Derivatives Options » Stock

Option Strategies: Profit-Making Techniques for Stock, Stock Index, and Commodity Options (Wiley Trading) [Hardcover]

admin — Thu, 29 Jul 2010 19:21:29 +0000

Updated and revised to include a decade of growth in the scope and complexity of options, Options Strategies: Profit-Making Techniques for Stock, Stock Index, and Commodity Options, 3rd Edition is a comprehensive guide to options trading strategies written in clear, non-technical language. In addition to insight into options issues like carrying changes, strike prices, commissions, interest rates, and break-even points, new chapters show how to predict the direction of implied volatility. Accessible examples, charts, and graphs will help you obtain the information you need to succeed in the high-risk, high-profit world of options.

From the Back Cover

Praise for Option Strategies, Third Edition “Finally, a book on option strategies even guys like me can understand. Whether you’re an options veteran or not, Courtney’s years of experience will be of value to you.” —Larry Williams, author of Trade Stocks & Commodities with the Insiders: Se (more…)

Trading Stock Options: Basic Option Trading Strategies and How to Use Them to Profit in Any Market [Paperback]

admin — Sun, 20 Jun 2010 23:10:43 +0000

Many traders and investors dismiss stock options as either too complex or too risky. But did you know that options can be easily understood and the risk easily managed? This book will show you the basics of stock options in easy to understand terminology. You will be able to read option quotes with ease, get an option enabled trading account, and trade basic option strategies in no time. In Trading Stock Options, experienced option trader Brian Burns explains the basics of stock options and shows you how to trade the most successful option strategies. As you begin your journey on the option path, you’ll have the luxury of real-life trade examples to show you the way. The diagrams and charts help turn the complex world of options into easy to visualize and simple to understand strategies that even the most novice of traders can utilize. Trading Stock Options will show you how you can use options to: * Get paid to buy and sell your favorite stock * Purchase st (more…)

Trading Stock Options: Basic Option Trading Strategies And How I’ve Used Them To Profit In Any Market [Paperback]

admin — Mon, 14 Jun 2010 13:14:51 +0000

In Trading Stock Options, experienced option trader Brian Burns, explains the basics of stock options and shows you how to trade the most successful option strategies. As you begin your journey on the option path, you’ll have the luxury of real-life trade examples to show you the way. The diagrams and charts help turn the complex world of options into easy to visualize and simple to understand strategies that even the most novice of traders can utilize. Trading Stock Options will show you how you can use options to: * Get paid to buy and sell your favorite stock * Purchase stocks for less than their current price * Buy insurance on stocks in your portfolio * Profit when stocks lose value * Perform short-term trades with less money than trading the stock From the Introduction “Through my experiences with option trading, I have tried almost every strategy I could find. In this book, I will be discussing the strategies that I use the most and feel are the bes (more…)

Stock Trading- 5 Kinds of Stocks You Must Understand

admin — Fri, 08 Jan 2010 00:12:05 +0000

Basically there are two groups of stocks, preferred and common stocks. Preferred stocks are comparable to bonds because their returns are fixed. Preferred shareholders get first dibs on dividends in good times and in assets if peradventure the company goes under. In other words, the risk of a preferred shareholder is limited, they are mainly interested in dividends. Very few companies issue preferred stock.

When investors talk about investing in stocks, they are referring to common stocks. The vast majority of investors are found in this class, common stockholders take on a few dimension of risk compared to preferred shareholders though common share holders command more voting power at annual general meetings.

The five kinds of stock in discussion fall under common stocks. An understanding of these stocks will greatly enhance your stock trading prospect. I don’t know your goal when it comes to investing, one thing I know however is that you will be able to find one among the five stocks that fits your goal and temperament.

GROWTH STOCKS: Are stocks with great potentials for growth, they grow faster than the economy and sometimes than the stock market itself more often than not. The risk level is minimal; investors are attracted to it because they have good earning growth over the long run. Investors in this stock know that over the long term their portfolio is secured.

