Options’ trading
By Administrator on Friday, July 8th, 2011 | No Comments
Options’ trading is a very fast way to make money hands over fist. However it could be too risky or dangerous if you are careless and do not know what are you doing. Rather than this option in stock trading has been getting the attention they deserve from traders. There are lots of advantages that one can get from it and with your skill and right strategies; you may able to prevent risk from actually happening.
One thing about stock options is that they are cost efficient that is they are well capable of leveraging or borrowing money in order to increase returns. Another good advantage of it is that by spending less money also you can make almost the same profit. Once you are knowledgeable and have some experience, trading options can be a great way to make money.
As a beginner you should go for spread. Basically a spread is where you can purchase calls and puts. How to spread money is entirely dependent on how the market is swinging. Beside this buy only those options that don’t expire right away. It is because if it expired very quickly then you will not get the time to observe how your stock is moving.
Stock market is very risky and it needs lot of guts, especially for beginners. It takes time and experience to research the market as a whole. Many factors influence what happens in stock market everyday. Hence it’s necessary to have complete knowledge of market before making any move. By making a chart of earnings and losses you can easily figure out your areas of strong trader.
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By: devesh1518
About the Author:
i am a beginner if you like my article pls vote me thanks.
Options Trading – Advantages and Disadvantages
By Administrator on Wednesday, July 6th, 2011 | No Comments
In the case of Dow index futures options, when someone buys a Dow call option they are buying the right to purchase that underlying Dow future at a specific price, known as the “strike price,” at a future point in time, known as the “expiration date.” When an investor buys a put, they are essentially selling the market; a call essentially buys the market. Likewise, selling a put essentially buys the market; selling a call essentially sells the market.
In order to receive the opportunity to buy an option on this future, investors pay a “premium.” If the market does not reach the strike price of the option, then that option will expire worthless on the expiration date. If the market does reach the strike price of the option on the expiration date, then the investor will be assigned the underlying future at that strike price.
Advantages of Options Trading
Flexibility. Options can be used in a wide variety of strategies, from conservative to high-risk, and can be tailored to more expectations than simply “the stock will go up” or “the stock will go down.”
Leverage. An investor can gain leverage in a stock without committing to a trade.
Limited Risk. Risk is limited to the option premium (except when writing options for a security that is not already owned).
Hedging. Options allow investors to protect their positions against price fluctuations when it is not desirable to alter the underlying positon.
Disadvantages of Options Trading
Costs. The costs of trading options (including both commissions and the bid/ask spread) is significantly higher on a percentage basis than trading the underlying stock, and these costs can drastically eat into any profits.
Liquidity. With the vast array of different strike prices available, some will suffer from very low liquidity making trading difficult.
Complexity. Options are very complex and require a great deal of observation and maintenance.
Time decay. The time-sensitive nature of options leads to the result that most options expire worthless. This only applies to those traders that purchase options – those selling collect the premium but with:
Unlimited Risk. Some option positions, such as writing uncovered options, are accompanied by unlimited risk.
Overall Options present a good opportunity to formulate plans which can take advantage of volatility in underlying markets as well as price direction. However for most traders the disadvantages are significant and online futures trading is usually a better option.
Tim Wreford runs Online Futures Trading, a website that provides information and resources for traders. Tim also provides a free day trading system, the results of which are updated daily on the site.
By: GregHal
About the Author:
Best Options Trading Strategies for Novices
By Administrator on Tuesday, June 21st, 2011 | No Comments
Options trading is a safer and more stable substitute to stock trading. Options trading doesn’t come without risks unlike stock trading. Options trading gives way to a large variety of choices on the improvement of strategies that will help you succeed. Options trading ensures you a greater chance for higher profits though it will demand a higher rate for broker fees.
Traders who wish to earn more and much more money believe that options trading can provide them what they want. These folks who are driven by greed wanted more gains than what they can handle. It is possible to achieve gigantic amounts of profit at a short span of time; but, many investors turned to methods that are sure to fail because of wanting profits so terribly. The significant thing to remember is that to survive and succeed in options trading, one has to make the best options trading approaches. Know these approaches seriously and use them in every deal. You should also set clear trading rules that you should follow.
The following are the best options strategies that can help the trader attain great gains at the least amount of risks as possible.
To sell credit spreads is one best options trading strategy that you can try. Within a week, this strategy can be done for half-hour. This is a simple job that can make you increase your profit by 10-15% every month. The essential thing that you have to do in this strategy is to undertake a simple analysis on your selected stocks in the market. Look at and monitor the simple trends of the market. Never overanalyze. The key here is to keep everything simple. This strategy is simple and profitable.
