Put and Call Option Secrets » Online Trading

Commodities Trading Options – 10 Best Buying Options For Commodities Trading

admin — Tue, 26 Jan 2010 02:50:11 +0000

Commodities can refer to anything–food stuffs, barrels of oil, sacks of nuts, metals, and so on. But when you are referring to buying options for commodities trading, it is advisable to give priority to those associated with the futures market. These can be–crude oil and its derivatives, coffee, sugar, copper, gold, wheat,etc.
The market for commodities never remains steady; it is subject to rise and fall, based on changing demands and supplies. You have to indulge in a lot of speculation before you can actually think of parting with your money. If the decision is impulsive, it is an invitation to losses; well-thought out, lots of gains!
So how are you going to decide which are the best buying options for commodities trading?
(1) Buying options for commodities trading is a common strategy practised even by experts in the arena, since it has proved to be a generator of huge revenue.
(2) Again, a word of caution here! If you have invested your money in the hope of getting instant results, then it would be advisable not to go in for buying options for commodities trading. The value of these options expires over a period of time. And if you have chosen the most expensive ones, you may find yourself on the loser’s side in case things do not go right!
(3) So start with less expensive options and in a small way. It is easier to take risks if the amount you may lose in the face of probable losses, is small. With more experience and constant practice, it will become easy to pick up winning situations and get profits.
(4) Develop an attitude of objectivity. Seasoned veterans suggest that the best thing to do is to purchase the stock and forget all about it, instead of worrying about it every waking moment of your life! Do not try to force a transaction to take place. After all, patience is the name of the game!
(5) A little bit of research is required to decide the buying options for commodities trading. The best way to find out which options are trustworthy, is to check out the history of that particular commodity. Charts related to its performance over the last ten years or more, should suffice to give you an understanding of its ups and downs.
(6) If some commodities have been at their lowest levels for some years or have been in scarce supply, these options can prove to be profitable.
(7) After you have found such commodities, buy out-of-money call options which hope to last for at least one more year before expiring. Hopefully, the values of these options should rise soon.
(8) Next, search for call options that have recorded losses since the corporates controlling them have been indulging in mass sales. Or these commodities have simply refused to go higher in value. If these commodities are so dependent on market movements for their success, remove them from your list. They are too volatile!
(9) Yes, professionals or experts do dole out good advice. But sometimes, they can be too dampening and prevent you from trading at all. You do not want to end up in depression because nothing is happening! Do take their advice, but also learn to make your own decisions. After all, at some point or other, you do have to be on your own! As a matter of fact, even ignorance can work in your favor at times!
(10) Keep an eye on the movements of the market. When the prices rise, dispose of 25% of your stock. At least, you will get some profits from buying options for commodities trading. Newspapers also comment on commodities–see if the ones you have purchased are also mentioned. The rest of the stock is to be disposed off when the market becomes parabolic.

Enhanced Strategies For System Trading

admin — Sat, 23 Jan 2010 02:53:35 +0000

Enhanced Strategies for Trending Following System Trading

Proper trade management for system based trading is vitally important. Today’s commodity markets are moving with higher levels of price volatility and risk than in the past. Within a market’s overall trend there exist many short-term correction moves or spikes in volatility that warrant close attention. The implementation of a proper enhanced entry/exit strategy can greatly improve a system’s overall performance.

First Things First! Not a week passes that I don’t speak with someone who is frustrated or completely disheartened by lackluster results from a system or program promising otherwise. With the evolution of system based trading and its availability in the public domain, I have witnessed an explosion of systems in the financial arena. Distinguishing good trading solutions from poor ones can be a daunting task. Here are a few basic tips to have in mind when selecting a strategy.

The strategy must have an actual track record of performance. Does the system developer trade his/her own strategy with his/her own money? Does the real-time performance of the system correlate with the hypothetical or back-tested performance figures? If the answers to these questions are yes, then you’re off to a good start.