INCOME STOCKS: Investors who buy into this kind of stocks do so because it doles out a large portion of its profits. Income stocks pay as much as 60% to 80% to investors as dividends compared to other stocks. Income stocks are almost immune to changes in the market because investors are confident that they will receive dividends.

BLUE CHIP STOCKS: Derives its name from the poker game, the blue chips usually have the highest value. They are sector or industry leaders. They are big companies that have been around for a long time, they have strong fundamentals. They pay steady dividends and most times bonus scrip. Though their prices don’t grow very much, they are good options for retirement portfolios; they are best suited for the long term.

VALUE STOCKS: Are under priced stocks that has great potential for growth; look at it this way, value stocks sell below their real value which make them very attractive. If you compare the low price of value stocks to its earnings, you will understand why stock traders are attracted to it. They are good options for investors interested in growing their portfolio.

RECURRING STOCKS: These are stocks whose performances are affected by the swings of the economy. When the economy goes up or down a recurring stock responds likewise. Their performance depends on the dictates of the economy; therefore, the best time to invest in recurring stocks is when the economy is performing well.

Your investment options ultimately boils down to you knowing what your goals are in the first place, that way you can hold a combination of these stocks in your portfolio for the purpose of balance.

Automated Forex Trading: The Clever And Effective Technology

admin — Sat, 02 Jan 2010 00:16:42 +0000

Why Forex trading?
This is probably one of the questions that you need a reasonable answer. There are hundreds of investments out there that you can prefer, but why go trading foreign currencies instead?
Forex investment is unique in various aspects.
Its trading volume is relatively huge compared to other market.
It has extreme liquidity or the capability of either buying or selling the currency without causing significant movement in the market price.
It has the largest number and variety of traders.
It is one of the markets that have long trading hours (24 hours each day, except during weekends.
Trading locations are almost everywhere, not just in the United States or major cities of Europe.
There are different factors that affect foreign exchange rate.
Another whooping fact that will make you excited to go on Forex trading: it has an average turnover in traditional foreign exchange market of around $1.88 trillion daily, according to the Triennial Central Bank Survey of the BIS (Bank for International Settlements). Here are the daily averages of turnover on the Forex market for the last 17 years:
$500 billion (April 1989)
$750 billion (April 1992)
$1.18 trillion (April 1995)
$1.48 trillion (April 1998)
$1.16 trillion (April 2001)
$1.88 trillion (April 2004)
From the figures alone, you will notice that the average trend of Forex turnover is increasing. It is estimated to reach as high as 2 to 3 trillion dollars within the next 8 to 10 years, if the number of traders around the world will continue to increase. As a matter of fact, everyone have the chance of getting a substantial slice of the Forex market wealth pie, especially that the Forex trading marketing is now on its automation process.
The concept of automation becomes the new trend to the foreign exchange trading market. The Interbank spot Forex market has also considered switching to the automated method as well.
There are several benefits that a Forex trader can derive from automated Forex trading. Here are some of such benefits and figure out why Forex trading as well as other investments (futures and commodities) prefer the automated process.
Through automated process, transactions can now be done in real time. Although manual systems have existed for quite some time now, it is difficult to achieve such benefit that the automated Forex system can offer to its traders. All of the trades can happen within a few milliseconds and can be a big plus for automated transactions against the manual system. In fact, there are problems that are addressed using automated Forex trading especially if the trader is losing a few times in a row that prevents him from making new trades. Such problem could be addressed using the automatic trading system.
With automated Forex trading, you will have a greater diversification. It means that you can trade in various markets in different time zones at a time. You can execute trades with traders from Singapore or London even it is already 12 midnight in the United States. This benefit allows you a multiple exchange model option. You can use varying trading models to evaluate short-term data. This means that you will be able to predict the trend for a shorter period of time, let us say from fifteen minutes to half an hour.
As previously mentioned, the Forex market is unique because of its extreme liquidity. This liquidity is increased when the market goes automated.
Risk management problems are solved through automated Forex trading. International checks, which are commonly used in making purchases on Forex market, are synchronized through automated technology. Since the transaction in an automated process is now on real time, there is a slim chance that the payments will be delayed, reducing the risk of non-payment by either parties. Although there are problems noted with the use of the automated system, it can be fixed through consistently-updated technologies.
With automated Forex trading market, the prediction of $2-3 trillion average daily turnover within the nest 8 to 10 years can be changed within the next 4 to 5 years. Given the quick yet efficient trades on varying time zones, automated Forex trading will now be among the existing lucrative business around the world.