When you’re not contented with just selling credit spreads, there are still other best options trading approaches for you. One of them is selling naked puts. Unlike credit spreads however, this strategy is only effective in an upward trending market and also has higher margin requirement. On the contrary, it has very low risk in this kind of strategy and gains are up front.
An additional options trading strategy is buying and selling deep-in-the-cash options or DITM. This kind of strategy provides you with the chance to buy certain stocks for half their price. In this way, you have greater chances of doubling your profits. You do not have to be troubled about dividends and other long term factors because option trades last only for a very short time.
If you like selling stocks, selling covered calls is one best options strategy that you can use. You will be able to reduce the cost of your stocks every month by doing this.
Finally, there are more options tactics that can give you higher profits at a very low risk. These are elaborate approaches such strangles, straddles, butterflies and iron condors. On the other hand, these approaches have elevated broker fees and will cost you plenty of cash. Always bear in mind that everything in options trading is an investment and a gamble. You must also sacrifice a small sum of money to gain gains.
By: Fritz Cayemitte
About the Author:
Dr. Cayemitte currently offers seminars and free workshops on stock options at OptionsLearningAcademy.com (OLA). To learn more about the best stock options strategies, please visit us at http://optionslearningacademy.com
Trading Options Strategies: Option Selling
By Administrator on Thursday, June 9th, 2011 | No Comments
A lot of traders want to buy options in an effort to maximize gains and limit losses. Trading options strategies becomes normal today. Limiting losses to the purchase price of the option seems ideal, except for one major flaw, which is time decay.
Chicago Mercantile Exchange has estimation that over 80% of all options is expiring worthless. Those who are selling options or option writers collect the premium paid by the option buyer. Trading options strategies’ option writing is often used for hedging purposes and reducing risk. The option writer has unlimited risk and yes, a limited profit potential. You see, trading options strategies are not too perfect at all. The premium of the option minus commissions is just insignificant. In appropriate conditions that are necessarily considered are selling out-of-the-money options instead of buying them. Why?
In trading options strategies, when selling out-of-the-money options, time value works beneficially. The buyer of the option pays a premium for that option. The longer the buyer holds the option, more time decay works against him more importantly as the option approaches the expiration. Over time, the option will lose 100% of its time value.
Along with time decay, trading options strategies in option selling make small traders to often purchase options. According to history, small traders, as opposed to the large commercial or fund traders, are on the losing side of the trade. Statistics show that small traders tend to buy options, as among the most common is the call options.
Options sellers do not have to be concerned so much with the place where the price will go. They actually need to consider more importantly where the price will not go. Trading options strategies need to focus on the highest probability of expiring worthless. Heritage West has the fundamental and technical analysis to project the general direction of the fundamental futures market, where options will be sold.
With trading options strategies, you surely know how important time value is. As an option seller, time value is you product. As time passes, the option’s time value will erode. The first stage may go slow, but it will later on accelerate towards the end. The movement in the futures market can temporarily have an effect on the value of the option too. Higher movement can temporarily propel the value of the option higher. Futures prices moving lower will hasten the drop of the option.
In trading options strategies, volatility is among the most important factors to consider when determining which options to write. It is the measure of the rate and magnitude of change in the price of an option, relative to the change of the underlying futures contract. Once volatility is high, the premium on the option is directly proportional to it. There are option traders who don’t understand how volatility influences the price of options and how to utilize volatility to gain profits.
Trading Options Strategies are too sensitive issues to study. Nonetheless, once you come to understand any of them, as starting with option selling, it will be a good start for your success.
By: Kian Ellis
About the Author:
Find out proven and time-tested trading options strategies at tradingoptionsstrategies.net. Minimize losses and maximize profits through powerful option strategies.
Teach Me to Trade – a Short Article About Making Money Trading Options
By Administrator on Monday, June 6th, 2011 | No Comments
“Teach me to trade!” is something I hear over and over again whenever the conversation shifts to the topic of making money… yet I can’t simply impart the knowledge built up over two decades in a two minute conversation. On the other hand I have found a way to convey much of the information about making money trading options by way of a little know but simple to understand investment called a binary option.
The Binary Option – Simple, Obscure, and Lucrative
Any option trading tutorial would be incomplete if it didn’t mention a simplistic form of options trading called binary options trading. Not too many investors know about this form of investment but it is a very hot market right now for people not willing to be stuck with long holding period investments such as stocks, bonds, mutual funds, traditional option contracts and futures. You may look on the web for another option trading tutorial if you want to know about the more common form of contracts trading. This option trading tutorial will focus only on binary option trading.
Binary Contracts Simplify Choices and Outcomes Binary contracts are, like the name implies, bi-polar. Either you choose the “up” side of the switch, or the “down” side. You might think of it similar to any two-sided choice – yes or no, true or false, heads or tails, on or off. In this case the binary switch refers to up or down movements in a stock, currency, or index.
