1. The stock’s past history and movement.

2. Expected earnings reports of the stock’s parent company.

3. Volatility and volume of shares traded daily.

4. Any current news concerning the company’s growth or profitability.

5. The price of the option with respect to how you think the stock will perform. If you do not feel the stock’s movement will handily offset the cost of the option, plus the trading fees, then buying or selling the option would be fruitless.

6. Supply and demand of the underlying stock. (Industry group market action.)

Once you have decided upon which stock to pick, you next need to decide whether you believe the stock’s price is likely to rise or fall. (With stock options you can make money in either direction.)

By purchasing a Call option:

1. You expect the price of the underlying stock to rise, so you can then purchase it at the lower strike price, making a profit in the transaction.

2. You have the right to control 100 shares of stock for a fraction of the cost of purchasing the stock outright.

3. You are managing your risk by limiting the downside to the premium paid for the option. The major downside to buying any option is time decay. Your option expires within a finite period of time. If the underlying stock price behaves as expected, you will not need to be concerned about execution.

Having shown you the benefits of buying Calls over the risks of purchasing the stocks outright, we must emphasize the fact that buying short-term Calls has its associated risks as well. A Call buyer, especially a short-term Call buyer, is severely limited by the time-decay factor. The nearer to the expiration of an option, the less the option is worth, and the less time is remaining for the option to become profitable. Within the leverage used by gambling casinos (the house), the concept of short-term Call buying is completely understood, as well as exploited, as gamblers are considered short-term Call buyers.

Example: Consider your long-term Put, or Call, as a 6 to 8 month license to operate a casino. It allows you to capture short-term premiums; money that gamblers continuously give to you in attempting to beat the odds by speculating they will make profits on very risky bets. They feverishly feed the slot machines, ante up at poker, double-down on blackjack, or spin the roulette wheel. The odds are overwhelmingly against these short-term buyers. You, as the casino owner, continuously capture these short-term premiums, easily offsetting the expense of the license to operate the casino, then earning substantial, clear profits in the following months. They know the odds are with the casino owner, but they still take the enormous gamble on the slim chance they will hit a jackpot. The lottery works in the same manner.

On one side of the position, the transaction is definitely gambling, while on the other, the casino is simply engaging in business. Would you rather bet on the remote chance of a gambler’s rare, limited success, or rake in the steady, routine premiums captured from operating a successful business? Yes, occasionally a gambler does beat the odds to enjoy a limited, windfall return on his bet. For the casino owner, that is simply part of the cost of doing business. But we all know where the true, long-term profits lie. 30%, 40%, 50% and more, are common, and in short periods of time. The odds are with the short-term option seller, not the buyer.

When you choose a stock for short-term Call buying, you not only must carefully consider the proper stock for the type of option you are purchasing, you must also decide which direction the stock will move, then, that movement must occur within a specified, very limited period of time. Many investors have gone broke by attempting to make those same decisions. In short, time is not on the side of the short-term option buyer. It is on the side of the option seller.

Summary: 1. Buying stocks is risky.

2. Buying short-term options is less risky, but still risky.

3. Selling short-term options is the least risky, especially with a hedge, or insurance.

By selling a Call option:

1. You expect the underlying stock price to fall, so the option will not be exercised, but expire, worthless.

2. You can capture the entire premium that was paid to you, as profit. If the underlying stock price rises, you are obligated to sell 100 shares of stock at the lower strike price. If you do not already own those shares, you would then have to buy them at a higher market value, then sell them at the strike price, in order to meet your obligation. This situation is called a “Naked,” or “Uncovered” position, and is extremely dangerous. Anytime you sell a Call option you should consider buying the same option with a slightly lower strike price, and longer expiration date. This will reduce your profit potential, but will also reduce your risk considerably. (Remember the parallel twins, Risk and Reward

- If you want to reduce risk, you must also give up some degree of potential rewards. You may wish to lower your cost basis in the stock, to the extent of the premium received.

By purchasing a Put option:

1. You expect the price of the underlying stock to fall, allowing you to sell stock at the higher strike price, and thereby earning a profit.

2. This option is also used in a combination strategy as a hedge against selling Puts. We will explore that strategy later, in detail.

