Archive for the ‘Options Trading Program’ Category

Short Call and Long Put – Simple Bearish Option Trading Strategies

Wednesday, November 2nd, 2011

Options trading can provide very good ROI and possess minimal risks if good option trading strategies are applied. Currently the options trading market is accessible to many newcomers thanks to the availability of options trading channels in the internet. People who have the basic idea of the options trading must know about the options trading strategies in good detail in order to succeed. Good strategies can reduce the risks of options trading to almost zero while giving very high profits. But also, badly applied strategies can even lead to the pitfall of bankruptcy.

But before starting discussion about option trading strategies, you should first make the idea of options trading crystal clear. You must know all about stock options, their types, call options, put options, strike price and expiry dates. If you do not have good knowledge about them, it is impossible to grasp the ideas of complex option trading strategies and it is time when you start searching for more information about them.

The strategies used in options trading have wide variations. Some of them are very simple and some of them are much complex. Mostly, complex strategies consist of buying and selling morethan one optionwith various strike prices and expiry dates at once. Most of them include both call and put options on same piece of stock to be bought and sold. But generally all strategies, simple or complex, can be divided into three categories; Bullish, Bearish and Neutral. They are different in the sense of the type of market flow they prepare the trader for and the type of change in the stock price it makes profit from. Among these three types, bearish strategies depend on the price of stock to fall to make profit.

Bearish option trading strategiescan contain strategies that are very complex in nature. But the simplest strategies in this category are Short Call and Long Put options. They are very simple in nature and incorporate buying or selling only one option at once.

A short call is simply writinga single call option. It should be noted that, selling options is also known as “writing” an option. In this strategy, you write one call option at a strike price if you believe the market price will fall. In case of a successful prediction and fall in the market price of the stocks, you sell the stocks at the strike price which is higher than the market price. There is another method called Naked Call in which you do not actually own the stocks while writing the options. When the market price goes down, you buy the stocks at lower price and then sell them at the strike price. In this way, the gain is much higher but it also contains very high risk if you fail to predict the market properly.

A long put option is simply put, buying a single put option. It has lower risk on a bearish market and has high gain. If the price of the stocks falls after buying the stocks, you sell the stocks at the strike price and make profit. The Naked Put method can also be applied here and in this case, the risk is limited to only the price of the option.

So, the two strategies above are considered simple bearish strategies. If you want to know better about various other option trading strategies, you can look around in the market as well as internet. But the best method to learn about them is to seek help from various licensed firms and brokers.

Stock Options Explained – How Does Options Trading Work?

Wednesday, November 2nd, 2011

If you are a newcomer to the field of options trading, and going through the process of getting stock options explained, you might be wondering how options actually work and how they make profit. Although options trading does not require huge amount of investment as like direct stock trading, it can produce very high ROI only depending on market changes. You will be amazed to know how options trading can get almost unlimited potential of profit with a very limited amount of risk.

But at first, you need to know what stock options really are. To get stock options explained in simple words, they are just some contracts between you and the option writer. They give you the right for a future transaction of some stocks at a set price. Using this contract, you can buy or sell the stocks later at the price defined at the contract. This defined price is called strike price and it is the main element that makes the profit from the options. Also, these contracts have a time limit or expiry date, and if the transaction is not made before that the contract is rendered useless.

Then there are two types of option; one is call option which is the right to buy stocks, and another is put options giving the right to sell stocks. They both have their different ways of making profit.

Call options are simple contracts that give you the right to buy some stocks before the expiration date at the strike price. It is the most profitable mode of option if applied correctly. In this case, if the price of the stock rises above the strike price before the expiration of the contract, you can buy the stocks at the strike price and sell them at the higher market price. Your profit should be the difference between the strike price and the market price minus the price of the contract. As the market price can rise to a level of infinity, the window for profit is infinite. But if the price fall or does not rise above the strike price, you face losses which is only limited to the price of the contract.

In case of put options, getting the stock options explained is a little more complicated. In put options, you buy the right for selling some stocks at the strike price. In that case, if the actual price of the stock falls, you are guaranteed the strike price for selling the stock so there is not much loss as it would have been by selling the stock at the market price.  But if the price increases, you do not need the option as you can directly make profit from selling the stocks. Often, put options are bought alongside call options to reduce the risk of losses. Sometimes, the put options are bought for stocks that are not already owned. In that case, if the price of the stocks falls, the option holder can buy them at lower price, and sell them at strike price to make profit. But this is process possess a good amount of risk.

So, if it is clear to you so far, you must be able to see how profits can be made using options trading. If you want to get stock options explained to you even more clearly, you can try seeking help from licensed institutions and brokers. They can even provide you virtual trading environments where you can try out your knowledge.

Stock Options Explained: Call Options

Saturday, October 29th, 2011

Most of the new options trader in the market now wants various aspects of stock options explained to them in detail. Options trading is now getting more popular as a low-risk high-gain mode of investing. Most newcomers in the market at first get confused about all the terms and how they can actually make profit from it. So, they need it explained to them part by part to understand the whole idea. Here one type of option trading, call option is discussed.

For some background knowledge, options are contracts that give the buyer the right to buy some stocks at a specified price called strike price before a specified time called expiration time. It gives the options buyer only right, not obligation to buy or sell the stocks, and gives the options seller, otherwise known as options writer the obligation to buy or sell the stocks as specified in the contract. Also, every optionhas a premium or price per single stock and usually comes as a bundle of 100 stocks.

