Option Strangle Magic » Option Trading

Why to choose the wizard

admin — Sat, 23 Jan 2010 21:08:15 +0000

Are you interested in trading in stock market? The wizard is solution to your problem. We provide conviction and discipline methods to become successful share trader in the stock market. Investing in share market is excellent way to build wealth. If you are willing to do the same then first you must understand how the stock market works. The cycle of increasing decreasing stock price can hurt you if you are not aware of it. However, if you become member of the Wizard, we will let you know which share to buy at what price to sell.

The wizard provides you comprehensive virtual stock exchange simulator. We allow you to practice online stock trading with at most securities. We provide you exact entry and exit points that will have most controlled risk for each transaction you make. The procedure is very simple and easy to use. You can browser our site to know the latest stock investment tips. You can even become a part of webinar that will help you to make maximum use of the Wizard. Once you become member of webinar we will show you most profitable and easiest ways to use different functionalities of the Wizard. In very short period, you will learn what things you need to do to become a winner in the stock market. You will be able to judge the mindset and techniques.

With Internet and discounted fees, the wizard will create gold rush trading online among stock investors. The wizard will let you know what things you need to do for ruling the stock market. All this will be available with comfort at your own home. Moreover, our webinars will introduce you advanced strategies that are available to use free of charge to general public. There are basic and advanced webinar’s documents that will be loaded on the website soon.

The Wizard feels pride of being leaders in stock trading. Whether you want traditional or exotic market trading methods, we provide you trading platform that is available in the market. So, where ever you are in the world, just pull a chair, kick of your shoes and get going with the wizard.

Unfold the Topic Options Trading

admin — Fri, 22 Jan 2010 21:30:53 +0000

When unfolding the topic of options trading, we first require to have a clear understanding of what the term ‘options’ indicate. Options to an investor is an great investment options like mutual funds, bonds, and stocks but at the very same time options distinct from the other kinds of securities listed in being a little more complicated than these. Options refer to a contract that provides the owner the right to buy or sell an asset at a particular price on or before a particular date. It is called options because the buyer has the right but the responsibility to trade his stocks and enjoy unlimited profit and limited risks. Options are of two types depending on be it is the right to purchase or sell an asset. In case, it provides the owner the right to purchase an asset at a particular rate within a specified period of time then it would be categorized as a “call”. And on the other hand if it’s right to sell an asset under the same conditions then it would be a ‘put’. Investors of call have long position and that means that they are full of hope that the prices of the securities will rise within the stipulated. On other hand, buyers of put have a short position earnestly hope that rates of securities would fall before their option expires. The options market includes four various sorts of traders that include buyers and sellers of call and put. The benefit of holding options trading is that options empower you to make money not only when the option prices goes down but also when the market is dwindling. This is one reason that one requires to be very speculative when trading with options. While purchasing options it means that you not only have to envisage whether the market will fall or rise but you should have an approx idea as to how much the prices will go up or down and within what time frame since options definitely expires after a particular period. Camelot Derivatives, a leading name for option trading, are specialising in the trading of international index options. If you are looking to a onClick=”javascript:pageTracker._trackPageview(’/outgoing/article_exit_link’);” href=”http://www.camelotderivatives.com.au/secrets.php”>options trading dealer, Camelot Derivatives will be the right choice for you.

Backspreads (Reverse Ratio Spreads)

