baseline. Well, when the stock hits the peak it is expensive, the price is increased, and the stock has no more space to run so the only possible scenario is to go down. If you buy a stock at its peak you will lose your money. So, it isn’t a good time to buy a stock.

Also, perform fundamental analysis. That will show the current and projected financial aspect. Use that info to discover now’s value. Use the company’s statement and balance sheet to determine the business strength. It isn’t a 100% indicator, but it is enough good sign of what you can expect from the company in the foreseeable future.

How to know if a stock is worth buying

One thing is sure and you must have that in mind when you are trying to know if a stock is worth buying.

A company can’t manage every single thing that might affect the business. The general economy can influence the health of a company and its stock play. For example, consumer prices, the changes to interest rates can affect how a company is doing. That is not in connection with its own business. But, the stable economy produces companies’ wealth and share increases come with that. And opposite, share prices can stumble during times of economic uncertainty.

You will find many analysts that issue reports and tips about individual stocks. These tips appear with “buy” or “sell” ratings. But analysts often disagree, so it isn’t recommended to depend on one report. Always compare several to know if a stock is worth buying.

22nd October 2019
Getting Started Investing is the Hardest Part

Getting started investing can be very easy and smooth since you need a little money to start. Investing is better than savings accounts because it can shorten the period of earning.

By Gorica Gligorijevic

Getting started investing isn’t a big deal, it shouldn’t fright you. Honestly, it’s so easy.

You know what, when I was just a little girl (my grandma used to sing this) my parents gave a lot of effort to teach me how to save money. Grandparents would like to give me money for some holidays with advice to keep it for rainy days. I had my savings account. From time to time, they would put some money there but most of the time they insisted I have to put. And I did it. Not frequently, I have to admit, but still. With time that habit got strong roots. Every month I’d put 10% of my earnings on my savings account. I am still doing the same. That first savings account is my 10%-account.

No matter how big or small portion is. 10% would every time end there.

I can only speak from personal experience but I am sure that other people could easily find themselves in the same situation.

I am not going to give you advice because I know that is almost impossible to put anything on your savings when you are living paycheck to paycheck. Yes, the amount of money that the majority have available to spend every month is insufficient to put something aside. Despite the old saying about money: If you save me today, I’ll save you tomorrow.

But we all know how important is to have something aside. And it is possible. Let me show you how.

How getting started investing

Okay, do you know the rule “pay yourself first”? Yes, starting this is hard. But do you understand the meaning of this rule? Of course, you do but why not tell it again. This means you have to put on your savings every month some amount of money. It doesn’t matter how much it is. A few dollars, or other currency you have. Just when you get your salary, put aside several coins. Every month. And you will see, that amount will grow with time. Try this. I am not going to tell you how should you spend this money. You may have enough for exotic travel, or to buy a car, or after some time you may have enough for house buying deposit. Just start.

No, I will never tell you to live below your means.

Sacrificing isn’t a good way to save anything except life. If you try this method, living below your means, you will be unhappy and you will always have the feeling that something was taken from you. It can be a trigger for something more serious. But, anyway, try not to purchase the famous brands, too expensive things. Do it occasionally if it makes you happy. But don’t let it be your goal. Life is a lot more than brands.

Create a budget

What you can do is to make a budget frame. It is a smart idea to write down the amount of money you have every month. You can do that in some excel spreadsheet, or just in some memo. Also, there is a lot of money management apps you can use. OK, that’s the first step. The next is to subtract all the costs you have, for example, taxes, debts, loans if you have (don’t worry, we all have), etc. What you have in your hands after these deductions is your net income. This is the amount you have to use as a base for creating your budget. So, track your spending to be able to make some adjustments if it is necessary and possible, of course. You should review your budget from time to time to be sure you are on a good track.

Getting started investing

Do you know that your money can work for you? Yes. Let’s assume that after one year of saving you have enough for exotic travel. Why do you need to make it right now? Go somewhere else and save e.g. $1.000 on your trip. That amount is more than enough for getting started off investing. You can do that with less money, here you will find how. You can choose to invest in some mutual funds (it is probably the best for starting), or stocks, or real estate. By investing you will generate a greater return than your money sleeping in your savings account. If you invest in something you will let your money work for you. The whole process may be done with your banker’s help. Your bank has financial advisors, investment advisors, they will tell you where to invest. Or you can engage some brokers.

What are the advantages of investing

One of the main advantages of investment is that you can have your money work for you to earn more. Let’s say this way. You don’t need to work more to earn more. Your investment will that for you. Investing could bring you a higher living standard, for example.

Further, you can apply investment plans for saving and growing money. The best part of investing is that you can be a long-term investor and money earned from investments can be spent to cover future expenses, for example, for your retirement, or buying a house, new car, your children’s higher education costs, or just you want to have more.

