Archive for the ‘Options’ Category
The great thing about options trading is that allows for hundreds associated with strategies to become created that every have got different type of danger single profiles.Why options trading provides attracted the particular reputation of becoming extremely high-risk is that many traders, powered simply by natural avarice, have got tried to attain optimum returns inside lowest moment. Incredibly huge earnings are definitely probable, however, if been able having a avarice motive, crash-and-burns are unavoidable. The key to successful choice trading is usually to “own” a new strategy, to know that intimately, and utilize it persistently sufficient reason for evidently described trading principles.
These are generally (i believe) the best possible options trading strategies in which lower risk and provides very respected profits:
Selling Credit history Distributes : together with almost no work, resulting in 30 minutes every week, you’ll be able to improve your portfolio simply by 10-15% on a monthly basis. Success depends on straightforwardness, this also is not a strategy suited to hyper traders or even people who wish to around review almost everything. All you must know is how you can execute an easy trend investigation for the market and on your own group of very carefully decided on stocks. This particular strategy is quite profitable, which is easier than falling a new half truths at a rodeo (and far much less unpleasant).
Purchasing along with selling DITM (Deep-in-the-money) options. This is a good swing movement trading strategy, and also lets you successfully acquire stocks with about 50 % cost, and thus twice your own profit. As your deals are common short-term (3-10 days and nights), you are not worried about dividends or other factors concerning buying as well as holding stocks, but you do advantage because the price movement of the option which you bought is just matched up through the price movement from the investment.
Selling empty Puts. This particular strategy genuinely only functions in the up trending market, and has any somewhat larger perimeter necessity in contrast to credit history advances. You can find equivalent returns, and also the chance account is equally as low. The great thing is that, such as credit propagates, you receive the income up front.
Selling Included Cell phone calls — in the event you own a new stock, you can successfully lessen the tariff of in which stock through selling protected telephone calls in which stock on a monthly basis. This is often a strategy that will stock traders shouldn’t be learning to live without, but don’t put it to use should you personal stock regarding expressive motives : stock trading should be your small business. Consequently, should you sometimes find known as away and wind up selling your stock, it’s easy to begin the next.
Sophisticated strategies, similar to straddles, strangles, straightener condors along with seeing stars. These are typical safe, remarkably profitable strategies. Their just down sides tend to be that they are almost all costly (either costly options, or maybe more specialist fees due to number of positions concerned).
I have listed selling strategies within my prime few checklist, mainly because there exists a general guideline inside options trading sectors that will claim that “90% involving options customers lose”. The particular corollary on this which 90% associated with options dealers has to be profitable!
Internet Technology has brought about many changes in the way that we conduct our lives and our personal business. We can pay our bills online, bank online, shop online, and even date online! We can even buy and sell stocks online. Traders love having the ability to look at their accounts whenever they want to, and brokers like having the ability to take orders over the Internet, as opposed to the telephone.
Most brokers and brokerage houses now offer online trading to their clients. Another great thing about trading online is that fees and commissions are often lower. While online trading is great, there are some drawbacks. If you are new to investing, having the ability to actually speak with a broker can be quite beneficial. If you aren’t stock market savvy, online trading may be a dangerous thing for you. If this is the case, make sure that you learn as much as you can about trading stocks before you start trading online.
You should also be aware that you don’t have a computer with Internet access attached to you. You won’t always have the ability to get online to make a trade. You need to be sure that you can call and speak with a broker if this is the case, using the online broker. This is true whether you are an advanced trader or a beginner. It is also a good idea to go with an online brokerage company that has been around for a while. You won’t find one that has been in business for fifty years of course, but you can find a company that has been in business that long and now offers online trading.
Online Option Stock Trading is it for you? Some Info You Should Know Before You Take The Plunge.
The trading of stocks and options has certainly met with a great deal of new enthusiasm as of late. Many people who have never hired a stock broker, or even traded a single stock for that matter, are being attracted to the option of trading online preferably than in the traditional manner. One of the main rationalities behind this is that most of the newer generation of stock traders have literally grown up using a personal computer for more or less any task for which it’s able.