admin — Sun, 17 Jan 2010 09:33:21 +0000

Backspreads, also known as reverse ratio spreads, are an option strategy utilized when you believe there will be much volatility in the stock but are not 100% sure whether it will go up or down. If the stock moves a lot in the predicted direction, you will earn a tidy profit. If the stock moves a lot, but in the opposite direction, you will earn a small profit. However, if the stock doesn’t move much and is stuck in a trading range, you will experience a loss.The backspread position used when you are bullish on the stock is known as a Call Backspread, since call options are used to create this position. The call backspread is created by buying a certain number of Out-of-The-Money (OTM) call options (i.e. call options whose strike price is higher than the current stock price), and selling a lesser number of In-The-Money (ITM) call options (i.e. call options whose strike price is lower than the current stock price). You can create a call backspread by buying and selling any number of call options, but for the purposes of this article, we will talk about buying 2 OTM call options and selling 1 ITM call option.Because you are selling a call option that is ITM and buying 2 call options that are OTM, this position should be a credit position, that is you will earn a premium by opening a call backspread. However, because you are selling an option, you are not able to allow this position to expire. You will need to buy back the option before expiration date, which brings us to the risks involved with this position.If the stock price goes below the strike price of the call option that was sold (the ITM price), you can allow the position to expire since the calls at both strike prices are now worthless. Your profit in this case would be the initial premium made when the position was opened. If the stock moves above that ITM strike price but is still below the strike of the 2 calls that you bought (the OTM price), you will be in trouble. The 2 calls with the OTM strike price would still be worthless, but the call you sold at the ITM strike price would be worth something and will need to be bought back before expiration. Once the stock moves above the OTM strike price, your profits are limitless. The ITM call will still increase in value (and must still be bought back), but that cost is negated by the fact that you now have the 2 calls (bought at the OTM strike price) gaining value just as quickly and can be sold for profit.A Put Backspread functions in the same way but in the opposite direction, and is a bearish position. You would use this position on a stock that you expect to move a lot, with a high likelihood that it will go down in price. The reason it is known as a put backspread is because it is created by buying and selling put options.The put backspread is opened by buying any number of out-of-the-money (OTM) put options (i.e. put options whose strike price is below the current stock price, and selling a smaller number of in-the-money (ITM) put options (i.e. put options whose strike price is above the current stock price). Doing this should give you a net credit premium. Similar to the call backspread, a put backspread can be created by buying and selling any number of put options, but for this article we will talk about the simplest case, which is selling 1 ITM put option and buying 2 OTM put options.If the stock moves above the strike price of the ITM put option you sold, you can allow the position to expire and keep your original credit premium, since all 3 put options will be worthless. If the stock price ends up between that ITM strike price and the strike price of the 2 OTM put options you bought, then you will incur a loss, since you will need to buy back the ITM put option which is now worth something, but the 2 OTM put options are still worthless. Once the stock price drops below the strike price of the OTM put options, you will start to see unlimited profit since the cost of buying back the ITM put option is more than offset by the profits from selling the 2 OTM put options.Do bear in mind that you cannot allow a backspread position to expire, since you have sold options that need to be bought back to prevent them being exercised. As such, you will need to make sure you have enough funds to buy back those options in case the stock price doesn’t move.For a more detail and illustrations on backspreads, please visit: http://www.option-trading-guide.com/backspreads.html

Options Trading and Technical Analysis

admin — Sat, 16 Jan 2010 21:19:07 +0000

Recently, almost no options trading seminar is without some mention or introduction to technical analysis. In fact, almost all of the options trading blogs out there in the internet use technical analysis as their main basis of decision making. Why is that so? Why is options trading so closely related to technical analysis now?
In order to understand the important relationship between technical analysis and options trading, we need to first understand what technical analysis does in the first place.
There are two main methods of analysis; Fundamental Analysis and Technical Analysis.
Fundamental analysis is the reading of fundamental data of a company or economy in order to predict and invest in the future performance of the company or market. Such fundamental data includes profit and loss statements, earnings growth and earnings guidance. The problem with fundamental analysis is that great companies do not always make great stocks. Stocks of great companies also experience periods of downturn, often for extended periods of time. As such fundamental analysis helps an investor mostly in deciding what stocks to buy for the long term (5 to 10 years out), if nothing unpredictable happens to the company in the years down the road. In fact, fundamental analysis is a tool favorable by investors who buy stocks for their dividends and dividend growth.
Technical analysis is the studying of market data of a stock. Yes, while Fundamental Analysis is the study of a company, technical analysis studies its stock exclusively. Such market data includes the price across different time periods and volume transacted. From price and volume, options traders see how the price of a stock is doing no matter what the company data is doing. This helps traders and investors avoid those extended periods of downturn even though a company’s fundamental data looks great. Indeed, while fundamental analysis tells an investor which company is doing well, technical analysis tells an investor when it is time to buy or sell its stocks. Indeed, the strength of technical analysis is in its ability to guide the buying and selling decisions of investors across short time periods through price patterns and price trends.
So, why is technical analysis such a favorite in options trading?
Lets recall that fundamental analysis is favorable for long term investing and technical analysis is favorable for use even in short time periods. Stock traders can hold stocks forever but options expire after a fixed time! Yes, options typically last no more than a year and options traders frequently use options trading strategies that require extremely short outlooks in terms of months or weeks. This is exactly why technical analysis is so closely associated with options trading. Options traders simply do not have the luxury to hold a position for years like stock traders do. On top of that, options traders do not receive dividends like stock investors do. The only way to make money in options trading is for the expected outlook to play out within the expiration period of the options. This makes the fundamental strength of the company it is based on relatively unimportant. On top of that, options traders are able to profit when stocks drop as well. This also makes identifying good companies through fundamental analysis relatively unimportant.
Indeed, reading price trends and price patterns that might show the direction a stock is moving the next week or month has more value to options trading than reading a company profit and loss statement that does not tell you where its stock may be going for the short term at all.
I hope my short article explains why technical analysis and options trading are so closely related and that it will help you better understand the big lack of fundamental analysis whenever the subject of options trading is raised.
Visit http://www.optiontradingpedia.com to learn more about options trading for free.