How it works is that you, or I, or any investor with a binary options trading account picks one of the available securities to trade (not all securities are traded… only the highest volume securities are traded this way) and selects how much to invest.
Small Movements Yield Big Outcomes without Dangerous Leverage The really fascinating part about this sort of transaction is that it does not matter how much the stock moves… the only thing that matters is the direction. If the binary option trading contract is for a 75% payout on an up movement of a security on a $100 investment and the stock is up even just one cent at the expiration of the option, the investor receives $175 ($100 invested plus $75 profit).
So in summing up this binary option trading tutorial: Trades require the investor to choose only how much to invest, which security, and which direction.
By: Steve Wise
About the Author:
The teach me to trade options page demonstrates how to start binary options trading with only $100, with links to other tutorials, scenarios, and a demonstration video at http://www.make300aday.com
Ten Top Tips to Trade Stock Options Successfully – #5
By Administrator on Monday, January 26th, 2009 | No Comments
We?re half way there in this 10 part series on how to trade options, you are doing well keep learning, practicing and applying these strategies and you will soon find yourself able to successfully and profitably trade on a regular basis. Last week we looked at ways in which to time the entry of a trade so this week we will discuss how to get out at the right time.
There are several strategies and ways to exit a trade and you must decide which way (or ways) suits you. It is infinitely more difficult to decide when to exit a trade than when to enter it because it is at this time that you will either be making a profit or taking a loss! You will be faced with a myriad of different emotions while you are in a trade, most notably fear and greed. Fear appears in several different forms, fear of losing a profit already made, fear of getting out too early, fear of taking a loss and facing a mistaken trade. Greed also rears its ugly head by encouraging you to stay too long in a winning trade and possibly giving back some or all of your gains. There is an old adage on Wall Street that says ?Bulls can make money, bears can make money but pigs always get slaughtered.?
As I mentioned you must determine what suits you when it comes to deciding how much of a loss you can handle and how much of a profit you want to take. This is a direct reflection of your risk to reward ratio. For example, I often say ?I never feel bad when taking a profit?. I like to take profits when I see them and I generally have a fixed dollar figure or percentage in mind. Unless there is no good reason to exit the trade I will take my profits and if the trade keeps going in my direction after I have exited it doesn?t bother me. Conversely I always have a fixed % loss I will accept. Some people would not be able to handle leaving money ?on the table? so they may prefer to let their trades run, but then they may need larger stop losses as well. When trading options stop losses need to be much larger than when you trade stocks because options are so much more volatile. For example if you set a 10% stop loss it could easily get triggered during a normal intraday move. Bear in mind that there is not as much at risk when trading options as opposed to trading stocks. The capital investment is much smaller so a larger stop loss will not impact your account as much.
Some good rules of thumb are: First if there is profit on the table and the underlying stock breaks down or crosses below its 7 day moving average, take the profit. It is very painful to watch a profitable trade lose value while you wait for it to reverse. Don’t let that happen. However if market conditions have not changed and your technical analysis supports staying in the trade make sure you do not exit too early. Often the most outstanding profits are made by patient traders. Second, always exit the trade if you are at a 50% loss. Chances are if you are in a trade that is losing 50% it will keep going that way. It is imperative you preserve your capital in order to trade again. Third, always exit a trade if there is 30 days or less before expiration. During the month before expiration time decay can rob you blind of the value of your option.
I trust this has given you some things to consider when deciding to exit your trades, stay tuned for next week?s installment where we will discuss how to put together a complete trading plan.
US Government required disclaimer: Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of the Characteristics and Risks of Standardized Options. Copies of this document may be obtained from your broker, from any exchange on which options are traded or by contacting The Options Clearing Corporation, One North Wacker Dr., Suite 500 Chicago, IL 60606 (1-800-678-4667).
By: Roger Cox
About the Author:
There are several strategies and ways to exit a trade and you must decide which way (or ways) suits you. It is infinitely more difficult to decide when to exit a trade than when to enter it because it is at this time that you will either be making a profit or taking a loss! You will be faced with a myriad of different emotions while you are in a trade, most notably fear and greed. Fear appears in several different forms, fear of losing a profit already made, fear of getting out too early, fear of taking a loss and facing a mistaken trade. Greed also rears its ugly head by encouraging you to stay too long in a winning trade and possibly giving back some or all of your gains. There is an old adage on Wall Street that says ?Bulls can make money, bears can make money but pigs always get slaughtered.?