Stock options have two types. One is call option and another is put option. Call options give the buyer the right to buy the stocks and the put option gives the buyer the right to sell the stocks. So, as we are getting call typestock options explained, put options can be put aside for now.

Buying call options is very simple, and popular to new traders. It is less complicated to exercise and has high rate of income. The buyers buy call options hoping that the price of the stock will increase and they will profit from the increased price.An example can get call typestock options explainedmore easily. Suppose, the current market price of a single stock of XYZ company is 20$. If someone buys a call option of those stocks having strike price of 20$ at a cost of 1$ each, he will be spending total 100$ as the price of the option for 100 stocks. After some time, if the price of each stock goes up to 30$, the buyer will have a neat profit of 900$. The profit here is made in this way, he exercises the option and buys the 100 stocks at total 2000$, sells them at 3000$.And his profit is found by subtracting the price of the options from the difference in the buying and selling prices of the stock.

Selling or writing call options are also common. Although they are much riskier, they can yield much profit if done properly. In this case, the writer of the option sells the option hoping that the price of the stock would not increase and the option would become worthless to the buyer at the end.Thus the seller would pocket the whole price of the option at cost of nothing. Options writing can be done in two modes. Covered calls which involves writing call options for stocks already owned by the writer, and Naked Calls or Uncovered Calls which involves writing call options for stocks not currently owned by the writer. Writing uncovered calls is very risky and is advised not to be done by newcomers.

There is another point which should be mentioned while getting call type stock options explained.It is call options spread which involves buying and selling equal numbers of call options for same stocks at different strike prices. It reduces the risks but limits the window of maximum gain.

Penny Stock Trading

Sunday, July 31st, 2011

The first thing that you need to understand when looking into Penny Stocks is the fact that they do not actually cost just a penny. Penny Stocks is a term that is used by financial analysts to talk about stocks which are speculative because of their low value. The actually level of a penny stock is usually anything that is valued below $1.

There are plenty of companies out there that have stock that is worth less than $1, these are small public companies which usually get very little interest in their shares, which is why the price is so low for them.

Stock Market Option Trading-3 Winning Option Trading Tactics Revealed

Saturday, May 8th, 2010

In stock market, option is a contract between the purchaser and seller of the stock. This contract holds the contract about the right of the buyer and the obligation of the seller. The buyer’s right is that he/she has the right to purchase the stock at the price that had been settled by the seller. The vendor’s responsibility is that he/she has to vend the stock to the buyer at the price that had been agreed by the purchaser. Option in stock market is only a an agreement between stock buyer and seller about the transaction stock cost within a specified period of time. Option can be used to evade the portfolio or defend the arrangement just like how the insurance does to the property. Option can be employed to protect your money that has been invested in the stock market. Besides stock safety, by utilizing option, we can carry out arbitrage strategy, which can make profit wherever the stock price is rising, falling or side way. Arbitrage tactic is a safe strategy and it can help you make profit without gaining any loss.

Most people lose wealth in a bear market. Do you recollect the tech bubble and recession in 2000-2002? Let’s talk about three option trading strategies that can make you huge income in a bear market or collapse.

option stock trading Strategy No. 1 – Purchasing Put Options
It is fairly simple to purchase put options. This option trading tactic can even be used in an IRA account as long as you have been authorized by your broker. You desire to choose a stock, that you sense has a good prospect of going falling in price. Your risk will be narrowed to the price of the put option. For instance, stock XYZ is currently trading at $50 per share and you purchase a put option on XYZ with an expiration date of two month later with a hit price of $50. If the stock falls from $50 to $40, your put option would be worth $10 per share.

stock market option trading Strategy No. 2 – Purchasing Bear Put Spread
Purchasing a put spread is a little more complex than just buying a put option but gives you the advantage of lowering your cost but caps your income. A put spread is characterized by the trading of two same month ending put options, buying one at a given strike cost and vending the other put option at a hit price lower than the bought put option. You wish to pick a stock that you think will be falling in value. Your jeopardy will be narrowed to the price of the put spread. As an a model, if we purchase the put option as listed above but also vended a put option with a hit price of $45. In this model, should the stock plunge to $40, you would profit $5 per share ($50 strike price – $45 strike price). And since you are making less per share, your savings come in the fact that the cost of purchasing the put option outright would be much higher than the initial cost for the bear put spread.

stock option trading Tactic No. 3 – Married Put
Risk can be limited by utilizing a married put, which is a hedging tactic. This strategy consists of purchasing a stock that you believe will be good in worth and purchasing a put option at the same time to limit any losses owing to poor market movement. You might have heard the saying that there is always a bull market going on someplace. In order to benefit from this tactic is to discover what business sectors and securities go in opposition to the grain and appreciate in a bear market. Next you purchase the stocks you chose and protect your investment by purchasing a put option to minimize your losses if the stock goes south.

Finally, you can still make big profits in bear markets by searching for stocks that you believe are going to drop in cost and purchasing a put option or a bear put spread. Instead, you could buy a married put on a stock in a sector you believe is going to appreciate, thus limiting your jeopardy. Along with buying options on stocks, you can also purchase put options on exchange traded funds or index options. Exchange traded funds allow you invest in worldwide markets, commodities and currencies. It is possible to receive a huge income in a bear market. However, it is vital to comprehend the details of the option tactics, choose the proper stock, exchange traded fund or index option, and make use of a proven tactic and head off!!!.