Put and Call Option Secrets » stock trading system

Stock Option Day Trading – Day Trading Stock Bad Strategy

admin — Sun, 03 Jan 2010 03:12:23 +0000

Most people will tell you that day trading stock options is extremely risky and shouldn’t be attempted by new traders. And they are right, to an extent. Trading options can be risky even for professional traders with 20 years experience.

However, trading stock options can be a great way to leverage your investment. For a small fee, with a defined risk, you can control a large amount of stock. The primary thing to remember, options are a wasting asset. When expiration Friday arrives, the option expires. If the option is in the money, you can either use it purchase the stock or redeem the option for the premium value. If the option expires out of the money, you have lost your investment.

Most people try to guess which direction the market is going to move, will it go up or will it go down. If they guess wrong, they lose money. More people trade with call options instead of put options, because they understand going long on the market but do not understand going short.

The vast majority of traders do not utilize trading strategies such as straddles or strangles, much less condors or butterflies. As a result, they are taking on a lot more risk, with less chance of making a profit.

If the beginning trader would take the time to learn some of the various trading strategies, they would greatly decrease their risk and improve the odds of having winning trades tremendously.

Learning the complex option trading strategies is not that hard. First you learn about the simple puts and calls options. When you understand the basic building blocks, you move on to combining the various strike prices and expiration dates. Even the most complex stock option trading strategy is made up of simple puts and calls.

These strategies will reduce the risk to a much lower level. The down side to these trades is you lower the return on the trade. But if the trade goes bad, the strategy will minimize your loss. If you still have money, you can still keep trading. If you lose all of your capital, you are out of the game.

So the people that say day trading stock options is risky are correct. But if you take these simple steps, then you can lower the risk, and still maintain the leverage that trading options will provide.

Candlestick Charting Trading Strategies

admin — Fri, 18 Dec 2009 03:46:28 +0000

Trading stock options can be enticing for those new to the equity markets. Their relative low cost as compared to the price of the underlying stock is what makes them so appealing since the amount of money laid out can be enormous when purchasing stock rather than stock options. Some people even refer to the options market as the hidden penny stock market although there is no similarity between the two.

One powerful technique that can be used in tandem for the increased possibility of success is the use of stock options and trading with Japanese candlestick charts. Stock options lend themselves naturally to the swing trading style of investing. Swing trading simply means buying a stock or option and holding the position for anywhere from a few days to a couple of weeks or possibly a month or two. Swing trading options is not a long term investment strategy since options have expiration dates.

Japanese candlestick charts have been used since the eighteenth century by rice traders to predict rice prices with great success. Candlestick charts have become the most popular type of chart incorporated by traders into the financial markets, used widely in many different trading systems. Once a trader learns the basics and concepts of candlestick charts, the trader can use them to easily identify possible options trade candidates.

Support and resistance areas are very important to the options trader. Stocks follow patterns and usually trade within a wide range between established points of both support and resistance. Because stocks trade within established patterns, options traders have opportunities to capitalize on the movements between these areas of established support and resistance.

Using candlestick charts, a options trader can easily identify these important areas of support and resistance and quickly determine if individual stocks are suitable for an options trade. For example, if a stock recently fell to a strong support level, this could indicate to the options trader by utilizing the candlestick chart that a winning trade may be a possibility. However, the possibility of a winning trade is not guaranteed. A strong support area revealed by the candlestick chart only shows the options trader that the stock has visited this area of support before and has often bounced off the level rather than proceeding downward through the support level. Although chances are excellent that the stock will bounce and reverse direction at strong support, there is no guarantee that the stock will return to previous levels once the stock touches the strong support level.

Using stock options and trading with Japanese candlestick charts can help the options trader identify possible setups for profitable trades and help improve winning ratios. Candlestick charts have been used for centuries and are an important part of many trading systems among not only options traders, but day traders and forex traders as well.