As you can probably guess, given the chance to utilize online option stock trading, this newer generation of investors will happily go online to trade. One of the advantages to online option stock trading is the power to see real time gains and losses of stocks being traded. This allows market savvy traders to be able to identify which way the stock prices have most potential to go. Another big advantage which online option stock trading offers is the chance for the trader to spot and foresee stock price variations. The ability to speculate when a price fluctuation will occur can greatly heighten the trader’s profits.
Being able to foresee when a price fluctuation may happen can also enable investors to hold on to a stock longer than they would usually if they are anticipating a price surge. Naturally this also goes with its own risks, , if the trader has a bullish position, and if the price falls drastically instead of rising, then the investor could stand to lose a significant amount of capital. One of the main attributes of any successful investor is a good sense of timing.
Online option stock trading is available for all types of stocks. It makes no difference what type of stock that you may be interested in trading, because you’ll find that online option stock trading covers all stocks. Want to trade common shares? You can trade it online. You will also find that you can trade issue stock, story stock, penny stock, treasury shares, synthetic stock, preferred shares, and widow-and-orphan stock.
Another huge advantage that online option stock trading offers investors is a rather fast and fairly cheap method to trade stocks. These trades can be made from anywhere that the investor can find an internet access, at home or on the road. Some of the online option stock trading websites also give investors a trial demo account so that they can practice trading before they invest any capital. These demo accounts also act as stock trading training, allowing the investors to see how everything works and to get comfortable with online trading.
One thing is for certain; before you begin online option stock trading, be sure you fully understand all of the inherent risks associated with online option stock trading. Always do your research before picking a stock, and if you’re uncertain of your abilities, consult a broker.
Beyond all the ‘hype’ what is it that makes option trading so good?
This is a question that I wish more people would ask, but the thing is not too many people know they even exist!
The main reason that I love option trading is that options provide the opportunity to turn a small or modest amount of money into a large amount of money quickly!
How is this possible you might ask?
Well before I get into the ‘how’ that let me show you exactly ‘what’ options are.
Options are simply ‘contracts’ that give the buyer the right or choice (but not the obligation) to buy or sell shares in a particular company, at an agreed price, on or before a set date.
Now the thing is, as an option trader I am not interested in buying or selling stocks, I am only interested in buying and selling the options on stocks.
I want to buy an option for one price and then onsell it to someone else for a higher price and make a profit before the option expires.
Now whether or not I am able to do this depends on two main things:
1) Whether the underlying stock (the stock that the option is concerned with) goes UP or DOWN in price.
2) The type of option that I have bought.
Now, there are 2 types of options, CALLS and PUTS.
Call options give us the right to BUY shares in the underlying stock.
PUT options give us the right to SELL shares in the underlying stock.
As I said before, we are not interested in buying or selling the underlying stock, only in making a profit by buying the options (on a stock) and then onselling those options to someone else for a profit.
However, the only way we can make a profit is if the option itself increases in value.
So What makes options go up or down in price?
CALL options increase in value when the underlying stock goes UP.
PUT options increase in value when the underlying stock goes DOWN.
This may sound confusing if you are new to option trading, but basically what we want to do is to buy CALL options on a stock when we think it is about to go UP in price or buy PUT options if we think the stock is about to go DOWN in price.
If we are right and the stock moves in our desired direction, UP for CALLS or DOWN for PUTS, we will make money.
The concept is really quite simple once you accept that it is possible to make money whether the underlying stock moves UP or DOWN.
Now here’s the thing that makes option trading so appealing.
Options only cost a fraction of what it would cost to buy the underlying stock itself and a small move in the price of the underlying stock, creates a much larger move in the price of the option by 10 times to sometimes 100 times!
Let me give you an example, let’s say that GE is trading at $31.00 per share. If we wanted to buy 1000 shares in GE today it would cost us $31,000.
