Archive for the ‘options learning’ Category

Options Trading for Dummies – The Things You Should Know Better

Wednesday, November 2nd, 2011

If you are a starter in the market of options trading, and looking for good advice on options trading for dummies, this is what you should be reading first. Option trading is relatively less risky and more profitable than other modes of investing tools available in the market, but it still carries some risks. To avoid the risks in the options trading, and to maximize the profits, you should be very careful about some important aspects of options trading.

On initial lessons of options trading for dummies, various terms of options trading should be made clear to the options traders. Very first of them is option itself. Options are contracts that give the owner rights to buy or sell some stocks at a fixed price. The price is fixed at time of issuing the contract and if the stocks are bought or sold under the option, they are bought or sold at that price regardless of their current market price. This price is called strike price. Options have a time limit, called expiry date, after which if the option is not exercised it becomes valueless. Usually, the expiry dates of the options are marked only by month. In that case, the exact expiry date is the third Friday of that month. Also, owners of stock options are called option holders, and the sellers of options are called option writers.

Options have a price or premium of itself, which is not related to the price of the stocks. Instead, it is usually related to the market position of the stock which determines the amount of gain that is possible from that option. Usually, the price of the option as well as the strike price of the underlying stock is mentioned for one single stock only, but the options come as a bundle of 100 stocks. In that case, the actual price of the option is 100 times the price mentioned for the singular stocks.

Next thing that should be discussed in options trading for dummies is the types of options. Options can be of two types. One is call options, giving you, the option holder the right to buy the stocks; another is a put option, which gives you the right to sell some options. In case of call options, the options writers are the sellers of the stock, and in case of put options, options writers are the buyers of the stock.

One thing should be known from the beginning is that success in option trading highly depends on the option trading strategy applied by the trader. There are many simple as well as complex strategies used by expert traders. Choosing and applying correct strategy depends on your knowledge on the strategies as well as current state of the market. A good strategy can increase the profit to the maximum while reducing the risks to minimum, but largely depends on the trader’s perception of market flow and future assumptions.

So, in options trading for dummies, proper research and good knowledge of above factors is highly important. But it is not the complete solution. For starters, it is a good idea to seek help from professionals in this field. Licensed option trading farms and brokers are good choices as a starting point.

Options Trading for Dummies: Where to Start

Saturday, October 29th, 2011

Recently, options trading for dummies are a major topic for discussion all around. It started with the availability of options trading through internet which is giving everyone access to this low risk and high gain market. Previously option trading was only available to large companies and banks, but now everyone can participate here.

But without primary knowledge about this type of business, options trading for dummies can bring huge losses. So, it is good to first do some looking around. Helpfulinformation can be found by searching in the internet and other information sources but the best option is to get help from a broker.

Brokers give considerable amount of help for options trading for dummies. They help both institutional and individual investors in this field. They help to open trading accounts at very low down payment for new investors. They also let them learn basics of the trade while staying in their comfortable place like office or home. Many of them offer the investors to control their accounts and do all the trading activity online while staying at their home or workplace.

Some broker’s online services allow the investor to create trial accounts. In which they can learn basics of options trading while staying in the safe water. These accounts helps in options trading for dummies as the let the investors to learn the functioning and types of movement in the options trading market and increase their knowledge on that.

The factors that decide to buy an option can include the past records in the market, broker’s advice and feedback and opinion from other traders. As getting good information about the market is hard for new investors, help from reputed brokers can be a very good deciding factor.

Advanced option tradingincludes some strategies. Option trading strategies are the factors that minimize the risks in the market and ensure good gain. To find a good strategy for trading it is necessary to have a clear picture of the market. Even after finding a good strategy, it is possible that the market changes dramatically and the strategy renders itself useless. In that case, a good choice is to exit the option as soon as possible. Also, information on the volatility of market itself can be used to fabricate a good strategy. Again, brokers can help the investor in these cases by providing necessary information about the past and current condition of the market.

Even after all help, planning and thinking, options trading can still face loss. Unlike other type of trading markets, in options trading you can lose all the money you’ve invested if you face loss. This risk can also be minimized by incorporating advance strategies, and having a better knowledge about the market.

So, for options trading for dummies, it is a good idea to get help from licensed firms or brokers. To get the best out of it, it is always advised to do a good study and trial practice before moving into the real business.

Option trading strategies You Should Know About

Friday, October 28th, 2011

Just like every other tool in the market of the investing, in options trading the key to success are option trading strategies. As everything in the stock market, any major gain or catastrophic failure depends on how much information you have and what strategy you come up with to use the resources in your hand. It is up to you to decide your moves and use it for your own good.

Before talking about option trading strategies, the idea about options and their types should be clear. Option is a contract which gives you the right to buy or sell some stocks at a specified price within a specified time. The specified price is called strike price and the specified time is the date of expiration. There are two types of stock option. One is a call option which gives you the right to buy a stock at the strike price. Another is a put option which gives you the right to sell a stock at the strike price. Note that, options give you right, not obligation, meaning you can exercise the option or not ifyou wish. While exercising the option, you get to buy or sell the stock, as stated in the contract at the strike price regardless of the stock’s real price.

So, for the option trading strategies, buying more than one type of option together can be stated as an option trading strategy. Even, some strategies can include buying only one option. Basically, the strategies can be divided into three types, Bullish, Bearish and Neutral.