What to Look for in Options Trading Sites

admin — Fri, 15 Jan 2010 09:11:12 +0000

Everyone has their own option strategies in option trading, but when you’re just getting started, it can be very confusing. You’ll observe several choices spreads around the web, blogs proclaiming they have the wonderful options program and options trading sites in abundance, providing to teach you trading systems. Now, what is the best option strategy so that it helps you to succeed in your option trading? Primarily, take a look around the website. However, you might be restricted for public viewing, but the website must provide you sufficient details in public areas so that you understand if the fees is worth joining for. If a site consists just a sales page and no additional information, you’d be better off searching for another options trading site. If they are hiding all of their information, you can bet there isn’t much that’s worth while inside the membership section. It’s also necessary to confirm that you are able to get in touch with a human being in the industry. If there is no contact information, then it is an absolute no. Contact can be made through email, through the phone or via a contact form on the website. Test it out to see how fast the response time is, as well, since this is important if you have questions about specific option spreads later on. You also need a site that offers slight option trading details to begin with. There is a blog where you get numerous option strategies as well as some information, is really a good sign that tells f the website is perfect or not . This is a great way to notice if a website is worth concentrating. If their blog holds useful information, chances are you’ll get your money’s worth inside. Conversely, if the blog is nothing but drivel and offers no information at all . . . just keywords to try and rate well in the search engines, you’ll perhaps want to look elsewhere. Most of the membership that are found there have actually nothing important to sell. few of these are frauds, but others are hardly people who are trying to earn their living by telling others what to do. These people may only be gathering information from other sites, or worse, simply going on their own hunches, which are untried. Confirm that the website you select for understanding options trading is one based on knowledge. The option strategies that you find online must be really experienced by the site owner and not by used information or inexperienced presumptions . If they are open to sharing some of their techniques and secrets, you’ll be capable to see accurately how they do things and will observe quickly if it is worth focusing on this person or not. To avoid scams, stay away from any options sites that don’t give you enough information to make your decision. If you can’t get any information on the person behind the site, you need to also be suspicious. Diffeternt people have different experiences and that is why there are various options strategies. You’ll come out your own option trading strategies and you get familiar with the several sorts of option spreads and experience for things. But, this will take sometime. Trading systems take months or even years to thrive, so if you can get a headstart with someone who has a good knowledge of options trading, it’s well worth the investment. You’ll learn how options strategy works for others and can use similar moves to start building your options trading experience, as well. Sometimes all you need is some support.

Covered Calls vs. Dividends – Option Trading For Income Investors

admin — Wed, 13 Jan 2010 21:01:45 +0000

Trading options and investing in dividend stocks are two subjects that aren’t normally linked, but, by using a conservative option trading approach, selling covered calls, you can actually often double and sometimes even triple your yield on dividend paying stocks.

Selling covered calls is sometimes compared to taking out a limited insurance policy on your stocks, except that you get paid to take out this policy.

How? If you own a stock with options available, you can sell an option to call, (buy), your shares away from you at a given price, known as the strike price.

You’ll receive money, called a premium, for selling a call option. In fact, you’ll often receive a bigger $ amount per share by selling a call premium than you’re currently receiving as a dividend. This money reduces your net cost basis on the stock, hence the insurance analogy.

What’s the catch? By selling the call option, you’re obligating yourself to deliver x amount of shares of the underlying stock at a specific price – the strike price.

Each option contract corresponds to 100 shares of the underlying stock, so make sure that you own at least 100 shares of the stock BEFORE you try to sell calls against it.

Here are a few basic option terms that will help explain this option strategy:

Strike Price: The price attached to a given option contract, that a call seller is obligated to sell the underlying stock at to the buyer.

Call Bid Premium: The amount of $/share that call buyers are currently offering, (Bidding), for a given call option.

Expiration Date: The date that an option expires, which is normally on the 3rd Friday of the option’s contract month.

