Options University Courses

Basic of Options Trading

admin — Wed, 04 Nov 2009 06:20:56 +0000

There are two types of option contracts – Call options and Put options. A Call option is where you have the right to buy the underlying stock if you choose to exercise your option. A Put option is where you have the right to sell the underlying stock if you choose to exercise your optional right.

The Basic of Options Trading

Sick of being broke? How Options Trading can make you a living.

The options contracts themselves can be on-sold to other investors, which is where successful options traders generate their profits.

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Call ratio Back Spread Strategies

admin — Thu, 29 Oct 2009 06:10:02 +0000

This call ratio Backspread stratgy applied in 2 circumstances:-

1)When a trader sell 1 at the money call.
2) When a trader bbuy 2 or more out of the money call.

Call Ratio Back Spread Strategies

This call ratio back spread strategy is best for the situation when you expect the market to make a substantial up move after a period of stagnation. and also the situation when the objective is to pu this trade on as a credit, a free trade / very cheap.

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Short Call Options Video Tutorial

admin — Thu, 22 Oct 2009 05:51:46 +0000

A short call happens when a trader foresees that the value of the currency pair may go down and thus sells short the currency pair or “writes” or “grants” a call. An investor who decides to sell a call is obliged to sell the currency pair to the call buyer at the latter’s option. If the currency value indeed decreases, the call position earns a profit via the premium. If it however increases more than the exercise price and the premium amount, the short loses an unlimited amount.

Option Play Book – Short Call Option

Learn about the 19 primary option trading strategies for trading options on commodity futures contracts.

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Why Learn Technical Analysis?

admin — Thu, 15 Oct 2009 05:16:06 +0000

If planning to engage in the foreign exchange trade, is important to know that you will deal with varied prices, money and numbers. The foreign exchange trade offers many opportunities for those traders who are courageous enough, skilled and fortunate to capitalize on the benefits that come with these opportunities. As verified by thousands of traders universally, this is hardly accomplished by most traders. As a matter of fact, thousands of opportunities exist but the problem lies in finding them. If one ever comes across a great foreign exchange trading opportunities, it is vital to be aware of the various ways of optimizing on the opportunity. For adequate preparation of upcoming tasks and opportunities, a great skill of analyzing is required.

A trader can learn how to analyze the foreign exchange market in two ways which are: fundamental analysis and technical analysis of the forex market. Fundamental analysis involves using data and information regarding the circumstances that would influence the currency prices in the forex market. Such factors would include political affairs, the government, local laws and the economy of a country among others. Forex Technical Analysis, which is a common method of analyzing the forex market. This method makes use of statistics and market charts.

The core of technical analysis is the numbers, prices and any other statistical data. It involves the ability to identify varying trading signals after reading the market charts. Traders need not learn all the signals but only what is essential with regard to their goals and strategy. Traders should master forex technical analysis and get informed on the foreign exchange market. Traders will then be able to select the best times for trading and make tremendous profits.

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Stock Options Trading: The Low-Risk Way to Create Wealth

admin — Mon, 05 Oct 2009 11:33:40 +0000

If you are one who lost huge money on the stock options trading, you are not alone. Most of people lost their entire trading account just trading stocks. Regardless of their hard work, people always seem to lose money eventually even though they made some initial profits. Why do this happen?

The truth is simple-stock options trading is the risky business. You may ask: Why is it such a risky business? Stock trading proves to be risky for many people because they could lose entire money on a stock trade if stock options close out of the money during expiration.

There is always risk with stock options. Even the stocks that seem to be going up very quickly could take a u-turn suddenly and there could be unexpected drops close to expiration.

If that happens, it will take your in the money call options even before you can react to it. Implying that no matter how careful and certain you are, in stock trading there is always the possibility of a complete loss.

Though stock options offer excellent investment instruments, but if you tend to throw all your cash into the stocks and hope to strike a jackpot, stock options trading could be very fatal for your financial health.

But how can we avoid such a loss? Simply apply the low risk principle of stock options trading. According to this rule:

Invest the Money You Can Afford to Lose
Yes, this is the golden rule of investments that enables you to avoid huge loses. For instance, if you can afford to lose only 20% of your money, you should invest no more than 20% of your wealth on a single stock trade.

This rule is even more important if you are trading in out of the money options that have very high chances of expiring worthless. For instance, if you own a $50000 account and you can’t afford to lose more than $5000; this is the amount you should invest on a single stock trade. It’s as simple as that!

The disadvantage of the rule is that investor will not be able to make that much money, incase stock price goes high; he would have if he had punted entire money on that particular stock.

The logic behind this rule is that just like you should never bet all the money on a single gamble, you should also never invest all your money into a single trade. In fact, this rule is applicable to every kind of trade.

For people, it’s not easy to stick to this rule, especially when they are “on a roll”. It’s easy to understand that there never is a problem with making money somewhat less but losing entire money is certainly a big problem.