Bullish strategies are such that it gets profit if the price of the stocks increases. People applying these strategies hope that the price will increase and the profit will come from buying the stock at lower strike prices than the new market price. Buying simple long calls can be one type of bullish strategy. Other strategies in this type include, Short Put, Long Synthetic, Call Backspread, Call Bull Spread, Put Bull Spread, Covered Call, Protective Put, Collar etc.

Bearish strategies get profit from decline in the stock’s market price. It has domination of the put options in complex strategies or can include only few put options in simple cases. This type includes strategies like Short Call, Long Put, Short Synthetic, Put Backspread, Call Bear Spread, Put Bear Spread etc.

Neutral strategies are of two types. One is much common and gets benefit from both upward and downward change in market position. Other is less common and gets benefit from non-changing market position. Neutral strategies may include Long Straddle, Short Straddle, Long Strangle, Short Strangle, Long Guts, Short Guts, Call Time Spread, Put Time Spread, Call Ratio Vertical Spread, Put Ratio Vertical Spread, Long Call Butterfly, Short Call Butterfly, Long Put Butterfly, Short Put Butterfly, Long Condor, Short Condor etc.

So, it is very important to have detailed knowledge about various option trading strategies before trying out it in the market. More research about them as well as consulting licensed firms about options trading is advised if you are thinking on trading options.

Stock options explained: Employee Stock Options

Friday, October 28th, 2011

Now a days more and more job positions offer Employee Stock Options or ESO, making it necessary for more and more people to have stock options explained to them. Employee stock options were available previously only for top tier executives of the company. But recently they are being offered to entry level participants to boost their interest in the work. It offers as a bonus for them if and only if the company flourishes and its stock prices go higher. So, they work harder to get the company perform better and get their rewards from the increased stock price.

So, before getting employee stock options explained, you need to know what stock options are. Stock options are simply some contract giving you the right to buy or sell stocks at a fixed price in a specified time. The price fixed in the contract is called strike price and it is the price in which the stocks are bought or sold regardless of their real market price. Stock options give you right but not obligation and the rights are valid before a specific expiry date. Options are of two types. Call option being the right to sell the stocks and put options being the right to buy the stocks.

So, for employee stock options, they are like simple call options with some added details. They are usually offered to the employees as a job benefit and not usually sold to them. These options also have two types. One is Statutory and another being Non-Statutory options. To get employee stock options explained a little more, we need to know what each of them offer.

Statutory stock options are issued under U.S. Securities and Exchange Commission regulations. It has some added regulations. The stock options can be only issued at a strike price above the current market price of the stocks. It can be applied to employees after one or more years of service and has a holding period of one year in which the option cannot be exercised. The option can be exercised after that one year and before its expiration date. The benefit of statutory stock option is that, all profitsfrom these options are taxed at the capital gains rate, rather than as regular income.

Non-statutory options are like regular options and do not have those regulations. They can be exercised at any time before the expiry date and can be offered to any employer at any given strike price. The profits from them are taxed as regular income. Sometimes these options holders can exercise the options directly through their broker and have the profit from directly selling the stocks to the market and pocketing the difference between the strike price and the market price.

Sometimes ESOs have a reload option. This allows the option holder to exercise the option if they see an opportunity to a good gain with the expiration date far away, and then get another option at the strike price equal to current market price. This helps to use the current opportunity while maintaining the window for future gain open.

Options trading for dummies: Something worth Exploring

Thursday, October 20th, 2011

Although it is said that options trading are much safer than directly investing in stocks, options trading for dummies are often advised to be avoided because of its risks being completely different from other forms of investing.It does have risks if you do not know what are you doing and can cost you a lot if something goes wrong. But ignoring its existence is also not a good idea. It keeps you in a weak position in the investing market if you do not have access to every method available for investing.

Just moving away from options without knowing anything about it is as much idiotic as jumping right in the business without knowing. There should be at least an options trading for dummies guide gone through before deciding whether to try it or say goodbye to the idea. And if the idea becomes clear and acceptable, you might add this as another item in your investing toolbox.

So, first step in learning options trading for dummies, you must know what options really are. They are contracts, by two entities, which gives one some rights to buy or sell something, which is some stocks, in a fixed price in exchange of a price for the contract. Mostly, the contract states some fixed price for buying or selling the stock which is called strike price. This contract has the advantage that, you’ll have the right, not obligation to buy or sell the stocks. That means you can skip buying or selling them if the conditions are not favorable. But the options also have a downside. It has an expiration date, and if you do not make anything of the option before that, all the money you’ve spent on the options will go for nothing. But if the conditions are favorable before then, you can have unlimited gain from the difference between the stock’s market price and the strike price.

After knowing that, you might need to know which type of options there are. There are two basic types. One is call option and one is put option. What is the difference between them? Call option lets you buy stocks in the strike price and put option lets you sell stocks at strike price.Call options usually have benefits such as, having no limit on the maximum income if the actual stock price rises significantly above the strike price. Also, it has risk of loss if the actual stock price falls below the strike price. In other hand, put options have less window for gain but has a guarantee that if the stock price falls, you will at least get the strike price, and if it increases, you can sell the stock at that increased price.

So, if you’ve gone through thinking about stock options and decided to try it out, note that all the other people in this business have years of experience and only having information from some options trading for dummies articles will not help you go all the way. It is better to have some professional help from licensed brokers or firms at first while you know all the details about it.