Option Strangle Magic » Options Trading

Understanding Options Trading Terminology

admin — Tue, 26 Jan 2010 09:21:50 +0000

Options trading can be like a intimidating thing to get in but if you do your research and know at least the principles of what must be done, then you will find that it is not quite as intimidating as everyone considers it is. There are four basic things that you will need to know in order to even think about beginning option trading. Long call basics, writing a call, long put basics and selling a put are necessary to know and will help you out too much in the long run. Long Call Basics Here are the long call basics. When you buy or go long win a call option, that signfies that you have the authority, but not the compulsion to buy one hundred shares of stock from the call option seller at the offered price. That price is called the strike price. You owning this authority will just happen for a particular span of time and you will need to pay a premium for it. However, you need to pay a greater premium if the time limit is longer and the instability of stock market. Writing a Call The words, writing a call, is when you sell someone the authority, but not the compulsion to buy one hundred shares of a given security from you at a specific price in a specified time frame. You can also write a naked call which means that you have not hedged it to limit your losses in any way . This can be a potentially great risk plan because you can probably be on the hook for an infinite amount of loss which is never a good position to be in. One of the better methods to cover yourself in this condition is to only write calls against a hundred shares of stock that you already posses that means that if the person you sold the call to decided to exercise his authority, then you already own the shares and don’t have to go out in the marketplace to buy them. While you are thinking about options trading, you need to keep the risk as minimum as possible. Long Put Basics/Selling a Put The reverse of buying a call option is to buy a put option. A put option is one that gives you the right but not the obligation to sell one hundred shares of a given security to a person at a specific price within a particular period of time. This option gives you the possibility for endless benefits not like the call option. When the contract will slowly expire, you will have to pay premiums for the right to sell shares whose value will slowly decline. When you sell a put, you give someone the authority but not the compulsion to sell you one hundred shares of the given stock. There is no infinite risk as with the naked call option so the maximum that you can lose is between zero and the strike point, minus the premium you receive. When you are option trading you will want to simply sell a put when you guess the stock price will increase in value. Knowing these basics of how option trading works will be sure to help you get started in option trading. Conducting the right search and talking to people who work and live the trade will be priceless in your options trading career and will help hoard you a lot of money. Many people say that it is a very scary and risky thing to get into but it really isn’t if you know what you are doing and are careful not to take too many risks until you fully understand the process and are comfortable with it.

7 Simple Steps to Financial Freedom and Wealth Building – Step 4

admin — Sat, 23 Jan 2010 11:11:32 +0000

7 Simple Steps to Financial Freedom and Wealth Building

STEP 4: The Business Setup – Choosing the Right Partner

With advancement in technology, the options trading business can be easily setup with a few clicks of the mouse. Welcome to the online world of trading.

Equity trading is a serious business because it involves a lot of money – your money. It can build wealth and can also destroy wealth. Either you make money from the market, which belongs to someone else, or you lose your money to the market, which will benefits another trader. So please take it seriously because most traders and investors do not. So if you are serious, would you trust your business dealings to just about anybody? I hope not!

A business that does not have reliable partners typically will not succeed for the long term unless a new reliable partner is quickly identified. In the options trading business, brokers are our partners. As such, we would have to identify and be very selective in appointing the brokerage house to help us run this business.

With so many brokerage firms out there, it can be quite a tough and confusing for many of us. In fact, choosing the wrong broker can be expensive.

So we have prepared an easy way to shortlist these brokers. A good “business partner” should have:

Attractive commission rates – understand if it is fixed or if it depends on the number of trades. Low commission does not mean it is good.

High availability on their website – since almost all transactions are executed online. Understand contingency as well when website is down.

Fast Execution – a good opportunity may be gone if not executed fast.

After Hours Trading – if you like trading longer hours.

Sweep Facility – a good broker would automatically take your available cash to have it placed in a money market to generate interest.

No hidden fees – many brokers have all sorts of endless hidden charges. Do not take this nonsense.

Powerful trading Tools – like streaming real time quotes, screeners, stock charts, etc.

Wireless trading facility – most of the time for day traders

Ability to execute complex options trades – many brokers provide options trading but this is not good enough!

A good stock broker may not be a good options broker because options trading are relatively new. Although stock brokerage firms offer options trading, they are still behind in many of the services offered by brokerage firms that specializes in options trading. Once you understand options trading, which has more than 20 different trading strategies, stock trading looks like child’s play.

When selecting a brokerage firm, select the best to prevent any heartbreak later on. We have worked with several options brokers and, in our opinion, www.optionsexpress.com and www.thinkorswim.com are the best around. These two options trading firms meet the requirements above while many have failed to impress. Before proceeding to the next step, start working with the right partner. It only takes a short while to open a new account. This is an important decision.

Stay tuned for STEP 5 – Arm Yourself With Options Trading Knowledge.

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.

