January 12, 2009
Stock Options Trading Overview
The concept of Stock option trading was introduced in the 1970’s, and it became popular in 1980’s. However the market losses of 1990 caused a stop in this type of trading, the recent concept of electronic trading (online trading) made them again popular to the public.
Stock options are options, which use stocks as the fundamental instrument. Like all types, the stock options can be defined using several related phrases that are unique to options trading markets. Strike Price, also known as Exercise Price, is a common word used to describe stock options.
Strike Price is the fixed price at which the owner of an option can buy (‘call option’) or sell (‘put option’) the underlying commodity. A call option and a put option is the right to purchase and sell 100 shares of a particular stock respectively.
It is not allowed to own puts or calls indefinitely. The expiration time ranges from one month to three years, and many points in time in between. These periods depend on which stock they represent.
There are a lot of risks coming with the stock options trading. One major risk is that the customer is obligated to trade in the strike price. That is, if a customer wants to buy the underlying stocks, he or she must do it on the strike price though the actual market stock price is lesser than that. Likewise, the customer needs to sell his stock at the strike price though the actual stock market price is far higher.
This article is written for Orient Financial Brokers (OFB), licensed and regulated by Central Bank of the UAE since 1997, to conduct brokerage in Foreign Exchange, Commodities, etc.
By: Russel Rashid
About the Author:
Stock options are options, which use stocks as the fundamental instrument. Like all types, the stock options can be defined using several related phrases that are unique to options trading markets. Strike Price, also known as Exercise Price, is a common word used to describe stock options.
Strike Price is the fixed price at which the owner of an option can buy (‘call option’) or sell (‘put option’) the underlying commodity. A call option and a put option is the right to purchase and sell 100 shares of a particular stock respectively.
It is not allowed to own puts or calls indefinitely. The expiration time ranges from one month to three years, and many points in time in between. These periods depend on which stock they represent.
There are a lot of risks coming with the stock options trading. One major risk is that the customer is obligated to trade in the strike price. That is, if a customer wants to buy the underlying stocks, he or she must do it on the strike price though the actual market stock price is lesser than that. Likewise, the customer needs to sell his stock at the strike price though the actual stock market price is far higher.
This article is written for Orient Financial Brokers (OFB), licensed and regulated by Central Bank of the UAE since 1997, to conduct brokerage in Foreign Exchange, Commodities, etc.
By: Russel Rashid
About the Author:
Filed under Currency Trading by Administrator
October 10, 2008
Gold Trading and the US Dollar
Many have seen the inverse relationship between Gold and the US Dollar and this is not a surprise when gold is priced in Dollars.
Is there more to the relationship than that? And what happens to gold and other precious metals during a recession?
From January 2000 to February 2008, the US Dollar Index fell 30% while the Commodity Precious Metals Price Index rose 250%. That suggests that a weakening in the performance of the US dollar results in a strengthening in the performance of precious metals, and vice versa. That substantiates the findings of a 2006 World Gold Council report which identified an inverse relationship between the US dollar and the price of gold
Assuming everything else is equal, then theoretically, the nominal price of precious metals will adjust to a weakening dollar in order to reflect their ‘real’ intrinsic value.
However, it is also plausible to assume that a weakening in the Dollar, coupled with an increase in global income, especially from emerging market economies, may have contributed to a boost in demand for precious metals at some point during this cycle.
Anthony Grech, IG Index, in his 2008 ‘Precious Metals’ Report explained that “the dollar generally finds support, and consequently appreciates, during recessions. This occurs because the market is forward looking and immediately starts to factor in an economic recovery”.
Assuming that the inverse relationship between gold and the US dollar holds, a US recession is likely to support the US dollar and this is likely to push the price of precious metals lower.
There is an inverse relationship between the US dollar and the price of silver, platinum and palladium, especially during US recessions.
However, this relationship does not hold for the price of gold. During recessionary periods the price of gold and US dollar tend to rise together.
This suggests that gold is not only a long-term hedge against inflation and a short-term ‘hedge against crises’ but unlike silver, platinum and palladium, a recessionary hedge.
In the long term, however, the findings of the World Gold Council are justified as there is a visible inverse trend between the price of gold and the US Dollar Index.
NB. Financial spread betting carries a high level of risk and may not be suitable for all classes of investor. Only trade with money that you can afford to lose. Make sure you fully understand the risks involved. If necessary, seek independent financial advice.
By: Daniel Jones
About the Author:
Is there more to the relationship than that? And what happens to gold and other precious metals during a recession?
From January 2000 to February 2008, the US Dollar Index fell 30% while the Commodity Precious Metals Price Index rose 250%. That suggests that a weakening in the performance of the US dollar results in a strengthening in the performance of precious metals, and vice versa. That substantiates the findings of a 2006 World Gold Council report which identified an inverse relationship between the US dollar and the price of gold
Assuming everything else is equal, then theoretically, the nominal price of precious metals will adjust to a weakening dollar in order to reflect their ‘real’ intrinsic value.
However, it is also plausible to assume that a weakening in the Dollar, coupled with an increase in global income, especially from emerging market economies, may have contributed to a boost in demand for precious metals at some point during this cycle.
Anthony Grech, IG Index, in his 2008 ‘Precious Metals’ Report explained that “the dollar generally finds support, and consequently appreciates, during recessions. This occurs because the market is forward looking and immediately starts to factor in an economic recovery”.
Assuming that the inverse relationship between gold and the US dollar holds, a US recession is likely to support the US dollar and this is likely to push the price of precious metals lower.
There is an inverse relationship between the US dollar and the price of silver, platinum and palladium, especially during US recessions.
However, this relationship does not hold for the price of gold. During recessionary periods the price of gold and US dollar tend to rise together.
This suggests that gold is not only a long-term hedge against inflation and a short-term ‘hedge against crises’ but unlike silver, platinum and palladium, a recessionary hedge.
In the long term, however, the findings of the World Gold Council are justified as there is a visible inverse trend between the price of gold and the US Dollar Index.
NB. Financial spread betting carries a high level of risk and may not be suitable for all classes of investor. Only trade with money that you can afford to lose. Make sure you fully understand the risks involved. If necessary, seek independent financial advice.
By: Daniel Jones
About the Author:
The author is an experienced gold spread betting trader and respected commentator on the gold futures markets.
Filed under Investing by Administrator