As I mentioned you must determine what suits you when it comes to deciding how much of a loss you can handle and how much of a profit you want to take. This is a direct reflection of your risk to reward ratio. For example, I often say ?I never feel bad when taking a profit?. I like to take profits when I see them and I generally have a fixed dollar figure or percentage in mind. Unless there is no good reason to exit the trade I will take my profits and if the trade keeps going in my direction after I have exited it doesn?t bother me. Conversely I always have a fixed % loss I will accept. Some people would not be able to handle leaving money ?on the table? so they may prefer to let their trades run, but then they may need larger stop losses as well. When trading options stop losses need to be much larger than when you trade stocks because options are so much more volatile. For example if you set a 10% stop loss it could easily get triggered during a normal intraday move. Bear in mind that there is not as much at risk when trading options as opposed to trading stocks. The capital investment is much smaller so a larger stop loss will not impact your account as much.
Some good rules of thumb are: First if there is profit on the table and the underlying stock breaks down or crosses below its 7 day moving average, take the profit. It is very painful to watch a profitable trade lose value while you wait for it to reverse. Don’t let that happen. However if market conditions have not changed and your technical analysis supports staying in the trade make sure you do not exit too early. Often the most outstanding profits are made by patient traders. Second, always exit the trade if you are at a 50% loss. Chances are if you are in a trade that is losing 50% it will keep going that way. It is imperative you preserve your capital in order to trade again. Third, always exit a trade if there is 30 days or less before expiration. During the month before expiration time decay can rob you blind of the value of your option.
I trust this has given you some things to consider when deciding to exit your trades, stay tuned for next week?s installment where we will discuss how to put together a complete trading plan.
US Government required disclaimer: Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of the Characteristics and Risks of Standardized Options. Copies of this document may be obtained from your broker, from any exchange on which options are traded or by contacting The Options Clearing Corporation, One North Wacker Dr., Suite 500 Chicago, IL 60606 (1-800-678-4667).
By: Roger Cox
About the Author:
Roger Cox hails from New Zealand and now lives in Los Angeles. He was President of an international freight corporation before he started his own consulting company. Roger has successfully traded stock options, for more than four years and loves teaching others to do the same at http://www.prosperitywithoptions.com
Stock Options Trading System Provides Incredible Strategy – The Secrets of Partial Compounding
By Administrator on Friday, January 23rd, 2009 | 2 Comments
Okay, now that you’ve found a good stock option trading System you are ready to rumble. You’re ready to start ‘cleaning house’ and making huge returns sending you and yours into a rapid luxurious retirement in little under a year.
Your excitement is understood. And guess what? It’s actually possible because it has been done.
We are assuming that you’ve obtained a really good stock option trading system, a method that uses excellent high probability entries, well placed stop losses and a trailing stop method of maximizing profits Now it is time to talk about the ‘good stuff’, the secrets of money management in options trading, where the real profits are created.
Options trading money management is the heart and soul of making your account grow while preventing unwelcome disasters. Trade with intelligent money management and increase your confidence.
Okay, so let’s say your stock options trading system is actually making you profits. You feel that the system can be trusted and now you are anxious to ‘up the ante’ and start making bigger returns. So what do you do next?
Well first of all, keep trading but just keep your position sizes small, for now. It’s now time to do a little tweaking with your money management of your position sizes. Doing this right could possibly make you hundreds of thousands up through millions of dollars, literally. Doing options trading money management wrong can cause you a lot of misery, pain, and suffering and wipe out your account quickly!
In essence, you want to keep your position sizes (the total amount you have invested into an options trade position) even sized and never more than 10% of your options trading portfolio (on a small account and down to 1% to 2% options position sizes on very large accounts). With options, even if you kept your ‘bet’ size the same, say 20 contracts for each and every trade, you could make a great living off just one stock even if you never increase your position size. But if you wanted to taste a little of that compounded, ‘parabolic’ growth increase your options position size by 20% to 30% max every time you double your account (never increase it to 100%!).
In case you’re reading this and do not have a profitable Stock Option Trading System or stock there are excellent systems available through doing a little reasearch. You can try and figure a system out on your own or you can short cut success by obtaining some one else’s system or service and emulate what they are doing.
Here are some basic trading system approaches that can net out consistent profits: Trade trends. Trade pivot points. Trade swings in the direction of the trend. And that pretty much covers it for successful moneymaking, directional options trading that’s worth your time.
If your profits are bigger than your losses then you have a winning trading system. You don’t necessarily have to win more than you lose. Yes you can actually make money by losing more than you win if your winners are big enough and your losers are small enough.
The issue when trading options is that when you lose you can easily take a 25 to 50% ‘haircut’ or more of your position just by simply stopping out through stock price action. This also goes to show that you will want a system that doesn’t lose too often when trading options – remember that. Plus you’ll want your winners to be able to be really big so trend and pivot point systems can perform the best.
This brings up the issue of making a fortune in options trading without losing your shirt.