However, the option to BUY GE (CALL options) for $30 at any time during the next 60 days is only $2.00 per share. If we bought enough options to give us control over 1000 shares in GE it would only cost us $1,500.
Now let’s say that GE goes up by $1.00 to $32.00 during the next 3 weeks.
If we had bought the shares in GE we would have have made a $1,000 profit (1000 shares x $1.00 per share) or 3%+ return and if we bought the options on GE we still would have only made $1,000 (1000 shares x $1 per share) however as we would have only invested $2,000 into the trade, this would be a return of 50%!
By trading the options instead of the stock it is possible to make far greater returns and at the same time risk only a fraction of the capital.
This is called LEVERAGE and this is the main advantage to option trading over other wealth creation strategies.
However, just as leverage can work for you it can just easily work against you.
This is why you need a solid trading system that stacks the odds of success in your favor on every trade and at the same time reduces your risk.
Robert T. Kiyosaki says that Option Trading is the investment of the rich.
Indeed, option trading is the most versatile form of investment, today. Its versatility has been the topic of many speakers all over the world. Terms such as “Covered Calls” and “Credit Spreads” have become well known amongst traders new and veteran alike.
Option Trading Explained – Simply put, it is the trading of option contracts on a particular stock.
Options Explained – A contract that allows you to sell or buy a stock at a predetermined price within a set time frame.
There is enough material written explaining the technical make up of an option and I shall not dwell into it further in this writing. The purpose of this writing is to explain to you what the effects of option trading is. … let’s go into Option Trading Explained!
Option Trading Explained – What Can Stock Options Do?
Let us first examine the effects of this thing called stock options. Knowing all the effects of stock options allows us to better understand why it is such a celebrated investment tool and also why so many people go bust doing it. Let’s start from the Positive Effects of stock options.
Stock Options are:
Leverage. It allows you to control more shares (100 shares per option) with the same amount of money thereby exponentially increase your returns per dollar.
Discount. Just as you control more shares with just one option, you will then be able to control the same amount of shares with lesser money than before.
Protection. It allows you to protect the stock you hold by owning the right to sell them at a predetermined price no matter what happens.
Regardless of market direction. It allows you to profit from both upward and/or downward moves in the stock.
Creative. It allows you to put different types of options together to form all sorts of investment positions. It can even make money no matter which way the market goes.
And the Negative Effects are:
No value beyond expiration. You can potentially lose all your money along with the expiration of the option.
Negative Leverage. Just like it can amplify your gains, options will also amplify your loses.
Time Decay Effect. Options reduce in value over time and sometimes can completely obliterate any gains from movement in the underlying stock.
Looking at the above effects, it is clear that Option Trading indeed is an extremely versatile investment tool that allows its investor to profit from any market direction, protect his/her stock positions, reduce capital commitment and lots more, based on the way it is utilized.
Conversely, once such power of leverage is being abused, the investor could then lose everything he/she have put in by expiration or lose more from the same stock move than he/she is comfortable with. Also, by holding on to Options, time decay sometimes can obliterate your profits if the movement in the underlying stock is not big enough.
Therefore, investing in options requires careful planning on the part of the investor. You must know for what effect are you using options for and how much you are putting at risk. In essence, using options for Leverage confers the highest risk and the highest rewards and demands that you use only proven strategies with a proven track record.
Options trading is an investment vehicle for experienced investors, who track their investments proactively. It is not a suitable vehicle for investors looking to maintain assets without direct management, as it’s very much a timing related purchase and float. Options trading is an excellent technique for using financial leverage to make bigger purchases.
A very simple example of an options trade would be this: If you’re selling a commodity worth $100,000 (say 1,000 shares of a stock worth $100 per share), and a prospective buyer likes the price, they can offer to pay for an option to buy all of those commodities, while spending the time researching other investments. Say, for example, they’re offering you $1,000 to hold that price for them while they gather the rest of the funds, which they say will take three months.
When three months passes, they either pay the remaining $99,000 for the shares of the stock, or forfeit the option. If the stock goes up in price to $110 per share from $100, they can either buy the stock, or sell the option to someone else for the difference between the old price and the new price. Either way, the person holding the option stands to make a tidy profit.