You Will Never Make Money Trading Stocks, Futures Or Forex Part 1

admin — Sun, 27 Dec 2009 12:35:15 +0000

You may think you know what a CFD, a currency pair, or an option is, but you probably don’t know anywhere near as much as you should. For example, trading a CFD and an option using the same outlay can result in two completely different scenarios; the CFD can take out your initial outlay, plus more sometimes resulting in a margin call (if you know what one of these are). Bad traders can have their entire capital wiped in very short time if they’re not careful.
An option on the other hand can only ever go to zero; in other words, you can only lose your initial outlay, but with options there is a thing called time decay, which simply means, the longer you hold an option, (all else being equal), the less valuable your option becomes. CFD’s don’t have time decay, but they do incur interest when bought for every 24 hours you hold the position open.
Options also have various components that go into making up their price, including time (already mentioned), and intrinsic value, not to mention a few others. A lot of newbie options traders are bewildered when they see the underlying asset go up in price yet their call option does nothing. For some reason it escapes these people that it may be a good idea to learn what an option is.
So if you decide you think the little green bar is going to keep going up, what do you buy an option, CFD or just the stock? Then there are market makers and brokers, regulators, and laws which differ greatly between just these two derivatives markets. You can’t trade CFD’s in the US, so what happens if you get sold on a real great trading system promising huge returns only to find out that the owner of the system lives in the UK and trades his system with CFD’s?
Then you have Forex, the market where people think they can start with a measly $10! Unlike all other markets, Forex has two opposing forces at play. By buying the EUR/USD, you are in fact buying the Euro currency with US Dollars, and if you live outside the US, then you’ve got to factor in the currency exchange rate between the US dollar and your own currency, otherwise you have no idea what you’re risking.
Another example; if I live in New Zealand and I decide to go short the CAD/JPY pair, how do I work out my risk for the trade? Well for starters, going short the CAD/JPY means I am buying Japanese Yen, with Canadian Dollars. How many of these Canadian Dollars am I willing to risk so I only risk ‘X’ amount New Zealand Dollars?
This is not to mention that fact that CFD and Forex markets are unregulated. If you think you’re getting the same price at any given time as someone else on the other side of the world, think again, because you aren’t!
Futures and Commodities; Ah, the big juicy bull market that no one seemed to care about when our little friend with the bow tie was singing from the rooftops to an empty street. Of course now that our favourite money channels can’t stop talking about them everyone else seems interested. Have you ever seen the little pop up ad claiming an 80% success rate trading Oil? Well that’s all good and dandy but unless you have the capital to trade Oil, it’s absolutely hopeless to you. The standard method of trading one Oil contract requires you have about a $4000 margin. Check out the margin requirements to trade all the other commodities in the news lately, Wheat, Corn, Sugar, and Gold.
Rest assured, now that we have a bull market in commodities, the ways in which one can trade these markets will explode allowing smaller margins and more retail traders to experiment (yes that’s what the majority will be doing even if they don’t know it). However, these instruments all have their own characteristics that you need to learn.
Every market is different, it has different characteristics, different laws and regulations (if at all), they act differently, and they have different driving forces fundamentally. Pick one or two markets to learn and get comfortable with them, but for goodness sake, pick the markets that will suit you and your goals and allow you to trade with the limited resources you have available.