Option Chain: The listing of options available for a stock. These are arranged by calendar month. Normally, the months available revolve throughout the year: the front (current) month, the next month, one month per quarter, and the following January. Some more heavily traded stocks have more months available simultaneously.

What triggers the sale of your shares when you sell covered calls? If the price of the underlying stock rises to or past the combination of the strike price and the call premium you were paid, your shares will usually be “assigned”, (sold).

If you sold a $15 January call option and received $1.25, your shares would be assigned if the stock rose to or above $16.25.

Assignment normally happens at or near the expiration date.

Assigned Yield: The % yield a call seller receives when his shares assigned, calculated as follows: The difference between his basis cost on the underlying shares and the call’s strike price he sold at, dividend by his cost basis.

For example, if you sold that $15 call, and your cost basis on the stock was $14.00, you’d earn an additional $1.00/share, if your shares were assigned, which would equal an assigned yield of 7.14%. ($1.00 dividend by cost of $14.00).

Call Yield: The yield that the call seller receives for the call, calculated as follows: The call premium divided by the cost basis/share of the underlying shares.

In the above example, the call seller sold a call for $1.25, and the cost basis of the stock was $14.00. Therefore, his Static Yield equals 8.93%, ($1.25 divided by $14.00)

Most covered call sellers compare the amount of dividends they’d receive prior to the call’s expiration, to the amount of call premium they’d receive, to judge if it’s worth selling the call option or not.

Total Assigned Yield: The total of the dividends received, call premium received, and assigned yield received, all dividend by your cost basis of the stock.

In this example, if you’d received $.60/share in dividends during the investment term, plus $1.25 in call premium, plus $1.00 assigned yield differential, you’re total income on the trade would be $2.85, on a $14.00 stock. This equals a 20.36% Total Assigned Yield.

Total Static Yield: This is the combination of the dividends received or qualified for prior to expiration, plus the call premium received.

A Static Yield occurs when the stock DOESN’T rise to a price that is equal to or over the combination of the strike price and call premium, and the call seller’s shares are not sold.

To sum up, you can add up to 2 new income streams to your dividend income on any optionable stock, by selling covered calls against it.

We took a stock with a $.60 dividend, (a 4.3% dividend yield), and earned over twice as much $ in call premiums immediately, $1.25, (8.93% call yield), plus, we positioned ourselves for an additional $1.00/share if assigned, (7.14% assigned yield).

Own Stocks at Zero Cost – Option Trading Secrets Revealed

admin — Mon, 11 Jan 2010 21:45:20 +0000

It’s true – you can own your favorite stocks at no cost or at deepest discounts! Learn the highly guarded, secret Option trading strategies professional investors use to make steady profits, year after year, no matter what the financial markets do. This article will show you the step-by-step process of using Options to get the stock you want at a deep discount, and sometimes at zero cost. Since trades don’t always go the way we planned, so we will also explore the worst case scenario.

Properly executed, these strategies have the advantage of minimal expenses – something everyone can appreciate during these troubled times. The following example will demonstrate how this is done.

Technical Tip: The seller of a Put Option is obligating himself to buy the stock at the striking price. For assuming this obligation, he receives the Put Option premium. For the more technical readers we have provided an in-depth article link at the bottom of this article.

On August 21, 2009, the day your August Put Option expires, two scenarios are possible: Either the stock price is greater than or equal to $50, or it is less than $50. Let’s evaluate both scenarios.

Scenario 1: The stock trades at $50 or above: in this case the Put Option will expire worthless and you get to keep the $400 that you received earlier. You can now repeat the strategy month after month. When carefully executed, you would have earned around $7,200 in 18 months without ever paying a dime and without even owning the stock.

Let’s assume the share price for the stock has gone up 41% to $72 over the course of those 18 months. If you now purchase the 100 shares of XYZ Corp., the cost of ownership to you is ZERO, as you would have offset the $7,200 required for that purchase by your strategy earnings. You are now the proud owner of 100 shares XYZ Corp. at no cost to you.

Scenario 2: The stock trades below $50, say at $48 (a drop of 11% from $54). In this case the August Put Options will be In-The-Money (ITM) and now you need to buy 100 shares of XYZ Corp. at the strike price of $50. But here is the best part: You get to keep the $400 that you earned earlier selling the Put Option. Your effective cost for this trade is $4,600 after adjusting for $400.

Compare this with someone who bought 100 shares at $54. Share traders ended up with a loss of $600 while you had a modest profit of $200 instead. Well not as good as Scenario 1, but not bad either!