So, stick this golden rule and use only money that you could afford to lose easily in stock options trading and you can sleep far better knowing that you haven’t and cannot lose more than what you have expected to lose.

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Online Options Trading: The Total Benefits Revealed

admin — Thu, 24 Sep 2009 11:28:35 +0000

Are you thinking about online option trading? The rapid growth of internet has an impact over every human aspect. It is not only dating habit or shopping or education, but it has become possible to achieve so many things with safety and at the comfort of the home. There are very little chances of becoming hermits.

Option trading has also been in the list of internet benefits. There are two subdivisions in which the online option trading benefits have been divided. These are information and accessibility.

In order to understand the benefits of online option trading with regard to accessibility aspect, pay concentration on what internet provides? It is an access to great choices with less time. It also applies to shopping and dating. It is possible to meet many dating partners through internet and similarly, to shop from different stores. As the search process s done electronically, there is no improvement in quality of the products. The more number of choices can be sorted with less trouble in quicker time.

With regard to your search for an online broker to handle your online option trading account, it follows the same criteria for search. Consider his reputation and calculate his commission. The minimum and maximum transaction amount and accounts should be investigated. While making decision, ease of conducting business and customer service are given priority.

The website of a particular firm gives you the required information, but without its reputation. Though there can be oldest, reliable and the best firm, but you need the confirmation from outside. You can go through the website easily that shall provide you the information with regard to trading activities with bright colors and small graphics. It can be all done by navigating the site by spending lot of time but very comfortably.

The final decision is to be made by you and is going to be up to you but it shall never be slipped from mind that there are always large numbers of choices before you that can be reviewed. A small investment through online option trading will pay you good return in the longer run.

Now comes, information, the second benefit of online option trading. Internet has large database, apart of which is available on firm’s website you are dealing. But you also have many other sources to collect the data. Let the online option trader be successful and he will be the master of search engine. Such a man can extract the required information to make his decision in the field of investment. There are many required options available to sort, process, store and display facts and figure. In the past the options traders use to take decision on very small amount of data.

If you believe that your instinct or your luck will be the successful guide for investing, you can supplement them with large amount of data that ca be useful to you.

In the past, there were not so much of potential investment opportunities or a cheap way to update your knowledge so that they can be advantageous. Online option trading is one of them.

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How to Acquaint yourself with Futures and Options Trading?

admin — Mon, 21 Sep 2009 11:22:02 +0000

There are many currently operated options on currencies such as treasury bills, notes, stocks, bond indexes, future and option trading contract etc… these investment being the derivatives of actual investment are difficult to understand to make profitable use. It is due to which the traders looses money in these options. These types of options are appealing to traders who want to speculate on the market movement and those who want protection against their investment in the oscillations of the market.

When the investor buy put options on stock indexes, they hedge their portfolio against market’s reduction. They have the right to sell their option on profit with the fall in the market. The amount of sale will provide coverage to the losses, caused due to falling market, in their portfolio. For this technique to be successful, the options should be on index that tracks the kind of stock with them. There shall be sufficient options in future and option trading to offset the portfolio’s value. As options are at the cost of money and their less expiry time, this kind of regular insurance take out the part of profit produced by portfolio.

In the market direction, speculators gamble with the help of index options. There are several risk investing methods, this method also provides a chance of making huge money, if the investor gambles on right. The short life span of index options has been magnified because of the risk of right time and stock’s price. The most complicated factor is that there is not always the same movement in index as shown or indicated by the market. There are big profits associated with traders, when index are out of kilter. Traders use computer programs that are set in tuning o take the advantage of the movement.

Option trading firms help in futures and option trading on future exchanges like Chicago Board Exchange and other four stock exchanges. Option futures are traded on exchanges that originate them or make them like the future contracts. Generally exchanges handle the trade of option contracts. They match the buying and selling orders anonymously and use an offset contract to cancel it.

The SEC has started program with regard to stock options, but it is still a controversial. They are permitting their listing and making them available for sale on almost all exchanges. At present American and Chicago exchanges that had trading contracts in blue chip stocks have control over more than 75% business. Pacific and Philadelphia exchanges have control over more than 22% of future and option trading. A new change of multiple listing is a shift in the increased use of computer and telephone trading that increases the opportunities for arbitrage and for comparison shopping.

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Trading in Stock Options Explained

admin — Mon, 14 Sep 2009 11:18:11 +0000

Trading in options is an activity that can be practiced by both small and novice investors. Trading in options has many questions that should be asked and pitfalls. This is because novice options traders tend to be overwhelmed with the various options choices and the different ways of how they can trade the options.

The least amount of capital that is required before one begins trading in options is $5000. In addition, you have to observe or adhere to excellent money management techniques using the capital. For example, if you lose three trades consequently having allocated 5% of the trading capital, you are left with 85% since you have only lost 15%. The lower the capital is traded; you will gain more percentage for you to be able to recoup the capital used for trading.