There is nothing worse than making a fortune in options trading then quickly giving that fortune back. If you’ve ever done that you can understand why people jumped off bridges and have tall buildings in 1929 during the great stock market crash. It’s a most miserable feeling because you get so high and excited, and happy from your gains and then if you lose that if worse than never having had obtained it in the first place. So promise yourself now that you’ll never put your self in that position and that you’ll aggressively guard your profits at all times.
So that said let’s figure out how to grow a trading account rapidly without losing it.
By: Chris Viscaya
About the Author:
Your excitement is understood. And guess what? It’s actually possible because it has been done.
We are assuming that you’ve obtained a really good stock option trading system, a method that uses excellent high probability entries, well placed stop losses and a trailing stop method of maximizing profits Now it is time to talk about the ‘good stuff’, the secrets of money management in options trading, where the real profits are created.
Options trading money management is the heart and soul of making your account grow while preventing unwelcome disasters. Trade with intelligent money management and increase your confidence.
Okay, so let’s say your stock options trading system is actually making you profits. You feel that the system can be trusted and now you are anxious to ‘up the ante’ and start making bigger returns. So what do you do next?
Well first of all, keep trading but just keep your position sizes small, for now. It’s now time to do a little tweaking with your money management of your position sizes. Doing this right could possibly make you hundreds of thousands up through millions of dollars, literally. Doing options trading money management wrong can cause you a lot of misery, pain, and suffering and wipe out your account quickly!
In essence, you want to keep your position sizes (the total amount you have invested into an options trade position) even sized and never more than 10% of your options trading portfolio (on a small account and down to 1% to 2% options position sizes on very large accounts). With options, even if you kept your ‘bet’ size the same, say 20 contracts for each and every trade, you could make a great living off just one stock even if you never increase your position size. But if you wanted to taste a little of that compounded, ‘parabolic’ growth increase your options position size by 20% to 30% max every time you double your account (never increase it to 100%!).
In case you’re reading this and do not have a profitable Stock Option Trading System or stock there are excellent systems available through doing a little reasearch. You can try and figure a system out on your own or you can short cut success by obtaining some one else’s system or service and emulate what they are doing.
Here are some basic trading system approaches that can net out consistent profits: Trade trends. Trade pivot points. Trade swings in the direction of the trend. And that pretty much covers it for successful moneymaking, directional options trading that’s worth your time.
If your profits are bigger than your losses then you have a winning trading system. You don’t necessarily have to win more than you lose. Yes you can actually make money by losing more than you win if your winners are big enough and your losers are small enough.
The issue when trading options is that when you lose you can easily take a 25 to 50% ‘haircut’ or more of your position just by simply stopping out through stock price action. This also goes to show that you will want a system that doesn’t lose too often when trading options – remember that. Plus you’ll want your winners to be able to be really big so trend and pivot point systems can perform the best.
This brings up the issue of making a fortune in options trading without losing your shirt.
There is nothing worse than making a fortune in options trading then quickly giving that fortune back. If you’ve ever done that you can understand why people jumped off bridges and have tall buildings in 1929 during the great stock market crash. It’s a most miserable feeling because you get so high and excited, and happy from your gains and then if you lose that if worse than never having had obtained it in the first place. So promise yourself now that you’ll never put your self in that position and that you’ll aggressively guard your profits at all times.
So that said let’s figure out how to grow a trading account rapidly without losing it.
By: Chris Viscaya
About the Author:
Chris Viscaya is a head trader at OPIVO
Stock and Options Trading Systems OPIVO Trading specializes in trading a unique pivot point strategy on stocks with options offering a subscription service as well as a home study course.
How to Successfully Trade Stock Options in Ten Easy Steps – Step 1
By Administrator on Thursday, January 22nd, 2009 | No Comments
The amount of stock options being traded in America is exploding! This is great news because there is far greater liquidity in the options market and many more money making opportunities for individual traders just like you. During the next ten weeks I will be writing articles on how you can profit from one of the fastest growing areas of financial investment available to individuals.
In case you don’t know what a stock option is let me explain. Simply, a stock option gives you the right to control the ownership of a stock for a fraction of the price to buy it. There are two types of options; the first is a Call Option which is the option to buy a share of a certain company for a predetermined price before a predetermined date. The second is a Put Option, which is the option to sell a share of a certain company for a predetermined price before a predetermined date.
For example if you purchased 100 shares in ABC Company that traded at $50 each, you would have to invest $5000 to buy those shares. However you could buy 100 Call Options priced at $5 each, with the right to buy ABC Company at $50 any time up to a date in the future (say November 16th) and you would control the same amount of shares for only $500. If the price of ABC Company goes up by $5 and you owned the shares you would have made $500 or 10% on your $5000 investment, however because the Call Options give you the right to buy the shares at $50 and they are now worth $55 the price of the options would go up $5 as well and you would have made $500 or 100% on your $500 investment. This example demonstrates the great leverage stock options provide.