3. Buying Put options could also be used as a hedge, or insurance, against the possibility of a price drop in stock you already own. Consider the following:

You own 100 shares of ABC stock, and are concerned that the stock price could suddenly fall. You purchase a Put option on the same stock, with a strike price at current market value. If your stock falls in price, you would have the right to exercise your option and sell 100 shares of ABC stock at the higher strike price. The premium you paid for the option could be far less than the loss you would have incurred without that insurance. In this instance buying Puts acted as a hedge against the possibility of a price decrease in the stocks you already own. If the price of the underlying stock increases, your loss is limited to the premium you paid for the option. The option acts as an insurance policy against possible loss.

Selling a Put option without an opposing hedge -”Naked” You expect the price of the underlying stock to increase, causing the Put option you sold to expire worthless. You can then capture the entire premium paid to you, as profit. If the underlying stock price were to fall below the strike price, then you would be obligated to purchase the stock at the strike price, or pay the difference between the strike price and the stock price, if you do not want to own the stock. Your upside is limited to the premium received for selling the option. Your downside is potentially unlimited to the base value of whatever you could sell the stock for on the open market, or to the difference between the strike price and the stock price. This is a “Naked,” or “Uncovered” position, and should never be allowed to occur, unintentionally. Without the implementation of combination strategies, the main objective of the Put seller is to hope the option expires, allowing him to capture the entire option premium as profit. Nearing expiration, if the stock price moves below the strike price, changing the option’s value to ITM, and highly vulnerable to exercise, then the option seller must move quickly to buy back the option, perhaps lessening his profit potential, while also managing his risk. Even so, a small loss would be better than having to buy 100 shares of stock at inflated prices. Also, the loss can be immediately compensated for by simultaneously selling another Put expiring in the following month. We use OPM (Other People’s Money) to buffer downside risks, while buying more time for the stock price to rise.

Stock Option Trading, when done properly, can drastically reduce, or even eliminate, these two stumbling blocks to stock market success. In the first place, A trader of stock options never is not required to own the underlying stock in which an option is based. He or she can design a trade in such a way that downside risk is limited to the cost of the option, which in itself is a fraction of the cost of the stock. We capitalize on traders and speculators greed to get rich who purchase overvalued short term options bid up to inflated levels by an excess of demand over supply, by being the house or casino owner and capturing the inflated premium from the players or buyers. We buy reinsurance at a low cost by purchasing a longer term ( 5 to 6 months) out of the money option to sell the stock at a fixed price no matter how low it may drop. We buy this reinsurance ( puts ) to create a profitable hedge and sell overvalued puts repeatedly, month by month to bring the cost of our hedge down to zero and a credit so that we can enjoy a free ride capturing this inflated premium income. This strategy is known as diagonal put spreads and you do not need to pick a winner to profit.

An option is a derivative, meaning its price is based on an underlying asset. These underlying assets can either be stocks, Indexes or ETFs. An options trade involves giving someone the “right to buy or sell” a certain stock at a certain price by a specific time. Options help the investor to purchase stock at a lower price and to gain from a stock price’s rise or fall. If you buy an option to purchase securities, then it’s called a “call” option. If the option you buy is to sell securities, then it’s a “put” option. There is also a put and call option, whereby traders purchase both calls and puts on the same stock, with agreed prices and by an agreed date. Buying an option gives you the right, but not the obligation to purchase the asset at a specific price (called the strike price).

The hardest part of options trading is understanding all the jargon. But once you understand all the technical names, you’ll soon find out that basically what you really need to know is which way you think the stock price is going to go in the near future. Once you have an idea what’s going to happen, then all you need to do is use the right option trade to profit. For instance, if you expect a stock’s price is going to increase, then you would purchase a call option on that stock.

Options are not issued by companies like stocks are. All options that exist are “written” or sold by another trader somewhere. Therefore, you are directly betting against that person if you buy an option.

For Call options, if the price of the underlying asset is below the strike price of the option then it is “out of the money,” when the price of the asset crosses above the strike price it is called, “in the money.” This too works the opposite way for Put options. The price of the option has the greatest percentage moves when it crosses from out of the money to in the money but out of the money options also have the most risk.

So if you don’t want to risk large amounts of capital, but still want to use a smaller amount of money to gain from price variations, options trading can be the answer. There are very few risks and an option buyer cannot lose more than the price of the option, the premium.