A good trading system will have outlined proper capitalrequirements based upon current risk exposure (defined by current market volatility and markets traded). Such capital requirements will change as a function of changing market conditions. Trading strategies with fixed startup requirements based upon historical draw downs are not necessarily accounting for risk.

Good trading strategies will manage trades in accordance to current market conditions and levels of risk. Trading systems that manage trades in a fixed manner are not properly accounting for risk. Just as market conditions change so should trade management.

Enhanced Strategy: As with all things in life, trend-following systems have weaknesses and strengths. The most notable weakness with trend following logic is its inability to account for sudden changes in market dynamics, often created by temporal news and short-term changes in market psychology. Such changes lead to “giving back” of potentially measurable open trade profits. Those who have experience with mechanical trading systems know how disheartening this can be. You may have witnessed systems do a reasonable job of electing winning trades only to return most, if not all of those winnings, or worse yet, “stop out” at a loss. In my experience a combination approach is best. Even with the best of trend-following systems, the “human element” of an experienced trader can greatly improve a system’s performance (winning rate). This is achieved by proper trade management or proper use of an enhanced entry/exit strategy with respect to current market conditions.

Some General Enhanced Entry/Exit Strategy Tips: 1. Understand your system’s weaknesses and strengths and the markets traded. I start by doing a portfolio analysis of each individual market to determine the size of the average winning/losing and largest winning/losing trades. This familiarizes you with the general landscape of the market(s) territories, trading marks and measures. I don’t suggest you entirely abandon the mechanical nature of a sound trading system. For example, you wouldn’t trade against the direction of the trend or the system’s signal. Upon entry, sound enhanced exit strategy logic based upon the market’s dynamics can improve overall winning rate and bottom line.

Often times markets will pull back after a signal has been generated providing a lower risk point of entry. Although, you may run the risk of missing out of a move the probability of this happening is generally very small. Markets don’t move in straight lines, and often with a little patience provide better entry points, thereby reducing risk. Those of you who have strictly followed a trend-following system’s breakout signals have likely noticed this to be true.

Once a position has been elected I police for anything, both fundamental and technical that could negatively or positively impact my open position(s). I have been in positions that had large or unusual price action following the effects of news or other market concerns, which were rarely lasting. Such events occurring in your favor creates the opportunity to secure quick and potentially substantial profits, which are usually short-lived. Doing so not only locks in profits but allows you to reconsider the same position after the market re-adjusts. Often when a market reacts to news or concern it will commonly re-adjust as quickly as it reacted, so you must manage positions closely.

Outside of news and knee-jerk reactions, once my average profit per trade has been achieved and or exceeded, I again turn to the technical and fundamental conditions surrounding the market to determine the validity of the elected trade and trend. If it appears the underlying market is trading in a range, experiencing strong support/resistance or simply isn’t maintaining the original bias, I will look to take profits. I’m most interested in capturing at least 50% of any positive trend or move the system elects. Typically, a trend system on auto-pilot (100% mechanical) will capture less profit (or in some cases turn winning trades into losers). This is because from a trend-following system’s perspective, a price pullback against the trend’s direction is necessary to signify the end to a trend. During this pullback or “giveback”, profits are left on the table.

There are times the markets will simply defy enhanced management and you will miss part of a larger move. However, remember this is a rarity. Range-bound or sideways markets are largely the cause of draw down and “give back” for trend following systems. It has been debated as to the frequency that markets will trend. Typically markets trend somewhere between 10% and 40% of the time while going through periods of consolidation the rest of the time. Reducing risk with enhanced entries and wisely taking profits off the table with the use of enhanced exits can greatly improve your net result and your overall experience with trading.

A Final Word: Over the years, I have discovered some sound and effective trading systems in the public domain but even these trading systems have limitations. Such limitations can in part be overcome with the use of proper trade management. It takes most traders years of experience to properly implement such enhanced entry and exit strategies. However, with patience, discipline, and an open mind one can learn to master this approach. Such strategies will undoubtedly prove to be invaluable and lead to more success with trading.