Call Options are used when you expect the price of a stock to rise, if you expect the price of a stock to fall you can buy Put Options, which as mentioned before, give you the right to sell a stock at a predetermined price. So in the example above if the price of ABC shares fell to $45 and we had bought Put Options giving us the right to sell ABC at $50, the Put Options would be worth money because you could buy ABC shares in the market for a cheaper price than you could sell them for. Wonderful isn’t it, you can make money if the stock market is rising or falling!
To summarize a stock option has four components to it:
1. The underlying stock
The stock that the option is traded on (ABC Company in the example above).
2. The exercise date
The predetermined date, before which, you can use or exercise your option. Options always expire on the third Friday of each month (November 16th in the example above).
3. The strike price
The predetermined price you can buy the stock for ($50 in the example above). 4. The type of option
Either a Call or a Put option.
Here is the first key to successful stock options investing. It is very simple: practice, practice, practice. I cannot stress enough how important practice will be to your success as a stock options trader. Trading options is an inherently risky endeavor, however by learning the keys to successful stock options trading it is possible to mitigate this risk and maximize your gains. Options are a zero sum game, which means for every winner there has to be a loser. I’m sure you want to be a winner and not a loser, right? So you must take the time to learn the fundamental theories of options trading and practice the strategies behind options trading before you risk any of your hard earned capital in the market. It is only when you are winning seven out of ten trades on paper and you are confident in your trading plan and money management techniques that you should trade in the market for real. By the time you have finished reading these articles you will have a plan and know just what those money management techniques are. Look out for Key #2 coming soon.
US Government required disclaimer: Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of the Characteristics and Risks of Standardized Options. Copies of this document may be obtained from your broker, from any exchange on which options are traded or by contacting The Options Clearing Corporation, One North Wacker Dr., Suite 500 Chicago, IL 60606 (1-800-678-4667).
By: Roger Cox
About the Author:
In case you don’t know what a stock option is let me explain. Simply, a stock option gives you the right to control the ownership of a stock for a fraction of the price to buy it. There are two types of options; the first is a Call Option which is the option to buy a share of a certain company for a predetermined price before a predetermined date. The second is a Put Option, which is the option to sell a share of a certain company for a predetermined price before a predetermined date.
For example if you purchased 100 shares in ABC Company that traded at $50 each, you would have to invest $5000 to buy those shares. However you could buy 100 Call Options priced at $5 each, with the right to buy ABC Company at $50 any time up to a date in the future (say November 16th) and you would control the same amount of shares for only $500. If the price of ABC Company goes up by $5 and you owned the shares you would have made $500 or 10% on your $5000 investment, however because the Call Options give you the right to buy the shares at $50 and they are now worth $55 the price of the options would go up $5 as well and you would have made $500 or 100% on your $500 investment. This example demonstrates the great leverage stock options provide.
Call Options are used when you expect the price of a stock to rise, if you expect the price of a stock to fall you can buy Put Options, which as mentioned before, give you the right to sell a stock at a predetermined price. So in the example above if the price of ABC shares fell to $45 and we had bought Put Options giving us the right to sell ABC at $50, the Put Options would be worth money because you could buy ABC shares in the market for a cheaper price than you could sell them for. Wonderful isn’t it, you can make money if the stock market is rising or falling!
To summarize a stock option has four components to it:
1. The underlying stock
The stock that the option is traded on (ABC Company in the example above).
2. The exercise date
The predetermined date, before which, you can use or exercise your option. Options always expire on the third Friday of each month (November 16th in the example above).
3. The strike price
The predetermined price you can buy the stock for ($50 in the example above). 4. The type of option
Either a Call or a Put option.
Here is the first key to successful stock options investing. It is very simple: practice, practice, practice. I cannot stress enough how important practice will be to your success as a stock options trader. Trading options is an inherently risky endeavor, however by learning the keys to successful stock options trading it is possible to mitigate this risk and maximize your gains. Options are a zero sum game, which means for every winner there has to be a loser. I’m sure you want to be a winner and not a loser, right? So you must take the time to learn the fundamental theories of options trading and practice the strategies behind options trading before you risk any of your hard earned capital in the market. It is only when you are winning seven out of ten trades on paper and you are confident in your trading plan and money management techniques that you should trade in the market for real. By the time you have finished reading these articles you will have a plan and know just what those money management techniques are. Look out for Key #2 coming soon.
US Government required disclaimer: Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of the Characteristics and Risks of Standardized Options. Copies of this document may be obtained from your broker, from any exchange on which options are traded or by contacting The Options Clearing Corporation, One North Wacker Dr., Suite 500 Chicago, IL 60606 (1-800-678-4667).