Trading Stock Options: Basic Option Trading Strategies And How I’ve Used Them To Profit In Any Market (Paperback)

admin — Sat, 26 Dec 2009 17:24:34 +0000

Understanding the Basics of Options – A Simplified Guide to Trading Stock Options (Kindle Edition)

admin — Wed, 23 Dec 2009 13:59:30 +0000

Learn How to Trade Options with Option Maestro’s Simplified Option Trading E-Book. A proven way to easily understand options – learn by actual examples. After reading this guide to trading options, you’ll be able to pay for it by writing your first covered call! 100% Money Back Guarantee! After reading you’ll be able to buy and sell both call and put options.

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Bullet Advisory Indian Stocks-how to Buy Nifty Call-put Option and Calculate Profit or Loss

admin — Sat, 28 Nov 2009 00:29:59 +0000

Bullet Advisory Indian Stocks-how to buy Nifty Call-Put Option and calculate profit or loss

Everyday we listen about Nifty Option price closing up or down,Call Option,Put Option, market bullish or bearish .We wonder how to trade in Nifty Option and earn profit with limited loss and unlimited profit. What are the points we have to keep in mind while trading Nifty Option, how to calculate the profit and loss.First of all we have to determine the direction of the market whether market will be up or down.We can take the position in Nifty Option in the expected direction bullish or bearish.If we are bullish then we can buy Nifty Call Option and if bearish then we can buy Nifty Put Option.What trade we can execute and what would be our position in terms of profit and loss are explained below with examples.

If current price of Nifty is 2900 and Nifty Call Option Strike Price 3000 and Put Option Strike Price 2800 in January is 100=00 INRs and last date of expiry is on nth January. What trades we can do in Call and Put Option of Nifty and what will be our profit and loss position is as stated below.

If bullish we can Buy Nifty Call Option

(1)Buy Nifty Call Option January Strike Price 3000@100 INRs. Lot Size 50

Premium Paid=100*50=5000 INRs.

Maximum Loss=5000=00 INRs.

Maximum Profit=Unlimited

Break-even Price=3100

We can sell Nifty Call Option which we have bought anytime till last day of expiry i.e., nth January and can book profit or loss. If we do not sell Nifty Call Option we have bought till lasts day also then our trade will be automatically squared off at the settlement price of Nifty on last day of expiry decided by the exchange.

.Different Possibilities with our Nifty Call Option Buy position

(1) Nifty Call Option price 140 and sold before expiry then

140-100=40*50=2000.00 INRs. Profit

(2)Nifty Call Option price 60 and sold before expiry then

100-60=40*50=2000 INRs. Loss

(3)Nifty settlement price 3200 and we have not sold Nifty Call Option till expiry then

3200-3000=200*50=10,000-5000=5000=00 INRs. Profit

(4)Nifty settlement price equals to or below 3000 and we have not sold Nifty Call Option till expiry then

5000=00 INRs Loss

This is the maximum loss we can have even if Nifty falls to any level beyond 3000.

(5)Nifty settlement price 3100 and we have not sold Nifty Call Option till expiry then

3100-3000=100*50=5000-5000=0.0 INRs. No Profit No Loss

If bearish we can Buy Nifty Put Option

(1) Buy Nifty Put Option Strike Price 2800.@100 INRs. Lot Size=50

Premium Paid=100*50=5000.00 INRs.

Maximum Loss=5000.00 INRs.

Maximum Profit=Unlimited

Break-even Price=2700

We can sell Nifty Put Option bought anytime till last day of expiry i.e., nth January and can book profit or loss.If we do not sell Nifty Put Option we have bought till lasts day also then our trade will be automatically squared off at the settlement price of Nifty on last day of expiry decided by the exchange.