Disclosure: There is a substantial risk of loss in trading futures and options. Past performance is not indicative of future results. No system or trading program can guarantee profits or freedom from loss.

Forex Beginners Reading: Make Money in Foreign Currency Excahnge

admin — Thu, 14 Jan 2010 02:50:17 +0000

I bet you are well aware of the existent of FOREX trading nowadays. FOREX market exists wherever one currency is traded for another. FOREX, or Foreign Exchange Market, is generally works as an international currency exchange market. Investors and speculators are allowed to trade currencies from all around the world thru FOREX trading. Major currencies traded nowadays are United States dollars, Australian Dollars, Japanese Yens, British Pounds, Swiss Francs, Canadian Dollars, and the Euro Dollars.
FOREX is a very unique type of trading where traders are buying and selling ‘money’ in the same time. The trades are done in pairs, such as Euro/JPY, USD/CHF, and CAD/USD. It is the world largest trading market where an average of $1.9 trillion trades is done on a daily basis. The turnover rates in FOREX are nearly 30 times larger than the total volume of equity trades in United States.
Despite its large volume of trades done daily, FOREX is relative new to the publics nonetheless. It is only made available to publics in year 1998 where big sized inter-bank units are sliced into smaller pieces and offered to individual traders like you and me. Before that, FOREX is a game only for banks, multi national cooperation, and big currency dealers. Only those with large business size and strong financial background were permitted to trade foreign currencies.
As a matter of fact, large international banks are still the major traders in currency exchange market. Deutsche Bank is one of the top currency traders; along with other major banks like UBS, Citi Group, HSBC, Barclays, J. P. Morgan Chase, Coldman Sachs, ABN Amro, Morgan Stanley, and Merril Lynch; these banks are said to be responsible for more than 70% trades in currency market.
If you are new to FOREX trading, I bet the FOREX quotes will confuse you. USD/JPY 119.8, EUR/JPY 127.95, EUR/USD 1.2385/1.2390, and GBP/USD 1.7360/65 these figures are just too complicated.
While FOREX quotes might looks like Greeks to the new comers, the concept behind of it is simple. Currency quoted in pairs simply means the relative value compare to the other. Always remember, currency listed at first in a FOREX quote has a constant value of 1. If you see USD/JPY 119.8, this means 1 USD (the first currency listed has a constant value of 1) is equal to 119.8 Japanese Yens. The currency USD in our example is known as base currency; while we normally call the currency listed in the second as the counter.
When you are trading FOREX with currency dealer, the FOREX quotes might look a bit different from our previous example. Often, a two-sided quote, consisting of ‘bid’ and ‘ask’ price, is listed when dealing with currency brokers. For example, EUR/USD 1.2385/1.2390: 1.2385 is known as the ‘bid’ price while 1.2390 is commonly known as the ‘ask’ or ‘buy’ price. The ‘bid’ is the price at which you can sell the base currency; while the ‘ask’ is the price at which you can buy the base currency. As you study the numbers, you might realize that the two-sided currency price is quoted against you. Traders are forced to buy the currency in a higher price than the selling one. This is done because FOREX trades are done without any commission chargers. Thru quoting currency ‘bid & ask’ price differently in this way, the currency brokers are manage to make profit without charging their client commission fees directly.
Strategies in FOREX trading: Fundamental analysis and Technical analysis
Fundamental analysis refers to the study of the core underlying elements that influence the economy of a particular entity. As in FOREX trading, government policies, bank policies, natural disasters, and speculators mood are some of the fundamentals considered to predict the currency market trends. Fundamental FOREX traders will review a country economy’s situation base on these fundamental elements and respond accordingly. To gain max, fundamentalists often apply precise method to convert study’s results into accurate entry/exit price indicator.
Instead of reviewing on the fundamental issues, traders from technical side define market movement according to data purely generated from the market. The term ‘Technical’ is applied in all trading fields, from commodity stocks exchange to option trading, from FOREX to futures.
Generally, the purpose of technical analysis is to find potential price reversal or pivotal points. These points basically refer the change of market trends, which then indicates when to enter or exit from the market. It is important to know that as with any other techniques in your trading system, these technical analysis indicators could be used alone or with other indicators. Traders are always recommended to learn more different technical methods to analyze different market data because none of these techniques are 100% accurate and 100% foolproof. Taking example of the ‘price’ data and the ‘time’ data, which are widely used by FOREX trader. There are some techniques consider solely on the ‘price’ factor, while some solely rely on the ‘time’ factor. The fact is if you know both technical methods, you can take both price and time into consideration during estimating market future trends. This will of course then reduce the risks of losing money in FOREX market. Also, it would be wise if traders combine both technical and fundamental techniques when trading FOREX, as a country currency value depends a lot on fundamental variables such as war, change of national leaders, terrorism attacks, as well as natural disasters.
Without a doubt, FOREX is gaining its popularity fast against other kind of trading. No limited market access, no liquidity issues-after market hours, zero commission fees, low capital requirements with high leverage rates, and no restrictions on short selling — FOREX can be very beneficial to a variety of people. Like any other trading business, if you are new to it, best advice you can get is to learn and practice more before you test your ‘wings’. Forex trading course, seminars, eBooks, Internet, papers, all these are helpful to raise your confidence level before you trade with your real hard-earn dollars. Plan your investment wisely by investing first on yourself; you shall get your reward at the end of the road.