An excellent tip for trading in stock options requires a trader to be aware that when the end of the quiet period for the stock nears, their price tends to gradually rise. This is because most investors will be advised by their underwriters to strongly buy the stocks when the quiet period of the stocks ends.

It is essential that you be familiar with the different forms of contracts available in trade options when you start to learn about the trade options. Investors trading in both the options and stocks market who take time to know and make use of the easy strategies available through stock options, are in a good position to analyze the trade market risks and at the same time they are in a better position to make substantial profits.

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Commodity Trading As the Best Investment Vehicle for Beginners

admin — Sat, 05 Sep 2009 11:14:15 +0000

Commodity trading has excellent potential for huge profits in the shortest possible time. Because of this huge profit potential, it is preferred trading option. Commodity trading has also proved better investment option compared to savings in a bank account, stocks, bonds and real estate.

Commodity trading investment for beginners may prove highly profitable or disastrous to you depending upon your decisions. Suppose you have a futures trading account. You may have 10,000 dollars in your account. This may allow you to trade single S&P 500 features contract.

You may need 30 or 40 times higher money if you are to invest money in the share trade for equivalent amount of share trade. Just understand that buying an S&P feature contract is same as investing money to buy individual stocks.

Lets try to see how trading works. Suppose you think market will be going up in the near future. On the 1st day of June you make your move and happen to hold your position till two weeks. After 2 weeks your stock position would have doubled in its worth. That is excellent for two weeks. Profit will be same even if you take the futures route. This example just shows the great earning potential of commodity trading. Be careful same stands true for loses. If you do not exit at the right time, your loss curve will be equally steep.

Commissions in this type of trading are relatively very small compared to other form of trading. You will be able to appreciate the difference from following example. In case of futures trading you will pay commission of 30 to 50 dollars, whereas commissions for buying and selling of equivalent individual stocks at 1% would have resulted in 7,000 dollars.

Speculations in commodity trade have advantage over those in other investment fields like real estate. In case you have balance in your account and you have maintained sufficient margin, you can use your profit for trading purpose. In the other investment avenues it is not possible to use profit unless you sell your investment.

Moreover commodity trading is surprising easy compared to other form of trading. In case of stock market you have to choose out of thousands of available stocks, but in this case you have an option of around 50 futures markets.

It is also easy to short sell or long trade, with little caution one can make money in any scenario, whether market moves up or go down. Diverse nature of the futures portfolio also provides buffer from any potential economic chaos.

To top it all you will find tax advantages when you make profit from futures trading. Your holding period is not important for commodity profit; they will be taxed sixty percent for long-term capital gains. For short-term capital gains deduction will forty percent.

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The Covered Call and Buy-Write Strategy

admin — Fri, 28 Aug 2009 11:09:45 +0000

What are the cause of buy-write strategy or covered call strategy? Are they beneficial? These questions, in the minds of investors, have brought stampede in the world of investment.

Majority of investor purchase their stocks with the intention of holding their shares for long period of time. It is just because the professionals in the field of industry and media have put it into our minds that it is better to purchase and then hold the shares. This mindset has also been supported by recent phenomenon that the strategy of buy and hold works well.

But the final decision on whether the strategy of ‘buy and hold’ is the efficient way or not is still the topic of discussion. But still, this strategy is the one, which is found comfortable by several investors. They tend to follow the same strategy.

The first strategy is the improved form of buy and hold strategy. This buy-write strategy provides consistent and better returns with time when compared to stock ownership alone.

There are three possibilities of outcomes, while buying a stock. As concluded from discussion, one of these three outcomes is generally positive and two of the three scenarios are generally negative. Reduction in the stock or the stillness is considered bad outcome whereas the rise in stock is a good indicator.

While summarizing, we can say that it is not only that there is loss in opportunity cost but the commission costs is also incurred on the way in and the way out. Always remember that money invested in the still stock can give you better income opportunity, with some other stocks. So, it can be said that only one of the three scenarios produces a positive result.

While we reach to description, we will identify only three scenarios, which are:-

The “down” scenario
The “up” scenario
The “stagnant” scenario

By employing “buy-write” strategy or the covered call, the outcome of scenario profile can have two positive outcomes, instead of only one. Now, both the “up” scenario and “stagnant” scenario will have a positive result and “down” scenario will not be so negative.

It is because of covered call strategy, two of the three scenarios get positive result with third less negative outcome.

Covered call strategy has two components- option component and stock component. The stock component includes a long stock position. The option component includes selling one call per 100 shares of stock.

When we have look over the odds, in order to decide whether it is better to sell option or buy option, there have been several studies on the topic of premium buying verses premium selling.

One of the recent studies has shown that it was 78% to 83% correct trade while selling the premium. It is a high percentage and advantageous when a good opportunity presents itself.

The fact that an option is a depreciating asset is one of the factors considered advantageous by covered call strategy. It is because its extrinsic value reaches zero at expiration. This process due to which there is dissipation in option’s extrinsic value is called time decay.

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