It is important for you to understand that investing isn’t gambling.

You can make a profit on investment due to research and careful choice of a suitable investment vehicle. It isn’t betting. The truth is that you can make losses in the market. That’s the reason to make less risky investments. Never mind if they have lower returns. Stay on them until you find yourselves capable to play riskier. That time may never come. You can stay in safe investments for your whole life. It is OK.

In that way, you will protect your property in the long run.

So, you can see that getting started investing isn’t always the hardest part. It can be very easy and smooth. You just need a little money to start. At least if you have some targeted amount you have to save in some period, investing will short that period. You’ll be able to gain it sooner. Sounds good, don’t you think?

10th October 2019
Bull Market – What Everyone Should Know?

A stock bull market means that investment’s price rises over a long period. Investors’ faith in stock prices lead the prices themselves in a self-fulfilling prediction. A bull market means profits for investors who own stocks.

What exactly is a bull market? If you are like me several years ago, you are confused with all these terms, conditions, maths, evaluations, or estimations of the stock market.

May I be honest with you?

The truth is that I know nothing about the stock market when I entered. I was foolish, I know. But my desire to earn, to be investor was something I never have had before. It was like this…

A personal story

A friend of mine had a grandfather. Extremely interesting figure. He came from Italy to the US as a kid. OMG, he was just 12 when he bought a ticket and came with nothing except dreams about fortune. To shorten this story, after several years of struggling he made his first success. He became a clerk in the office of some broker. Step by step, that wonderful man became very rich. People, listen. Very rich!

I wanted the same. ASAP! I asked him for the recipe. Oh, how I would like I never did such a thing! The first lesson was: You know nothing, have to learn a lot. C’mon, man! Give me something else to start. I thought I know everything. I have just finished university. With a diploma in the hands, I thought I know everything possible about anything. Of course, I was wrong.

That blessed man told me I had to learn. How to, where to go? I spoke with some friends. No help. So, I decided to start. I found a broker, put some money (not a lot) on my trading account, and started to find a stock. That was a nightmare! My first trade was totally a disaster! I placed another trade. The result was the same. In two trades I lost everything.

Ok, at least I tried. Then I went back to my friend’s grandfather and asked him to teach me.

“You get your first lesson, my son.”

OK, I understand. I have to go for basic. And I started to learn. You must learn to have a chance to earn.

The bull market was the point where I started. I can’t explain why, but I felt I needed to know what it is.

The term “bull market” indicates a stock market is rising. Of course, every single investor supposes the market to rise. Better say, has a hope it will rise. But having only hope means to stand in the mud. You can slide in a moment and fall. Having my previous experience in the mind, I needed more facts.

Nice from this zoological term

So, I learned that the bull market occurs when the prices rise for 20% or more.

Further, I learned that a bull market systematically produces higher highs and higher lows. A stock bull market happens in a strong economy. Nice again, thanks bulls. But what can drive a stock bull market, that I wanted to know?

And I found (with a little help from my friend) that great revenue, profit, and P/E ratio are the most important.

The revenue should be in line with the economy, meaning revenue should grow by the speed of economic growth. Here is some interesting part. As consumers spend more on goods and services rise the economy will rise. Super!

And I came to the companies profit.

The revenue must generate profit.

But some knowledge defeated me. I thought that great profit is a wonderful thing and it is good when the company can generate more profit from the same revenue money. But it is not so simple.

And the P/E ratio! The stock price is just the amount of money it will cost to buy a share of a company. But stock prices can vary. If the demand for the stock rise, its price will rise too. The P/E ratio estimates the relationship between a stock price and its earnings per share.

I was confused just as you are now, I believe.

In a bull market

In a bull market, you’ll notice powerful demand and limited supply for securities. This means that more investors want to buy securities and less want to sell. What will happen? The stock price will rise, right. Let’s go further! Let’s observe investors’ psychology.

In the stock bull market condition, investors have the hope of earning a profit. They are positive and optimistic. Oh, how I wanted to have that experience. Instead, I was scared to death. I needed more knowledge to sure what I am doing. My first trade was so stressful and, by the way, I wanted to show my older friend that I can learn.

In the periods of the bull market, people have more money.

And they are spending. In turn, it stimulates the economy to grow. My old friend told me something important and let me share that with you.

When it is the bull market, you should buy stocks in the early stage, while they are not too expensive. As the price goes up, just wait for its peaks and sell your stocks. And don’t worry if there are some losses in price. It is temporary. Just invest in more stocks with a higher chance of getting a bigger return.
I am grateful to him for this lesson. But there was one piece of advice that sounded the most important to me: “Play the market like toreador plays his wonderful performance in the arena. Peaceful, with confidence, elegant. Tickling the bull. You have to know where the limits are, don’t get surprised.”

I’ll not. Thank you, my dear mentor.

9th October 2019