Forex Autopilot System – Best Forex Software For Beginners?

admin — Mon, 11 Jan 2010 02:48:35 +0000

The Forex Autopilot System has gained an increasing popularity due to its consistency and ease of use, making it the best forex software according to many.

I agree up to some point that the Forex Autopilot System may be the best or at least is among the best automated softwares available to the masses for a reasonable price, and probably the best option for a beginner based on four basic reasons:

1) When I first purchased and installed the Forex Forex Autopilot System I was no expert trader, and even so I was able to set it up and put it to work in less than 30 minutes on a paper money account.

2) The creators of this forex software offer online support, which I used once to learn more about some configuration options and I got a quick response to my inquiry.

3) The Forex Autopilot System comes with a money back guarantee, which gave me peace of mind at the time of purchase as I knew I could use it for 8 weeks with no risk at all.

4) This forex software performs with a high level of accuracy and effectiveness, and it goes completely on its own, meaning that it trades and makes money without me doing anything. This is definitely one of the best features.

I currently use two softwares and I have also taken several online trading courses, and it would be only fair to say that the Forex Autopilot System is one of the best performers within my forex toolbox.

This software can and will make you money even if you know nothing about forex trading. With the Forex Autopilot System you can gradually turn a small investment into a small fortune, just make sure you follow all the instructions and take your time to familiarize with the system in order to properly squeeze all its potential.

So You Think You Know Option Trading?

