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Frequently Asked Questions

Why are REITs worth holding on to if the new tax law has changed how interest rates are calculated?

The primary impact of the new tax law is that investors will pay less taxes on the dividends generated from them since it is considered pass-through business income. Investors are allowed to deduct 20% of their income and the remainder is filed at the taxpayer’s marginal rate, even if the filer does not itemize deductions.

According to industry leader Nareit, REIT shareholders who are in the highest tax bracket now pay 39.6% on dividends and that would drop to 29.6%. And Ernst and Young’s National Tax Department has said that “this is a deduction that will lower the overall tax rate for individuals who invest in REITs.” On top of that, investors who have rental income outside of REITs could be subject to taxes at the highest rate of 37%, but only 29.6% through a REIT.

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I’ve recently started investing in cryptocurrencies and some of the exchanges, such as Binance, do not accept U.S. dollars. How do we trade on them?

The one issue with buying coins outside of the four that are listed on Coinbase (Bitcoin, Bitcoin Cash, Litecoin and Ethereum) is that you will typically have to buy them with another coin. The most-widely accepted option is buying them with bitcoins. Two of the major exchanges that accept bitcoin as payment are Binance and Bittrex, and the process of moving bitcoin from Coinbase to both is fairly simple. However, both Binance and Bittrex have halted the opening of new accounts for the time being due to overwhelming demand.

Until they begin accepting new applications again, you can use Kraken. I personally went through the process of setting up an account on this exchange, and it only took about 10 minutes to complete. Once you’re set up, you can buy bitcoins using U.S. dollars and then be all set to purchase other coins.

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What is the most important metric you pay attention to in your technical analysis?

Boy, it’s hard to pick just one! Every chart is different. But if I had to point you to one, I’d go with the moving average. This is a trend-following indicator that is based on past prices and helps determine support and resistance areas. It’s one of my favorite ways to zero in on the strongest opportunities on my screens, as well as identify buy and sell levels.

I will most often focus on the shorter-term 50-day moving average (the stock’s average closing price over the last 50 days) and the longer-term 200-day moving average (over the last 200 days). Both of these give you a good idea of a stock’s true potential and make interpreting a chart a lot easier!

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What is the difference between closing a contract and exercising a contract? Would it ever be beneficial to let an option expire?

You can either sell an option for a profit or loss (closing a contract on the open market) or you can exercise the option and carry out the terms of the contract. When exercising a call option, the owner purchases the underlying shares at the strike price; when exercising a put option, the owner sells the underlying shares at the strike price to the option seller. In both cases, the position is no longer open.

Letting one expire occurs when the option is held into expiration. Here in Profit Multiplier, we will generally always close out our option trades before expiration. In my opinion, letting an option expire is the same as throwing money away. It’s better to sell for a small something that nothing at all.

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I know lithium is a great way to play the growth of electric vehicles. Are there any other materials we should be aware of?

That’s a great question. You’re correct that the primary power behind electric vehicle (EV) batteries comes from lithium, and this material has become a hot commodity as it is also used in iPhones and computers. In fact, we’ve already made some money on this growth theme in my services.

But what is often not talked about on Wall Street are the other materials that make up these batteries. Cobalt, which is typically a byproduct of copper and nickel mining, is essential for high-end rechargeable batteries, and the demand for this blueish-grey metal is about to explode.

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I am new to options trading and confused by some of the terms I’m seeing. What are some key options terminology I should know before diving further into this kind of trading?

That’s a great question, and it’s completely understandable considering some of the terms and phrases used in options trading aren’t used in regular stock trading. Here are some that every trader should be familiar with, starting with the two types of options you can buy or sell.

Call: An options contract that gives the buyer the right to buy a stock at a set price within a certain period of time. Calls are generally bought when you have a bullish outlook on either the market or a particular stock’s potential.

Put: An options contract that gives the buyer the right to sell a stock at a set price within a certain period of time. In contrast to calls, puts are a more bearish play on the market or a specific stock that aim to profit from a downside move.

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What’s the best way to handle earnings season regarding ETFs? Are they as impacted by the results?

Earnings can be a volatile time for stocks as investors weigh their buy and sell options both leading up to and after the announcement. It’s also a time that highlights one of the greatest benefits ETFs have to offer – they almost entirely remove company-specific risk, including that surrounding quarterly results.

Of course, an ETF can still experience heightened volatility during the season, especially as a large move in one of its top holdings could affect near-term trading. At the same time, poor results from an industry leader could send an entire sector – and therefore, the ETF – lower.

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I’ve noticed that you talk about the RSI a lot in your analysis. What exactly does it show?

You’re absolutely right. The relative strength index – more commonly referred to as the RSI – is one of my favorite indicators on a stock chart. It’s an overbought/oversold oscillator that measures a stock or index against itself.

Don’t confuse it with relative strength, which is very different as it measures one chart against another to determine the stronger. The RSI is a formula that helps determine if a stock has run too much to the upside or fallen too far to the downside. There are a few different time settings you can use with RSI. My preference is the 9-day period setting, which takes the last nine trading days into consideration to determine the RSI number. While I could talk for hours on how I use the RSI in my research, it really excels in identifying buy signals.

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Are moving averages something you look at in your stock analysis?

Yes! I love moving averages because they can tell us a lot about historical trading and give us a good idea of where the stock is (or at least should be) headed in both the near and long term. The 50-day moving average is one of the most widely-used indicators in the world of technical analysis, and yet many investors aren’t familiar with how it works or its importance in trading.

A simple moving average – the type that I use in my analysis – is the average closing price over a certain number of previous trading days. So the 50-day adds up a stock’s closing prices over the last 50 days and divides by 50. The end result is the level of the moving average on any given day. There are a few ways I use this data in my analysis.

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Let’s say you recommend an option in a certain stock, but aren’t actually recommending the underlying stock. What makes you want to trade the option rather than the movement in the stock?

That’s a really good question, and typically it comes down to timing. In NexGen Profit Mulitplier, we will generally hold an option for anywhere from a few days to a few weeks and stocks for about one to three months. That’s a big difference in holding periods, so it puts importance on how imminent a move ahead is.

If the payoff looks like it will take some time to play out, we will more likely target a trade on the underlying stock. However, if a stock is likely to take a near-term pop, we can maximize that upside potential through a call option. For example, a 2% bounce wouldn’t be worth trading in a conventional stock trade. But that 2% can quickly translate into a double-digit winner through the profit-multiplying power of an option.

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