There is much more involved with trading options, but these are just some of the most basic concepts to help you get started. The bottom line, is that options trading is something that you should only try once you’ve spent some time learning about the stock market, and if you can make decisions calmly when the pressure is on. A lot of information must be learnt before an educated trading decision can be arrived at.

Successful trading in futures, emini, stocks, options, forex or any market requires sound strategies and discipline. Actually discipline is more important than strategies. Learning the top notch strategies will not make you successful unless you are committed to follow rules strictly. Sound strategy can be applied to all markets. There are some so-called analysts in the market whose rules apply to one market only and at particular time. Objective analysis covers every market pointing out multiple opportunities in a week for day trading as well as swing trading. If you manage your risk effectively you can do daytrading or swing trading in any market. Rules are usually same in every time frame whether it is emini, emini futures, commodity trading, futures trading, options, stocks. Stock trading itself presents numerous opportunities because there are countless stocks in stock market. Another huge market is a currency market. Currency trading usually called forex trading offers huge potential of income if you know how to limit your risk. Many reputed brokers are now offering forex trading. The key is how you discipline yourself and follow rules all the time.

Another mistake of new traders is to trade live immediately after learning to trade. Paper trading with discipline could give huge amount of confidence over a period of time. What differentiates successful traders from failed traders is right decision at right time. Tough mindset is required to trade every market in every time frame.

To illustrate the concepts, let’s go on a shopping trip.

You’ve been thinking about buying a MacBook Air, Apple’s thinnest laptop, for a few days and you’ve done some research to find the best deal. You head for the mall on Saturday and spend most of the day trying to find the lowest price. This turns out to be $1799 for a 2.13 GHz MacBook Air.

Suddenly you realize that you have a dinner guest coming this evening and need to get groceries. Fortunately, the nearest store is right in the mall. Unfortunately, you discover that you forgot to bring your credit card and need to pay cash for the groceries. This leaves you with $150 plus some change.

On the way to your car you discover another electronics store, and to your amazement, the 2.13 GHz MacBook Air is advertised at $1499. Not believing your eyes, you go in and the store manager confirms the price but says that they have only one unit left. How are you going to nail down that price without sufficient cash and without a credit card?

You ask the store manager if he will hold the unit for you in return for $100, and that you will return in two hours to purchase at $1499. If you are not back in two hours, the store manager can sell it to someone else.

You make a written agreement, signed by both parties, that the unit cannot be sold to anyone else for next 2 hours but only to you at $1499 in exchange for $100, and that the $100 is forfeit if you do not return within 2 hours.

You have just engaged in “Options trading” The following options trading terminology should now make a lot more sense to you.

Options Contract – is what the note is called that you and the store manager just signed.

Underlying (underlying stock/share) – is the MacBook Air 2.13 GHz that you have agreed to pay ($1499).

Strike Price – is the agreed upon purchase price (in this example $1499).

Call Option – the type of contract in this example is a “Call Option.” It gives you the RIGHT but not the OBLIGATION to buy the MacBook Air. In order to exercise the “right to buy” you must return within 2 hours, and the store manager must sell it to you at $1499. If you change your mind, you do “not have an obligation” to buy. You simply don’t return and lose your $100 hold money.

Option Expiry – for this example the expiry is 2 hours, meaning that the option contract will cease to exist after 2 hours.

Option Premium – this is the $100 hold money you paid. It’s the cost to enter into this contract. This is not a deposit against the purchase price, but money the store will keep either way for providing you with the convenience. So, your effective purchase price will be $1599, which is still better than the $1799 “best deal” you had identified earlier, and it is the reason you entered into the contract.

Long Call and Short Call – for this example you have the “Long Call” since you are buying the contract for $100, and the store manager has the “Short Call” since he is selling the contract and gets to keep the $100.

Now let’s evaluate the risk exposure for both parties to the contract:

Your risk is limited to the $100 hold money you paid, i.e., a Long Call Option buyer’s risk exposure is limited to the premium paid. If, hypothetically, the price for the MacBook Air tumbles to $1000, then there is no way you would return and purchase it for $1499! If, hypothetically, the price shoots up to $2599 within the 2 hours, then your immediate profit would be $1000.