Different Possibilities with our Nifty Put Option Buy position

(1) Nifty Put Option price 140 and sold before expiry then

140-100=40*50=2000.00 INRs. Profit

(2)Nifty Put Option price 60 and sold before expiry then

100-60=40*50=2000 INRs. Loss

(3)Nifty settlement price 2600 and we have not sold Nifty Put Option till expiry then

2800-2600=200*50=10,000-5000=5000=00 INRs. Profit

(4)Nifty settlement price equals to or above 2800 and we have not sold Nifty Put Option till expiry then

5000=00 INRs Loss

This is the maximum loss we can have even if Nifty rises to any level beyond 2800.

(5)Nifty settlement price 2700 and we have not sold Nifty Put Option till expiry then

2800-2700=100*50=5000-5000=0.0 INRs. No Profit No Loss.

What is the advantage of buying Option compared to Future.Maximum loss is fixed and predefined.We cannot lose more then the premium paid to buy the Option under any circumstances and it is known to us before we trade.We can square up the Option position anytime after buying just like Future.We have to pay only amount of premium and not the margin which is required for buying future.

Trading Options – The Basics (Part One)

admin — Wed, 25 Nov 2009 12:50:15 +0000

Definition Mumbo-Jumbo
Options, unlike stocks, are derivatives. That means that their value derives from the value of another financial instrument (called the underlying). The underlying can be a stock or futures contact or an index. For the purpose of this article we’ll concentrate on stocks.
An option is a contract between two parties, the writer (the seller) and the buyer. An option gives the buyer the right to either buy or sell a stock at a pre-determined price. And so there are two types of options corresponding to those rights: calls and puts.
Example for Call Options
Say you go to the farmers market and find a stand where they sell some nice apples. You go to the farmer ask him how much a pound costs and he says 3$. You reach for your wallet and you notice you forgot it at home. The only cash you can find is some 30c in your pocket. So you say to the farmer “Sorry man, forgot my wallet. Can you put away a pound for me and I’ll be back in two hours to pick it up.” The farmer answers, “Nah, I won’t. I might sell it before then.” And then you say, “Ok, all I got is 30c. I’ll give that to you now and when I come back I’ll pay the full 3$. All you have to do is keep it for me for 2 hours. If I don’t come back you can still sell to somebody else”. To which the farmer agrees because he’s going to be around anyway and he’d make 30c profit.
So what just happened is that you and the farmer entered a contract. The farmer “sold” to you the right to buy 1 pound of apples. This right cost you 30c and it is valid for the next two hours (assuming the farmer is an honest man).
Translating this into options jargon: you bought a call option on 1 pound apples at a strike price of 3$. The premium you paid for that option is 30c. Expiry of those options is two hours from now. After that time they will be worthless. You can exercise that right within those two hours and buy the apples for 3$. You can also choose not to exercise it. In both cases the 30c premium is non-refundable.
Let’s continue our example. Say that after you leave a big queue starts to form at the farmer’s stand. The farmer notices that his apples are very popular so he decides to be cheeky and to raise the price to 4$ a pound. You come back and discover that the price is higher.
You have two choices: you can claim your right to buy a pound at 3$ instead of the current price. The farmer would honor his obligation and sell the apples to you. OR, you can go to someone in the queue and tell him “Look man, an hour ago this guy was selling the apples for 3$ a pound. I have an agreement with him to buy a pound at 3$. If you give me 50c I’ll talk to him to sell to you for 3$ instead of 4$.” A quick calculation reveals that a pound at 3$ plus 50c premium is 3.50$ which is still less than the current price at 4$. So the guy agrees to buy the right from you.
Options jargon: you bough the option for 30c. You sold it for 50c. That is a 66% return on your money. And you never even had to buy the underlying (the apples).
And this is exactly what option trading is about. Say you anticipate a price rise. Instead of buying the stock, you buy call options for a fraction of the price of the stock. When the stock advances you sell your options for a profit.
Ok, but what do you do if you expect the price to fall? You buy put options. These are the topic of my next article.