The strategy acts like a low-cost replacement for actual stock ownership, BUT you must be prepared to take ownership of the shares under Scenario 2 circumstances. Keep in mind that this is a long-term strategy.

There are many different ways to construct these strategies – conservatively or aggressively. Just like regular investing, different people have different levels of risk tolerance. If you want higher profits, you’ll have to be willing to take higher risks.

At TradeGreeks we avoid high risks that MIGHT hit the big jackpot. Our focus is on conservative strategies with medium to long-term consistent, predictable returns. This will ensure great profits that beat anything else you might try in this market – sometimes well over 100% per annum. What’s even more important: Our strategies ensure peace of mind!

This is an article from the TradeGreeks’ “Tactical Series”

More in-depth explanations of this strategy can be found in our article “Uncovered Put Writing – Insider’s Guide”. We invite you to visit http://www.tradegreeks.com/ and register for free no obligation membership. This will allow you access to the article and many other educational resources regarding trading of Options.

1 Biggest Options Trading Mistake Ever

admin — Sat, 09 Jan 2010 21:22:07 +0000

Recently, I have been answering options trading questions posted by options trading beginners at my website and it amazes me to find that MANY of these questions surround a single theme. Some of these questions are like:
“I just bought a call option, how do I take profit?”
“I bought a put option at XXX strike price, so what does it mean for me to hold this put option?”
“I think I made some money on my call options but how is profits calculated in options trading?”
Options trading beginners asking questions like that are making the biggest options trading mistake ever made by beginners and that is… Buying options without knowing completely what options is in the first place!
It never fails to amaze me how many people are buying options without first knowing what options are and what they do in the first place! Incredible but true! This is the reason why so many beginners lose their shirts in options trading. Stock options, as a leverage instrument, is merciless when it comes to losses especially when you don’t know what you are doing and that has resulted directly in many horror stories surrounding options trading.
Would you drive a car without knowing what a brake pedal does? Would you operate a new machine without knowing what all the buttons does? Why then would you buy options when you don’t know what everything in options trading mean?
After pondering hard on this question of why beginners are buying options when they don’t even understand what options does in the first place, I arrived at the conclusion that too many beginners think buying options is as simple as buying stocks. In stock trading, all you have to do is to choose your favorite stock and then buy it. That’s all you need to do. However, in options trading, there are options of various strike prices as well as expiration months, so, how are you to know which single option to buy in order to fulfill your trading objective if you don’t understand the difference between strike prices and the effects of different expiration months?
Amazingly, a lot of beginners today continue to make this single most deadly mistake and then when they get stuck in a trade, they try to find “quick fixes” on the internet, which of course, doesn’t exist. Perhaps we are now living in a world of quick information and a spirit of adventure and trial and error such that many people think that they can learn options trading the same trial and error way. Of course you can but it will eventually lead you back on the road to learning about what options is completely and the difference is that you would have paid thousands of dollars in school fees to the market. Most deadly of all is that the losses would have affected your trading confidence and cast a shadow of fear in your heart, leading to emotional decisions in your future trading. Yes, it can break your options trading for life!
In conclusion, there is a lot to learn about options and small changes like buying a different strike price can lead to very big end effects and if you don’t know what all these does in the first place, how are you to optimize your profits and minimize your losses? In the end, all options traders who took the easy way out (of course I would regard that as the hard way out) of simply taking the plunge and learning from the experience would still come back to getting a proper understanding of options. I recommend all of you who are contemplating options trading as part of your investment arsenal to learn completely what options is and what it does BEFORE getting into your first trade. You can get such options trading education for free at http://optiontradingpedia.com without having to pay for weekend seminars costing thousands of dollars.

Wish to make huge money? Go for option trading

admin — Fri, 08 Jan 2010 22:16:29 +0000

Options trading are a well known word to the people who have knowledge about the stock trading and have made huge profits by trying their luck here. It is always very essential that you understand and recognize that there is a difference between stock trading and option trading. The option trading involves the transaction of stock market of the future. It offers the basic right to sell off or buy anything before a particular date in future. An option trading is among the most excellent ways if you wish to make enormous profits and mint on money. It can also be considered or referred to be paying the cash by forecasting the profits of the future. In options trading, you get assets in the end. Under this, you may buy or sell according to your choice. If you have the option of call, then you may buy the assets and if you have the option of put, then you may sell your acquired assets. The merits that come along with the option trading is that you may control on your likeliness of the risks and the results which are associated with it. Options trading do not involve any risk and if the market goes down, you do not have to incur any loss. If you have a complete knowledge about option trading, then you can surely make a lot of money in a very short span of time. “Camelot Derivatives” is one of the reputed companies associated with options trading. It is a company which deals in derivatives. It has been licensed by the Australian Securities and Investment Commission in the year of 2004. This company was set up to serve as a corporate trading platform, for Neil King, who is in the option trading business for more than 18 years.