The store manager, on the other hand, has unlimited risk and limited profit potential. A Short Call Option seller’s risk exposure is unlimited while the profit potential is limited to the premium received. Yes, he gets to keep the $100 in case of a price drop where the buyer is not returning to purchase, but if the price for the MacBook Air shoots up to $2599 within the 2 hours, he stands to lose a lot of money because he cannot sell it to someone else for the revised price.

Hopefully, this will have taken some of the mystery out of options trading and its lingo. As illustrated by our example, we are engaged in these types of transactions in some form or other in our daily lives. We’re just not aware of it. As you gain knowledge and practice, it will come to you quite naturally.

At TradeGreeks we focus on educating investors in the world of options, where profit potential is unlimited and is not restricted to a bull market. We have created options trading strategies that are so strong and so predictable, that we can solidly stand behind an unprecedented guarantee: You will get the return we promise, or your money is refunded with no questions asked.

Visit us at http://www.tradegreeks.com for more options trading articles and register for a free membership.

This was an article from our series ‘Covert Life of Investment’.

After completing this process, you must choose between several available broker-services specialised in online trading. The cheapest solution to your problem is an execution broker. This type of online trading service provides only an electronic transaction option consisting in buying or selling shares or stocks, without any stock futures prevision, counselling or any other advisory support in finding realistic market trends.

Like all the participants in the stock exchange, you can only decide between three types of operations. The first one is buying, while the others are selling and holding. The single time when you require a broker is when you decide to buy or sell. You don’t need the assistance of an online trading broker to hold your personal stocks or already established stock futures.

The most important advantage in having an online trading account is the enhanced speed with which you can either buy or sell stocks. Of course, you’ll have a limited period of time to transact your stocks or stock futures, but once you get accustomed to the online trading market, you can start earning big money.

Obviously, this is normally easier said than done! To become an ace in the online trading of stocks and in the online trading of stock futures you must frequently analyze (usually daily) the prices’ evolution caused by the development in the leverage balance between demand and offer. This market leverage is widely generated by the market-makers or as, they’re also known, “big fish”. The market-makers are powerful companies that operate on the stock market and set the value for a specific stocks-class (for instance coffee). One of their main goals is to gain control and implicit wealth by speculating in online trading of stock futures. This way, they can raise their income by using the variation leverage of the stock market value in the online trading of stocks system.

The average stock holders and participants both in online trading of stocks and in online trading of stock futures don’t normally have any chance in front of these market giants. Of course, this is not the case for you! Now, there is help available for you on the Internet. You can choose among many free online trading services provided by PhD specialists in the evolution of the stock market.

The online trading of stocks has become an extremely appreciated occupation for many “nine to five” working class citizens who have rapidly transformed into expert stock holders. To add more points, the even more complex online trading of stock futures has generated even more “over the night” millionaires.

Nowadays, online trading has become one of the few domains in which you can start with little, and quickly earn a fortune. This is a real opportunity available for almost anyone! You only have to think of a realistic plan in buying or selling shares for the online trading of stocks or for the online trading of stock futures. It’s a great chance you should not miss.

Reviewing: INO TV’s Online Trading Education 

Learning in the financial industry is a lifelong process. The complexity of the global marketplace and the level of competition amongst traders and investors means on-going education is not an option but rather a necessity. INO TV has given me the online trading education I need to maintain and grow my skills. If you have been investing or trading for a while no doubt you have seen symposiums or other educational programs you have wanted to visit but couldn’t because they were too pricy or offered at the wrong time. In some circumstances you may be interested in learning a specific subject but cannot find a great resource. On INO TV you will find in excess of 1000 hours of online trading education resources in their digital library. INO TV is audio and video online trading education available 24 hours a day.

The educational material of INO TV is categorized into eleven channels tailored to a traders or investors interest. The Channels are:

Channel 1 – Beginners  

Channel 2 – Charts & Analysis 

Channel 3 – Currency Trading 

Channel 4 – Day Trading 

Channel 5 – Futures/Commodities 

Channel 6 – Money Management 

Channel 7 – Options Trading 

Channel 8 – Market Psychology 

Channel 9 – Spread Trading 

Channel 10 – Stock Trading 

Channel 11 – Trading Systems

Regardless of your motivation in online trading education its likely INO TV has programs for you. A search tool is incorporated into INO TV to help traders and investors find the material that interests them the most. In case you have a question or a problem their toll free support number is accessible to answer your questions. One quarterly or annual enrollement entitles you to their entire library and there are no hidden fees. If you want to evaluate INO TV for at no cost there are spotlighted videos you can watch to give you an idea of what INO TV has to offer. I would also encourage you to visit the INO TV Premium page and browse through the channels to see what’s available. This will give you an idea of the richness and depth of online trading education available on INO TV.