By: Roger Cox
About the Author:
Roger Cox is a native of New Zealand and now resides in Los Angeles. President of an international freight company he decided corporate life wasn’t for him and starting his own consulting business. Roger has been successful in trading stock options, practicing and trading for more than 4 years and teaches others about trading at
http://www.prosperitywithoptions.com
Why is it Important to Understand Stock Option Greeks?
By Administrator on Wednesday, January 21st, 2009 | No Comments
We often hear people saying that trading or investing in options is very risky. Yes, it is certainly no mean feat to trade or invest, using options as your investment vehicle. But is it really that risky in the first place? If trading or investing in options is really risky, then why are there so many individual traders or investors who make money from it? The only possible explanation is that those people had spent a lot of time and effort to study, understand and learn all they can about options in addition to the basic technical knowledge of how the market functions. They would have learnt how to increase their probabilities in making a profit and also reduce their risk to the minimum.
So what actually are stock option greeks? Why is it important to understand how they can affect the profitability of your trade or investment? Stock option greeks are actually sensitivities of the stock option to risks characteristics. These risks are actually factors that affects the pricing of the option. By learning how the stock option greeks relate to risk characteristics in addition to other basic technical analysis skills such as identifying the market trend, knowing when to and not to trade or invest according to timing ( Eg. Not to trade during lunch hours ), interpreting technical indicators correctly, have a risk and money management system to assist in making decisions when trading or investing ( This helps to eliminate and not involve your emotions that affect your trading decisions ) …etc We are able to have certain control over our risk exposures to leverage, time decay, volatility and interest rate risks. Each option risk characteristics, is represented by a greek word and they affect the option pricing differently. It is important to know whether you are purchasing a stock option at a under or over priced value as this can be another factor that will affect profitability of your trade or investment. You do not want to be in a disadvantage position at all times when trading or investing as the majority of the factors are against you and you have absolutely no control over them. ( Eg. Interest rates )
Mastering each risk characteristics will certainly help to reduce risk tremendously when trading or investing in stock options, what’s more, there are lots of stock option strategies that can be utilized once you understand the mechanics of the stock option greeks and make them work for your trade or investment.
By: Ben Ang
About the Author:
So what actually are stock option greeks? Why is it important to understand how they can affect the profitability of your trade or investment? Stock option greeks are actually sensitivities of the stock option to risks characteristics. These risks are actually factors that affects the pricing of the option. By learning how the stock option greeks relate to risk characteristics in addition to other basic technical analysis skills such as identifying the market trend, knowing when to and not to trade or invest according to timing ( Eg. Not to trade during lunch hours ), interpreting technical indicators correctly, have a risk and money management system to assist in making decisions when trading or investing ( This helps to eliminate and not involve your emotions that affect your trading decisions ) …etc We are able to have certain control over our risk exposures to leverage, time decay, volatility and interest rate risks. Each option risk characteristics, is represented by a greek word and they affect the option pricing differently. It is important to know whether you are purchasing a stock option at a under or over priced value as this can be another factor that will affect profitability of your trade or investment. You do not want to be in a disadvantage position at all times when trading or investing as the majority of the factors are against you and you have absolutely no control over them. ( Eg. Interest rates )
Mastering each risk characteristics will certainly help to reduce risk tremendously when trading or investing in stock options, what’s more, there are lots of stock option strategies that can be utilized once you understand the mechanics of the stock option greeks and make them work for your trade or investment.
By: Ben Ang
About the Author:
Hi,I am Ben. I am known to be friendly and easygoing. I am into forex, options and commodities trading…etc All are welcomed to visit my site at The Investor Portaland constructive comments are welcomed.
Stock Option Trading Guide for Beginner
By Administrator on Friday, January 16th, 2009 | No Comments
There are four different types of players in the stock option trading game. They are buyers of calls, sellers of calls, buyers of puts, and seller of puts. The buyers are called holders, and the sellers are called writers. Buyers of calls are said to have a long position, while buyers of puts are said to have a short position.
Calls are useful in speculation, and puts are useful in hedging. It is all going to depend on the strike price of the underlying asset on the expiration date. If all of this makes perfect sense to you, there is not much need to read on, but if it sounds a bit hazy, a little review might be in order.