Demystifying Options Trading – Call Options Explained For Everyone

admin — Wed, 06 Jan 2010 09:37:48 +0000

When it comes to options trading, most people have been mystified by what seems like a lot of mumbo jumbo. This article will explain the investment terminology for Call Option in everyday terms that anyone can understand and appreciate.

To illustrate the concepts, let’s go on a shopping trip.

You’ve been thinking about buying a MacBook Air, Apple’s thinnest laptop, for a few days and you’ve done some research to find the best deal. You head for the mall on Saturday and spend most of the day trying to find the lowest price. This turns out to be $1799 for a 2.13 GHz MacBook Air.

Suddenly you realize that you have a dinner guest coming this evening and need to get groceries. Fortunately, the nearest store is right in the mall. Unfortunately, you discover that you forgot to bring your credit card and need to pay cash for the groceries. This leaves you with $150 plus some change.

On the way to your car you discover another electronics store, and to your amazement, the 2.13 GHz MacBook Air is advertised at $1499. Not believing your eyes, you go in and the store manager confirms the price but says that they have only one unit left. How are you going to nail down that price without sufficient cash and without a credit card?

You ask the store manager if he will hold the unit for you in return for $100, and that you will return in two hours to purchase at $1499. If you are not back in two hours, the store manager can sell it to someone else.

You make a written agreement, signed by both parties, that the unit cannot be sold to anyone else for next 2 hours but only to you at $1499 in exchange for $100, and that the $100 is forfeit if you do not return within 2 hours.

You have just engaged in “Options trading” The following options trading terminology should now make a lot more sense to you.

Options Contract – is what the note is called that you and the store manager just signed.

Underlying (underlying stock/share) – is the MacBook Air 2.13 GHz that you have agreed to pay ($1499).

Strike Price – is the agreed upon purchase price (in this example $1499).

Call Option – the type of contract in this example is a “Call Option.” It gives you the RIGHT but not the OBLIGATION to buy the MacBook Air. In order to exercise the “right to buy” you must return within 2 hours, and the store manager must sell it to you at $1499. If you change your mind, you do “not have an obligation” to buy. You simply don’t return and lose your $100 hold money.

Option Expiry – for this example the expiry is 2 hours, meaning that the option contract will cease to exist after 2 hours.

Option Premium – this is the $100 hold money you paid. It’s the cost to enter into this contract. This is not a deposit against the purchase price, but money the store will keep either way for providing you with the convenience. So, your effective purchase price will be $1599, which is still better than the $1799 “best deal” you had identified earlier, and it is the reason you entered into the contract.

Long Call and Short Call – for this example you have the “Long Call” since you are buying the contract for $100, and the store manager has the “Short Call” since he is selling the contract and gets to keep the $100.

Now let’s evaluate the risk exposure for both parties to the contract:

Your risk is limited to the $100 hold money you paid, i.e., a Long Call Option buyer’s risk exposure is limited to the premium paid. If, hypothetically, the price for the MacBook Air tumbles to $1000, then there is no way you would return and purchase it for $1499! If, hypothetically, the price shoots up to $2599 within the 2 hours, then your immediate profit would be $1000.

The store manager, on the other hand, has unlimited risk and limited profit potential. A Short Call Option seller’s risk exposure is unlimited while the profit potential is limited to the premium received. Yes, he gets to keep the $100 in case of a price drop where the buyer is not returning to purchase, but if the price for the MacBook Air shoots up to $2599 within the 2 hours, he stands to lose a lot of money because he cannot sell it to someone else for the revised price.

Hopefully, this will have taken some of the mystery out of options trading and its lingo. As illustrated by our example, we are engaged in these types of transactions in some form or other in our daily lives. We’re just not aware of it. As you gain knowledge and practice, it will come to you quite naturally.

At TradeGreeks we focus on educating investors in the world of options, where profit potential is unlimited and is not restricted to a bull market. We have created options trading strategies that are so strong and so predictable, that we can solidly stand behind an unprecedented guarantee: You will get the return we promise, or your money is refunded with no questions asked.

Visit us at http://www.tradegreeks.com for more options trading articles and register for a free membership.

This was an article from our series ‘Covert Life of Investment’.