Friday, August 10, 2007

Speculate on Housing Prices, Yahoo Microsoft Merger or the CPI: Only $100

There is a commodities exchange called the HedgeStreet Exchange, which issues binary contracts for currencies, gold, silver, the federal funds rate, the CPI, housing prices (for Chicago, Los Angeles, Miami, New York, San Diego, San Francisco, Boston, Denver, Las Vegas, and Washington DC), crude oil, natural gas, various mergers (e.g. Yahoo / Microsoft), Wal-Mart (WMT) earnings, Bebe (BEBE) earnings, and Wal-Mart revenues.

I spoke to one of the executives of the firm at the San Francisco Money Show a couple weeks ago who said that they are in the process of adding several new types of contracts. By the way, a binary contract means all-or-none at the end of the contract, however, the contract can be traded before expiration.

As an example, suppose you want to speculate that Wal-Mart's earnings (which are coming out on August 14), are going to be above 76 cents per share. Currently the $100 contract for the Wa-Mart EPS > $.76 is listed at 50 bid and 58 asked. If you place an order at the asked price of $58 [you can place limit orders below the asked price also] and the stock reports earnings above $.76, you would receive $100 in return. If not, you would receive nothing. If the contract increases in price during the next couple days, to $75 for example, you can also just sell the contract. The other option is buying the stock, tying up a lot more money and hoping that the stock would go up if it reports earnings above $.76. But with, your losses are limited to $100 per contract.

I decided to give the exchange a try. The instructions and explanations were very easy to understand and setting up an account was easier than any other account I've set up online. I've already opened three real estate positions, and I'm ahead on two of them. This morning [afternoon Eastern time], I sold a contract on the price of crude oil closing under a certain price at 2:30 pm EST today at 48. So basically, I had to put up $52, my maximum potential loss. Oil closed under the limit price and I therefore received $100 in return. Remember, I sold the contract [like shorting a stock], I didn't buy it. So my return for the hour was 92%. Not bad for a days work.

Hedgestreet is regulated by the Commodity Futures Trading Commission. The commission is one dollar per contract. If you are interested in speculating or hedging in small amounts, or predicting earnings per share on stocks, you should check them out.

By Fred Fuld at

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