admin — Fri, 25 Dec 2009 15:04:11 +0000

We all know that many opportunities exist in Option Trading today. Wherever you turn, someone is waiting to inform you of the tremendous profits to be realized within the stock and the futures markets. Nevertheless, many people are unaware of the derivative trading possibilities that are available within and across several different markets.
Option Trading is just one of the leading many ways to participate in such type of secondary markets. And in contrast to the popular belief, this potential trading arena is not limited strictly to the practice of selling or writing options.
Option Trading is an important element of investing in markets, serving a function of managing risk and generating income too.
Contrasting to most other types of investments today, Option Trading provides a unique set of benefits to its clients. Not only does Option Trading provide an economical and effective means of hedging one’s portfolio against adverse and unexpected price fluctuations, but it also offers a tremendous exploratory dimension to trading.
One of the foremost primary conveniences of Option Trading is that an option contracts enable a trade to be leveraged, allowing the trader to control the full value of an asset for a fraction of the actual cost.
Then since an option’s price mirrors that of the underlying asset at the very least, any constructive return element within the asset will be met with a greater percentage return resource within the option provides limited risk and unlimited reward.
With Option Trading the buyer can only lose what was paid for the option contract, and not a penny more, which is a fraction of what the actual cost of the asset would be. However, the profit potential is unlimited because in Option Trading the option holder possesses a contract that performs in sync with the asset itself.
If the outlook turns out to be positive for the security, so too will the outlook be for that asset’s underlying options. Option Trading also provides their owners with numerous trading alternatives. Option Trading can be customized and combined with other options and even other investments to gain the benefits of any possible price dislocation within the market.
Option Trading enables the trader or investor to acquire a position that is pertinent for any sort of market outlook that he or she can have, and then be it bullish, bearish, choppy, or silent. It doesn’t matter at all.
Risks Involved In Option Trading
While there is no disputing that Option Trading offers many investment benefits, it also involves risk and is not for everyone. For the same reason that one’s returns can be large, so too can the losses.
Also, while the potential for financial success does exist in Option Trading, the means of realizing such opportunities are often difficult to create and to identify. With dozens of variables, several pricing models, and hundreds of different strategies to choose from, it is no wonder that Option Trading and its pricing have been a mystery to the majority of the trading public.
Quite often, in Option Trading a wonderful deal of information must be processed before a knowledgeable trading decision can be reached. Computers and sophisticated trading models are often relied upon to select trading candidates.
However, as humans, we like things to be as simple as possible in Option Trading. This often creates a conflict when deciding what, when, and how to trade a particular investment. It is much more easier to buy or sell an asset outright than to challenge with the many extraneous factors of these derivative markets.
If an investor thinks an asset’s value will appreciate, he or she can simply buy the security; but if an investor thinks an asset’s value will depreciate, he or she can simply sell the security. In such scenarios, the only thing an investor must worry about is the value of the investment relative to the value of the prevailing market. If only Option Trading were that easy!
Generally, Option Trading is more awkward and complicated than stock trading because here the traders must consider many variables aside from the direction they believe the market will move.
The effects of the passage of time, variables and delta, and the underlying market volatility on the splendid price of the Option Trading are just some of the many items that traders need to gauge in order to make informed decisions. If one is not prudent in one’s investment decisions, one could potentially lose an enormous number of money trading options.
Those who actually ignore cautious and sound money management techniques often find out the hard way that these factors can promptly and easily grind down the value of their Option Trading portfolios.
Due to the risks and benefits, Option Trading offers tremendous profit potential above and beyond trading in any other device, including the underlying security itself. This is the moment at which theoreticians enter the picture. Once the benefits have been defined, it is then just a matter of determining how to matchlessly attain them.
Up till now, the vast majority of Option Trading techniques have been elaborate mathematical models designed to help identify when option writing or selling opportunities exist.
On the other hand, we hope to break used ground by introducing simple market-timing techniques to Option Trading that will enable the traders to buy options with greater confidence and with greater success in Option Trading.