The Stock Option market has its own unique language. Like many other activities, an understanding of the terminology used is essential. In many cases, it is a rather simple concept hidden behind an unknown term that leads to confusion, and makes the activity appear a lot more complex than it actually is. The following are a few definitions that might help take away some of the mystery. – Calls: A call is basically a contract giving you an option, but not an obligation to purchase a block of stocks at a set price on or before a certain date. In understanding a call, it is important to remember that you are not obligated to make the purchase. You can exercise your option or not. – Puts: A put is the opposite of a call in that it is a contract to sell a block of stock at a set price on or before a certain date. Again, this is a choice. You can make the choice not to sell. – Holders: This is the name given to the buyers of the contracts. It is the holders that give the option trading market its name since they are the ones who actually are in a position to make the decision to exercise their options. – Writers: Since it is a “trading” market, two parties are necessary. If someone is buying, than someone else must be selling. The writers are the sellers of the contracts. It is important to remember that the writers are not the ones with the options. They do have an obligation to honor the contract if the holder decides to exercise his option. – Long Position: In stock trading, long position means that you are holding the stock in anticipation of it increasing in value. – Short Position: In stock trading, short position means that you are holding the stock in anticipation of it decreasing in value. – Underlying Asset: The underlying asset, or as it is sometimes called, the underlying, is the actual stock or security that is the object of the option contract. The contract is said to derive its value from the intrinsic value of the underlying asset. – Strike price: This is the price at which the option contract will be purchased or sold. If you purchase an option to buy, or make a call, at $10 , but the value of the underlying asset is only $8, you are $2 under the strike price, and most likely would not wish to exercise your option. – Speculation: This is the risk taking side of option trading. It is generally associated with calls and long positions. It essentially means that you are expecting a stock price to rise higher than the strike price. – Hedging: This is the cautious side of option trading. It is generally associated with puts and short positions. You are anticipating that the value of the underlying asset will drop below the strike price. It is called hedging because it is often used to protect an investment, or hedge your bet, by maintaining an option to sell at a certain strike price should the underlying asset take a serious drop in value. In other words, you are able to bail out before your loss becomes too large. – Expiration date: This is the date on which your option must be exercised or it will be lost. It is the deadline. In the stock option market it is usually the third Friday of a month.
The above are a few of the terms that are used in the stock option trading market, and by understanding them completely you should be better armed to take a closer look at this interesting investment opportunity.
By: Casey Yew
About the Author:
Calls are useful in speculation, and puts are useful in hedging. It is all going to depend on the strike price of the underlying asset on the expiration date. If all of this makes perfect sense to you, there is not much need to read on, but if it sounds a bit hazy, a little review might be in order.
The Stock Option market has its own unique language. Like many other activities, an understanding of the terminology used is essential. In many cases, it is a rather simple concept hidden behind an unknown term that leads to confusion, and makes the activity appear a lot more complex than it actually is. The following are a few definitions that might help take away some of the mystery. – Calls: A call is basically a contract giving you an option, but not an obligation to purchase a block of stocks at a set price on or before a certain date. In understanding a call, it is important to remember that you are not obligated to make the purchase. You can exercise your option or not. – Puts: A put is the opposite of a call in that it is a contract to sell a block of stock at a set price on or before a certain date. Again, this is a choice. You can make the choice not to sell. – Holders: This is the name given to the buyers of the contracts. It is the holders that give the option trading market its name since they are the ones who actually are in a position to make the decision to exercise their options. – Writers: Since it is a “trading” market, two parties are necessary. If someone is buying, than someone else must be selling. The writers are the sellers of the contracts. It is important to remember that the writers are not the ones with the options. They do have an obligation to honor the contract if the holder decides to exercise his option. – Long Position: In stock trading, long position means that you are holding the stock in anticipation of it increasing in value. – Short Position: In stock trading, short position means that you are holding the stock in anticipation of it decreasing in value. – Underlying Asset: The underlying asset, or as it is sometimes called, the underlying, is the actual stock or security that is the object of the option contract. The contract is said to derive its value from the intrinsic value of the underlying asset. – Strike price: This is the price at which the option contract will be purchased or sold. If you purchase an option to buy, or make a call, at $10 , but the value of the underlying asset is only $8, you are $2 under the strike price, and most likely would not wish to exercise your option. – Speculation: This is the risk taking side of option trading. It is generally associated with calls and long positions. It essentially means that you are expecting a stock price to rise higher than the strike price. – Hedging: This is the cautious side of option trading. It is generally associated with puts and short positions. You are anticipating that the value of the underlying asset will drop below the strike price. It is called hedging because it is often used to protect an investment, or hedge your bet, by maintaining an option to sell at a certain strike price should the underlying asset take a serious drop in value. In other words, you are able to bail out before your loss becomes too large. – Expiration date: This is the date on which your option must be exercised or it will be lost. It is the deadline. In the stock option market it is usually the third Friday of a month.
The above are a few of the terms that are used in the stock option trading market, and by understanding them completely you should be better armed to take a closer look at this interesting investment opportunity.
By: Casey Yew
About the Author:
Among the Many Investment Opportunities that Exist, Option Trading Stands as Both One of the Most Exciting and Risky as well as One that Offers Some of the Best Chances for a Substantial Return. Learn Options Trading Basics, Strategies and Pricing here at http://www.option-trading-fortune.com