Learn about Free INO Online Trading Education Videos Here

Learn about Premium INO Online Trading Education here

Some of the experts I enjoy viewing are John Murphy, Martin Pring, Larry Williams, and Mark Cook but there are a variety of others. At last count I saw 138 professionals online and new programs are being added all the time.

Bottom Line: If online trading education is significantto you INO TV is the greatest resource you will find anywhere.  

www.sealionllc.com

Every day, scores of novice options investors get burned. It’s not because they’re bad investors, it’s simply because they’re not following the rules. There’s no question that options are tricky – it can take years to learn precisely how options work – but that doesn’t mean that understanding the options game is out of reach, or that it’s relegated to the big guys on Wall Street.

Despite their complexity, there’s plenty of reason to pay attention to options. Options provide incredible amounts of leverage with relatively limited downside. That leverage means that a relatively small increase in a stock’s share price can turn into a potentially huge gain in an option for that same stock. Just look at shares of the ProShares Ultra S&P 500 ETF (NYSE: SSO), a 5.3% climb in that stock over the course of just two days in July turned into a 28% profit for investors who bought one strike of that fund’s September call options.

Put these four must-know rules into play, and your chances of booking profitable options plays increase exponentially…

1. Think About Value, Not Just Price

Most people think that options prices (also known as premiums) are tied to the prices of their underlying stocks, but that’s not entirely true. Like stocks, options trade on the open market, which means that technically, options investors themselves set the prices of options through their

bid and ask prices.

That doesn’t mean that you’ll see an option trading way out of line with its underlying, but it’s certainly not uncommon to see examples of options prices that don’t mesh with what their values should be.

That’s because unlike a mutual fund or ETF, which is priced based on the value of its assets right now, options take extrinsic variables, like the time value of money into account. There are a number of ways to value an option, including the Black-Scholes model and the Monte Carlo method, but if you want to avoid the mathematical formulations, most financial websites and trading platforms can come up with an option value almost instantly. Use that price as a starting point when you decide if an option is worth your time.

2. Don’t Get Greedy, Use Goals

“Hogs get slaughtered.” No, that’s not some sort of farmyard to-do list, it’s a phrase Wall Streeters use to remind each other – and themselves – that greed is the fast track to serious losses. It’s all too common for investors to hang onto a winning position too long, hoping for a few extra points, only to see those gains reverse themselves. That’s especially true of options, where a position can swing from a double-digit gain to a serious loss overnight.

Now, that doesn’t mean that you should sell your positions off as soon as you’re up more than 5% — goals are the secret to beating this pitfall. Get a grip on greed by setting your target gains before you enter a position, and stick with them unless something fundamentally changes in the underlying stock.

3. Take One Play a Week

The only way to make money on options is to play them – and to keep making options plays, even if you’ve just picked a loser. After your first bad trade, it’s incredibly easy to give up and just stick to stocks. But that’s a huge mistake. The only way to learn how to use options profitably is to use them often, so always try to make a new trade every week.

If money’s the issue, it shouldn’t be. There are scores of “paper trading” platforms out there – many of them free to use – that let you make hypothetical trades without risking your real-life capital. Trading paper for a while can help build your options investing skills until you’re ready to put your cash back on the line.

When deciding on which paper trading platform to use, it’s best to go with a broker. Many brokerage firms (including Thinkorswim, Scottrade, and optionsXpress) will let you test-drive their actual trading platforms with a practice trading account. Using the real platform means that the gains you get in the virtual world will mirror the gains you can expect when you switch to real money – and it also means that you’ll get used to your broker’s software and tools.

4. Understand Options Greeks

When you hear traders talk about the Greeks, they don’t mean Plato or Socrates.

They’re talking about the series of calculations that are used to determine the value of options. The calculations are designated by various letters of the Greek alphabet, from which they get their name.

On our agenda today is delta.