Options Trading – Benefits of Leverage

admin — Mon, 21 Dec 2009 15:00:30 +0000

Options are riskier to trade than stocks. That’s fairly well known. And we’ll get into why.
Since options have an expiry date the investor has to make a choice within a relatively short time frame. This adds risk and complexity to the trading scenario.
Also, since options are derivatives, they have no inherent worth. Their value is determined by the value of the underlying security. They can move in sharply different directions from the underlying asset. One can short a stock or go long, but once bought the value of the shares is known. Even after you purchase options, their value is often solely ‘time value’, they’re worth money only because some event may occur in the future, such as a rise in the price of the asset.
But they also offer significant advantages over stocks! And that’s why they’re so exciting to trade.
And one of the characteristics that make them so interesting to many investors is that a trader can make use of the power of leverage.
And the word “Leverage” is no accident. It comes from the word “Lever” . Think back to your Physics classes. You probably learnt how levers can help a small person lift a very large weight. By placing the pivot point at the right spot (close to the heavy object and far away from the person) the small person can lift up a much heavier object! The force the person exerts is “multiplied” by the lever.
Well this “multiplying” effect is exactly what leverage does in trading as well.
The basic idea is that an investor can control a very high valued asset for a much lower investment amount. e.g. An investor could control $2000 worth of a security with an investment of only $200.
Suppose INTC (Intel) is trading at $24 on a given day. A trader who anticipates that the price will rise can purchase one options call contract which confers the right to buy 100 shares.
That call option, with say an expiration date in three months time with a strike price of $26, will cost somewhere around $3. (The ’strike price’ is the pre-set price at which the shares have to be bought if the option is exercised.)
If the shares were purchased outright, even at the lower $24 price, the investment would cost $24 x 100 shares = $2,400 (plus commission). But by buying the call option instead you invest $3 x 100 shares = $300 (plus commission) and control the same number of shares. That ratio, $2400/$300 = 8 is the “leverage”. You have control of an asset that is worth 8 times more than what you’ve invested.
Why is leverage such an advantage?
The answer is that, though the investor takes on the risk of losing the premium (the cost of the contract), that multiplier effect operates on profits in just the same way as it did for the costs. A smaller movement in value of the overall assets controlled becomes a much larger movement in the smaller amount invested.
Suppose INTC rises above the strike price ($26) to $31. If you purchased the shares directly at $24 per share, with $300 to invest, you could only purchase 12 shares. (12.5 if you have a plan that allows fractional share investing, but part of that will go for a commission.)
Your profit on the trade would be (ignoring commissions) 12 x ($31 – $24) = $84. If instead you had purchased an option on 100 shares, your profit would be (($31 – $26) – $3) x 100) = $200.
You had to pay more per share, and the premium reduced your profits, but you controlled many more shares. The net is still considerably higher.
It’s important to remember, though, that leverage also works on losses in the same way. If INTC had fallen in price, but you were obligated to a strike price of $26. So exercising the option would cost you by that same factor. Under those circumstances, traders simply let the option ‘expire worthless’, limiting the loss to the amount of the premium or 100% of your investment…
So treat leverage with respect. But when you have it working for you it can be a huge ally in helping you make tremendous profits trading!

Options Trading – Everything You Wanted To Know

admin — Mon, 21 Dec 2009 02:27:39 +0000

Options are basically a form of security that you can purchase and then trade with on the markets. Normal stocks are used in their consideration.
A lot like future trading, options give you a right, but do not oblige you to buy the underlying stock against a predetermined price and specific time in future. You make a profit when the market value of the stocks that you hold, rises higher than what price you bought them at, and if it happens before the expiry of the agreement. Of course, if the market value goes lower than the purchase price you lose your money.
There are two categories of options – the put and the call. You go for the call when you are expecting the prices to go up, and you invest in put when you expect the opposite..
The best thing about such trading is, since you are working within an agreement of predetermined rate and time limit, the risks that you face are at a minimum.
Call options are generally considered more beneficial to an investor. When you sell put options, the values of options you laid out on the table are all yours if no one buys in the specific time frame mentioned in the agreement.
Stock options have been named so because they are in fact options. The way they are traded with is unlike any other form on the markets.
They are usually traded at a premium price, in other words, at a higher than normal value in the markets. It is well worth the extra investment, since the risks are considerably lower.
At times, people wait for the last minute before they sell, in the hope that their stock value could go higher. This is definitely not a very good strategy. In fact you may even lose more money than you would have if you had sold well in time.
Options are in fact distributed for many reasons, but here are some of the more common:
- Companies hand them out to their most deserving employees as benefits
- Organizations make their top workers ‘partners’ by handing out stock options, thereby making them more involved in the welfare of the company
- They offer these as an incentive to lure new workers to their offices
Get as much know how on the markets, and go for stock options to make good profits. Remember not to invest more than what you can comfortably handle in case you lose out. The stock business has made many a millionaire and it has also ruined many a rich person. As long as you stick to your strategy you will be safe. Never for a minute get greedy and invest money you hadn’t planned on using.