Earn Huge Profits through Options Trading

admin — Sun, 17 Jan 2010 09:33:23 +0000

Options trading have become very popular in the last few years. Almost all those people who believe in making money from the stock market, also interest themselves in options trading. However, it is also true that options trading is more complicated than the stock trading. But a number of people have understood that options trading is very advantageous also. You can use options under any market condition and for any investment motive. It is also important to understand the risk and reward attached with options trading. One may also combine an option with other options in order to earn more profits or to reduce the level of risk. The risk attached with buying an option, is very limited as in no case an investor can lose more than he has invested to buy an option. People should also understand that options trading is not for everyone. It is no doubt true that one can make enormous profits by investing in options trading. However, one should also keep in mind that in some cases one may suffer enormous losses as well by investing in options trading. Before making any decision in options trading, one should take the advice of the experts to ensure that he does not take a wrong decision. Options trading contains two types of options i.e. put and call options. If someone has a right to sell the securities then it is known as a “put” option. While a call option gives an individual the right to buy the securities. Options trading is counted amongst the best ways for earning handsome profits. Camelot Derivatives is a company which is headed by Mr. Neil King, who is in options trading for more than 15 years. A number of clients are prospering by investing in options with “Camelot Derivatives”. It acquired its license in the year of 2004 by “Australian Securities And Investment Commission”.

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.

Options Trading Is a Opportunity For The Small Investor Too

admin — Sat, 16 Jan 2010 09:09:06 +0000

The stock market appeals to people for many reasons. Some see it as a quick way to make a nice nest egg to tuck away for their eventual retirement. Some see it as a way to live out their fantasies of being a powerful, corporate type. And some are actually more logical about it, seeing the stock market as a potential way to make money, if they play their cards right. They know that there are no sure things in life and nowhere is that more clear than in the stock market. But options trading is a opportunity for the small investor too.Options trading has grown in popularity, especially with the smaller investors over the course of the past ten years. Unlike other forms of trading that can require large amounts of venture capital, options trading can be accomplished with often a very small initial outlay. Of course, because they can be easily started, it can allow the uninitiated or poorly informed to get in well over their heads in a matter of a very short time. Not allowing yourself to understand the market before you make the first trade is financially foolhardy and personally dangerous. First of all, as the name implies, option trading is not buying actual stocks, but rather busying the right to own or sell them. The options trader can make the same profit with stock options that he would make as if the owned the outright stocks, but that also means that he would face the same risks if that stock did not do well on the market. As with other forms of trading, options trading will require that you learn some facts and make some decisions before hand. Know everything you possibly can about options trading, as well as trading in general. Know how to track stocks for movement and know how to watch for trends. Know what the basic types of options trading is- and understand how each works. And, as with any other type of trading, make sure you know and adhere to your personal limits, including your absolute loss cap. Do not overextend yourself, even if you just got a tip on a great stock. Options trading can focus on stocks that are heading in one of two directions, up or down. Call options will focus on rising stocks, while Put options focus on those on the decline. Both allow you the right to buy the option on a stock at a fixed price, but do not force you to do so. Knowing how to work this system to your best advantage is key.Invest in yourself, learn the basics and expand on that to become profitable in options trading.

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.

Day Trading with the Whales – How Currency Option Trading Is Done by Minnows

admin — Mon, 11 Jan 2010 09:04:13 +0000

Many retail investors are discovering currency option trading which has been made available via a binary options trading platform. Whereas forex day trading once was only the domain of the super-elite global financiers (so called whale investors) now day trading minnows can swim, trade, and make money day trading in the same pond.

Currency Options Available to Binary Option InvestorsCurrency option trading has been opened up to a whole new field of investors with the creation of a new type of transaction called a binary option. In days past the only people able to take advantage of the movement of currency option trading were big fish investors with millions of dollars in capital to trade and use as collateral. Not so any more.

Small Cap Day Traders Trade the Same Popular Cross Rates As Global FinanciersPeople with smaller (much smaller) portfolios now have the ability to make investments in the movement of currency cross rate changes using the binary option trading transaction I mentioned earlier. With as little as $100 an investor can open an account and quickly begin making transactions on the major currency option trading cross rates. Anyone who has ever wanted to trade Yen/Dollar, Dollar/Euro, or Dollar/Pound now has access to the same sorts of options trades that long time forex traders like George Soros have had.

Nasdaq Index, Microsoft, Google Options Also Day Trading on Binary PlatformTrades of this kind are not limited to currency cross rate options however. It is also possible to buy calls and puts on the direction of movement in major stocks and indices, such as Google and or the Nasdaq index. Making investments in these sorts of high return, short horizon securities used to require large capital amounts just to open options accounts.

Low Capital, High Yield, High Turnover and High Reliability Day Trading SystemThese other sorts of stock based binaries are nice but for me the big thing has been the ability to work on currency option trading without the exorbitant capital requirements and without the high commissions and fees that go with it. I place trades in the market, and at the top of the hour I get my payouts. It is pretty simple when you think about it.

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.