Every option, whether call or put, has a delta attached to it. Generally you can find this information on your broker’s Web site.

A call has a positive delta, and a put has a negative one.

If an option is at the money, usually the call option will be a delta of +.50 and the put option will be -.50.

Thus, if the GBP/USD is currently trading at 1.6400, the 1.64 call option has a delta of +.50 and the 1.64 August put option has a delta of -.50.

As the pair moves up in value (that is, the sterling appreciates against the dollar), the sterling calls will increase in value. As of this writing, they are trading at $2.51 x $2.63. With the delta at +.50, that tells us that for every penny the sterling increases in value (which would be measured as 100 pips), the option will increase 50 cents. Thus the delta is the measure of the rate of change in the value of the option as compared to the value of the underlying asset.

The reverse is also true. If the spot price fell 1 cent, or 100 pips, the value of the put option would increase by 50 cents.?We also have another inverse relationship to consider. If we are holding put options and the spot price increased, the value of the put option would FALL by 50 cents. Same is true of the call. A 100-pip or 1-cent decrease in the underlying spot price would make the option fall by 50 cents.

So if the pound is at 1.6400, and we are looking at the August 1.64 calls, let’s say we go ahead and we buy them right now at $2.63 ($263). We believe the sterling is going to rise and the options are going up in value. If the spot price goes to 1.6500, we can expect the call option to move up 50 cents in value to $3.01 x $3.13, giving us a return of 38 cents per position.

However, at that level, the delta has changed (actually it always changes as the price changes, but for the sake of simplicity we won’t go into that detail). At this point the delta is nearly +.60. So now for every cent the spot moves up, our option will increase by 60 cents. By the time that the call option is deep in the money, it will have a delta of 1.00. That means that for every 100 pips, or 1-cent move, in the spot, the option will move a corresponding 100 cents. The same is true for a deep in-the-money put. It will eventually reach its maximum delta of -1.00, at which point it will move in lockstep with the spot price.

How does this help us? Mainly in terms of entries and exits that we would like to plan in advance.

You Have Options

There’s no question that investing in options comes with a steep learning curve. That said, profitable options plays don’t have to be a faraway goal. Invest in options using these four rules and you’ll be well on your way to seeing profits from your calls and puts.

Cheers,

Bill Jenkins

After completing this process, you must choose between several available broker-services specialised in online trading. The cheapest solution to your problem is an execution broker. This type of online trading service provides only an electronic transaction option consisting in buying or selling shares or stocks, without any stock futures prevision, counselling or any other advisory support in finding realistic market trends.

Like all the participants in the stock exchange, you can only decide between three types of operations. The first one is buying, while the others are selling and holding. The single time when you require a broker is when you decide to buy or sell. You don’t need the assistance of an online trading broker to hold your personal stocks or already established stock futures.

The most important advantage in having an online trading account is the enhanced speed with which you can either buy or sell stocks. Of course, you’ll have a limited period of time to transact your stocks or stock futures, but once you get accustomed to the online trading market, you can start earning big money.

Obviously, this is normally easier said than done! To become an ace in the online trading of stocks and in the online trading of stock futures you must frequently analyze (usually daily) the prices’ evolution caused by the development in the leverage balance between demand and offer. This market leverage is widely generated by the market-makers or as, they’re also known, “big fish”. The market-makers are powerful companies that operate on the stock market and set the value for a specific stocks-class (for instance coffee). One of their main goals is to gain control and implicit wealth by speculating in online trading of stock futures. This way, they can raise their income by using the variation leverage of the stock market value in the online trading of stocks system.

The average stock holders and participants both in online trading of stocks and in online trading of stock futures don’t normally have any chance in front of these market giants. Of course, this is not the case for you! Now, there is help available for you on the Internet. You can choose among many free online trading services provided by PhD specialists in the evolution of the stock market.

The online trading of stocks has become an extremely appreciated occupation for many “nine to five” working class citizens who have rapidly transformed into expert stock holders. To add more points, the even more complex online trading of stock futures has generated even more “over the night” millionaires.

Nowadays, online trading has become one of the few domains in which you can start with little, and quickly earn a fortune. This is a real opportunity available for almost anyone! You only have to think of a realistic plan in buying or selling shares for the online trading of stocks or for the online trading of stock futures. It’s a great chance you should not miss.