Options Trading – Calls and Puts

admin — Mon, 21 Dec 2009 02:27:38 +0000

Options are contracts on an underlying trading instrument such as shares of stock, bonds, a commodity, a mortgage loan and many others. However, there are common features among all options. It does not matter if it is a share of stock or a mortgage loan; they all have certain things in common. One such commonality is the contract feature that specifies what the option owner has actually contracted.
Options traders have two situations that may influence their buying and selling: calls and puts. There terms are used to indicate specific behaviors of options at various points of the option’s life.
CALLs
A call bestows on the contract holder the right to purchase an asset at a particular price on or before the option’s expiration date. This is only a right to buy, it is not an obligation. The call owner always has the choice to allow the option to expire. This does mean that all the initial money that was invested in purchasing the contract is lost, but the choice still stands.
Call buyers are gambling on the underlying asset’s behavior; that it will increase in price before it reaches its expiration date. Also that it will not only rise, but will rise significantly enough to show a profit.
In order to show a profit, the price must rise enough to cover the difference between the market price and the strike price. The strike price is that price at which the stock must be bought. But, because the option has a cost attached to it, the price must exceed that amount enough to cover the additional amount. This cost is referred to as the premium.
The premium of an option, whether call or put, is determined by a variety of elements. These include, but are not limited to, the price of the underlying asset, the strike price and the time remaining on the option.
The time remaining on an option is vital. The shorter the time remaining, the greater the risk and vice versa. For example, if there are 90 days left to exercise an option, the risk is somewhat lower than if there was only 1 day left. This is because within that 90 day period the price could rise enough to show a profit. With just 1 day remaining, however, the odds are considerably lower.
For example, on April 1, MSFT (Microsoft) has a market price of $27. Call options for June 30 are selling for $3 with a strike price of $30. One contract for 100 shares is purchased.
If the contract is held until the expiration date, the trader either loses $300 ($3 X 100, the initial price of the contract not including commission) or the trader can purchase the underlying stock at $30. If the current market price was $35, then the trader has profited by $200 ($35 – ($30 + $3) = $2 per share X 100 shares, sans commission).
When the market price of a share rises above the strike price, the option holder is “in the money.” If the market price drops, then the holder is “out of the money.”
PUTs
A put gives the option buyer the right to sell an asset at a particular price by a specified date. Again, like a call, this is a right, not an obligation.
Put buyers are anticipating the stock prices to fall before the option’s expiration date. Therefore, in such cases, the market price must drop below the strike price in order to show a profit from exercising the option. For simplicity purposes, the cost of the put is ignored. Under those circumstances the option holder is in the money.
Still using the previous example, maintain the same situation, but this time the option is a put. If the market price falls to $25, the profit would be as follows:
First, $3 x 100 = $300 = Cost of put, excluding commissions.
Purchase 100 shares at $25 per share = $2,500 this is to repay the broker ‘loan’ (this broker loan is a part of shorting stock which is borrowing shares you don’t own, then repaying later).
Sell 100 shares at Strike price = $30, 100 x $30 = $3,000
Profit = ($3000 – $2500) – ($300) = $200.
It is the broker who handles the underlying mechanics. All the investor has to do is order the trades at a given time and date.
Wise investors do their homework and research their strategies, no matter if they are investing in calls or puts. Options trading does present risks and is rather complicated when compared to simple stock trading, although all trading contains an element of complication and risk. But investors in this line should study the history, volatility and other vital factors of both the option contract and the underlying asset.
A trader should never enter the market blindly and trade without doing the proper research first. The failure to do adequate research and go into the trade informed puts the trader at a must greater risk of losing money and not showing a profit.