Options trading has its own set of terminology, which we’ll get into a bit later, but the basic premise is this: You buy an option to purchase a stock or commodity at a given price; the option expires after a given time period (American style options trading), or the option must be exercised on a specific date (European style options trading).
There are two principle types of options that are traded. Calls increase in value as the stock price rises, and puts increase in value as the stock price declines. (There’s a lot of fiscal mathematics behind both of these, but the layman’s explanation will suffice.) In most cases, options are sold to other investors just before they expire; most options traders don’t end up holding shares in the stock they have options for; the options are bought, sold, liquidated and transacted before their expiration dates. It is possible to have both call and put options on the same commodity or stock; this is a “straddle” strategy.
Options trading is not a casual investment strategy; it’s a strategy used by people who are investing as their profession, or who intend to manage their own wealth directly. The benefits of options trading is flexibility, coupled with (in the case of put options) a bit of a countercyclical strategy for bear markets.
The key to options trading is market research on specific stocks; an options trader will be researching stocks that are either slated for a price spike (call options) or are likely to undergo a price decline (put options). How quickly these options express themselves is a measure of market volatility, and most options traders will try to take a neutral position – they’ll put in put and call options to cover both directions, and to cover themselves against broad market trends.
Options arbitrage is a lower risk strategy done by floor traders, and can be short term profitable, with good liquidity. The aim is to swap options with other traders before certain factors influence the market, or to get rid of underperforming options while still getting some profit out of them. Options arbitrage is perhaps the best place to start in options trading for a novice.
Most people lose money in a bear market. Do you remember the tech bubble and recession in 2000-2002? This article will discuss three option trading strategies that can make you big profits in a bear market or recession.
Option Strategy No. 1 – Buying Put Options
It is fairly easy to purchase put options. This option trading strategy can even be used in an IRA account as long as you have been authorized by your broker. You desire to select a stock, which you feel has a good chance of going down in price. Your risk will be limited to the cost of the put option. For example, stock XYZ is currently trading at $50 per share and you buy a put option on XYZ with an expiration date of two month later with a strike price of $50. If the stock drops from $50 to $40, your put option would be worth $10 per share.
Option Trading Strategy No. 2 – Buying Bear Put Spread
Buying a put spread is a little more complicated than just buying a put option but gives you the benefit of reducing your cost but caps your profit. A put spread is characterized by the trading of two same month expiration put options, buying one at a given strike price and selling the other put option at a strike price lower than the purchased put option. You want to pick a stock that you believe will be falling in value. Your risk will be limited to the cost of the put spread. As an example, if we purchase the put option as listed above but also sold a put option with a strike price of $45. In this example, should the stock plunge to $40, you would profit $5 per share ($50 strike price – $45 strike price). And while you are making less per share, your savings comes in the fact that the cost of buying the put option outright would be much higher than the initial cost for the bear put spread.
Option Trading Strategy No. 3 – Married Put
Risk can be minimized by utilizing a married put, which is a hedging strategy. This strategy consists of purchasing a stock that you believe will appreciate in value and buying a put option at the same time to minimize any losses due to adverse market movement. You might have heard the saying that there is always a bull market going on somewhere. In order to benefit from this strategy find out what business sectors and securities go against the grain and appreciate in a bear market. Next you buy the stocks you chose and protect your investment by buying a put option to limit your losses if the stock goes south.
In conclusion, you can still make big profits in bear markets by looking for stocks that you think are going to fall in price and buying a put option or a bear put spread. Alternatively, you could buy a married put on a stock in a sector you believe is going to appreciate, thus minimizing your risk. In addition to buying options on stocks, you can also buy put options on exchange traded funds or index options. Exchange traded funds let you invest in global markets, commodities and even currencies. It is possible to receive a large profit in a bear market. However, it is vital to comprehend the details of the option strategies, choose the correct stock, exchange traded fund or index option, and make use of a proven tactic and begin.