February 9, 2016

What Are Binary Options?

I know only a little about stock options.   Generally you can buy an option to purchase or sell a stock at a future point.   I have had options at work granted to me by my employer.  They allowed me to buy my our company stock for a set value, say $20, and then if the stock went up I'd be making money.   So when I hear about Binary Options, I think this is some fancy way to invest in stocks.   Nope...

Read this article at Forbes : Don't Gamble On Binary Options

They do a good job explaining that binary options are really just a form of gambling.

Also be aware that they are often unregulated and read the warning from the SEC : Binary options and Fraud

So what are they?  In short :
You can make a bet that a stock will go up or down for a very short time period.  For example you buy a $100 option that it will go up.   5 minutes later if you are right you get $170.  If you are wrong you get $15.    Do that 1000 times spending $100 x 1000 or $100,000 and get it right 50% and you make $92,500 and you lose $7500.    The allure here I think is that people think they can make informed guesses about what a stock or commodity will do.   But you can't.

Avoid binary options.  Its just gambling and the odds are stacked against you.    Plus its unregulated and prone to fraud.

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February 7, 2016

Gasoline Price Component History 2000 to 2015

Gasoline should be cheaper than it is today.   It will likely fall further in the next few weeks.   Oil dropped from about $50 a barrel down to around $30 in the past 3 months.   That should cause gasoline to drop further than it has.    But theres some delay between gas price drops and drops at the pump due to the time to refine and distribute and then sell gas at retail.   We could see gas hit  around $1.50 level within a month.    Anyway... that line of thinking is what lead me to the information below.


EIA has a breakdown of the component prices of gasoline for refining, distribution, taxes and oil.

Here's a graphic :

(data source: EIA.gov ; click for full size)


Taxes are the only constant.   Refining and distribution bounce up and down a bit.   Oil is main factor that causes the larges swings in the retail prices.

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February 5, 2016

Best of Blogs for Week of February 5th

Every Friday afternoon I share some of the more interesting or notable posts that I have seen in the personal finance blogs and other sources for the past week

DQYDJ shares Makeup of the US Workforce by Generation, 1962-2015: a Calculator

TheSimpleDollar lists Eight Common Myths About the FAFSA, Busted



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February 4, 2016

If You're Buying a Fixed Annuity Then You Might NOT Want To Wait For Better Interest Rates

Right now interest is low and this is causing the payout on fixed annuities to be low too.   I figure if you're considering buying a guaranteed life fixed annuity right now then it might make sense to wait a little while and see if rates go up so you can get a better monthly payment.   But after looking at the numbers a little, I'm not sure if it will pay off to try that.

I tried to find historical rates for fixed annuities and couldn't come up with much.   The ImmediateAnnuities site has a chart going back to 2003.    Thats not very far but it does show how annuity rates do seem to track in proportion pretty well to AAA corp. bond rates.  

Today if you're buying a fixed annuity then a 65 year old male can get about $534 per month for $100,000.   A 70 year old would get about $598.   So simply buying later will get you more which is based off the lower life expectancy for a 70 year old versus a 65 year old.  

Lets say that you simply lived off of your savings and spent the same $534 per month for 5 years.    You could take about $32,000 and put it in a 1% savings account and drain that down over the 5 years.   The other $68,000 you could put in CDs for 2% and end up with about $75,000.    At 70 years old that $75,000 will only get you about $448 at todays rates.    Now the idea with waiting is that you should be able to get a better annuity rate in a few years if or when interest rates go up.    But in order to get back to at least the $534 a month you'd have had if you bought at age 65 you'd have to have rates go up about 20% from where they are now.    This is actually relatively likely.    But its no given.  

I'd figure roughly that interest rates will need to go up about 2% in that 5 year period just for you to get back to the break even point.   Thats not a safe bet.   Its not a bad bet but its not something you can really count on either.  
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