6 Great Tips On Stock Options

admin — Thu, 03 Dec 2009 14:28:03 +0000

When you go through pages of newspapers , you probably read about some senior company executives who receive stock options as a package within their compensation.
Stock options are, basically like stocks and shares traded on the market. However, they are different in the sense that these are the rights to trade some shares, at a preset price during a set and precise timetable.
1. The stock option trades are quickly becoming popular
However, be advised that more frequently than anything else, stock options are being undertaken by grants to individual and only a few deserving individuals.
They are like monetary incentives that can be encashed by the employee whenever he lchooses to do so. But, the deadlines are generally not too long.
2. Matters relating to stock options grant trends
One of the issues regarding stock option trading is the question on the date of grant of such stock options.
Because they are typically granted to senior managers, some analysts are suspicious about the timing of the issuance of stock options.
If reports are to be believed, then the time they choose to grant these options coincides usually with the low market value of the stocks, letting them give out that many more stock options. The employees may then hold on to the shares until their values are on the rise again.
This issue and the problem with stock options is currently being reviewed and discussed by the various regulatory agencies throughout the world.
3. Trading with stock options
Wondering how you could trade using stock options? Trading becomes easier than conventional stock trades.
4. You will find many traders willing to deal with stock options on the market
Stock options are named in such a manner because they are in fact options. They are not treated as the normaly stocks and shares, and they have a special place in the market.
The prices are also somewhat different for the most part to the current situation and the other existing stock prices. Generally stock options are sold at a higher than normal share value.
5. Lingo
The world of stock options trades has its own jargon and lingo. Be aware of terms like do and call, when you are dealing with options trades.
‘Call’ means buy. “Put ‘means sell. Thus, when purchasing stock options, you are said to be trading call options. On the other hand if somone says you are trading put options, it means that you are putting up your options for sale..
6. Easy, right?
The expiry date is the agreed deadline set by both sides on when the options would need to be sold. The option must not stay too long in an investor’s hands because they become void once the expiry date is through.

Commodity Options Trading – Learn 4 Commonly Used Terms

admin — Thu, 03 Dec 2009 03:35:56 +0000

The markets for trading commodities options are just a venue where the producers of various goods are provided a chance to trade a commodity at preset and fixed rates. This is a lot like a farmer who’s given an opportunity by an insuring firm, the rights to collect on a specific plan and given that his property catches fire, traders of the commodity options could also sell their own options at a set cost if existing market rates fall.
There are two different kinds of basic commodity options. One which takes the job of insuring the products in the event their present market price lowers, whilst the other one insures the products which are bought when the price is high.
Buyers at the commodity option market do hold the rights but not an obligation to exercise the options.
One thing to be kept in mind is, if a member decides to sell beans for $5 per sack, the commodity option market is like one that provides him the opportunity to do that by giving the rate which has already been decided upon. If every sack is right now priced at only $^ each, in such case the commodities option trader has the chance to sell his products at only $6 in which case he makes a dollar on every sack.
Commodity options have 2 basic divisions: the option to call and the option to put. The call option provides one with the right to purchase the underlying commodity, whilst the put option provides you the rights to sell the existing underlying commodity, keeping in mind the predetermined cost of sale.
Some of the usual sale jargon includes:
1. The Underlying commodity
This does not in fact point to a commodity itself, but to the futures agreement for those particular wares. For example, the option for the month of December corn is in fcat the option for the December delivery time of the corn’s futures contract.
2. The Strike price
The cost that was preset and determined before the options were handed out is called the specified price or also the strike price. This is the rate at which underlying commodities may be bought or sold at any given time with in the period in the options contract.
3. Expiration
The values of the commodities options are based only on the future contract of the underlying commodities. Therefore, there is a set date when the options are predicted to mature and to expire. Option traders can thus choose to hold their asset until the last instant in the hope of getting a bigger sum for their option, but analysts warn one against that, as the longer you stick to the option, the more are the risks you may face.
4. The Option premium
By that we mean, the amount which is paid to the options writer in order to get the rights given in the options. It is decided on by public voting and more often than not, changes every single day.