Finding or Creating Your Own Options Trading System That Works

admin — Mon, 14 Dec 2009 02:29:42 +0000

Stock Options are wonderful! This clever derivative of the equities market has to be one of the most ingenious inventions of modern times. For the trader who can learn how to win at trading options, there are many luxuries in life that can be experienced.
Success in options trading requires a consistent approach for long-term success. This statement is not meant to be some grandiose, idealistic comment made by some ‘trading theorist’. Rather, it is a statement born out of the hard knock and success experiences of the author and many other long-term, successful trader contemporaries.
A “consistent approach” to options trading can also be called a “trading system”, or an “options trading system” in this case. The term “trading system” is not necessarily confined to a series of computerized “black box” trading signals. A trading system could be something as simple as “buy an option on a stock in an uptrend that breaks the high of the previous bar after at least two days of pull back down movement that make lower lows.” A trading system is simply an organized approach that takes advantage of a repeated pattern or event that brings net profits.
Since an Option is a “Derivative” of the stock you must derive your options trading system from a stock trading system. This means your trading system must be based around actual stock price movement. That said, your trading system doesn’t need to work for all stocks it just has to work for certain types of stocks, certain volatility of stocks and certain price levels of stocks – So focus your trading system on certain stocks that have price behavior that is predictable to the net results you wish to abstract from a stock.
You can develop a trading system, a trading approach, and a trading methodology by identifying a price movement pattern (or lack of price movement pattern) or some event that occurs on some sort of regular basis. This means you can trade price behavior patterns on price charts such as: traditional chart patterns, trends, swings, pivot points, boxes – or you can trade events that motivate stock price such as earnings runs, post earnings runs, stock splits, or seasonal factors. Bottom line to make the maximum profit in options trading you want your stock to move in your favor fast and you want it to move far. Just a relatively small movement in the price of a stock can double your money in options!
There are so many different strategies and combinations that you can trade with options. You can buy calls and puts for directional trades. You can employ call spreads and put spreads to trade directional movements with a buffered risk, and profit. You can sell or purchase spreads to receive the credit of the premium decay by options expiration. You can trade straddles and strangles if you expect a big move but are not sure in which direction. You can also get into ratio back spreads, condors, and butterflies. And if you’re really feeling crazy you can sell ‘naked’ options (just better use a stop loss or you’ll end up like one of my old trading buddies who ran an account to $20 million then gave it all back selling naked options.) You can go to cboe.com for more information on options trading.
Directional options trading systems are the best. Keep it simple, buy calls for and upside trade or buy puts for a downside trade. But this means you need a directional stock trading system in order to trade directional options.
Here are a couple of different approaches for directional systems:
Develop an options trading systems that trades the swings in stock price movement. There are many good swing trading systems available today. We suggest you obtain one. Bottom line with swing trading is that you want to swing trade with the trend. Options brokers these days have advanced order technology that will allow you to enter swing trades based on the price movement of the stock so you don’t have to watch this stock all day. That huge advancement to swing trading options.
Swing trade the day bars. Most swing trading systems are based on daily bars on the stock price chart.
Swing trade the Intra Day Bars! Their other fantastic systems based on intraday charts that pin point swing trading entries.
Develop an options trading system that trades three to six month trends. This is where the big money is. Trading the large trends is where many are able to place larger sums of money to develop their net worth.
Develop an options trading system that trades pivot points. Pivot point trading is arguably the best way to trade options, because price action usually is explosive, and happens quickly in our direction when a trade works.
This is good because you can use shorter-term options and leverage yourself a little better. And it’s also nice you can make great gains in five days to four weeks on average so time decay issues become less of a worry.
There are many different directional trading methods you could use to trade options. You need to pick one, work it, and never use more than 10% options position size per trade on small accounts 1% to 5 % max position size on larger accounts. This methodical way of money management trading options is the fastest way to potentially rapid account growth, helping you avoid needless setbacks.

Stock Options Trading System Provides Incredible Strategy – The Secrets of Partial Compounding

admin — Sun, 06 Dec 2009 03:51:37 +0000

Okay, now that you’ve found a good stock option trading System you are ready to rumble. You’re ready to start ‘cleaning house’ and making huge returns sending you and yours into a rapid luxurious retirement in little under a year.
Your excitement is understood. And guess what? It’s actually possible because it has been done.
We are assuming that you’ve obtained a really good stock option trading system, a method that uses excellent high probability entries, well placed stop losses and a trailing stop method of maximizing profits Now it is time to talk about the ‘good stuff’, the secrets of money management in options trading, where the real profits are created.
Options trading money management is the heart and soul of making your account grow while preventing unwelcome disasters. Trade with intelligent money management and increase your confidence.
Okay, so let’s say your stock options trading system is actually making you profits. You feel that the system can be trusted and now you are anxious to ‘up the ante’ and start making bigger returns. So what do you do next?
Well first of all, keep trading but just keep your position sizes small, for now. It’s now time to do a little tweaking with your money management of your position sizes. Doing this right could possibly make you hundreds of thousands up through millions of dollars, literally. Doing options trading money management wrong can cause you a lot of misery, pain, and suffering and wipe out your account quickly!
In essence, you want to keep your position sizes (the total amount you have invested into an options trade position) even sized and never more than 10% of your options trading portfolio (on a small account and down to 1% to 2% options position sizes on very large accounts). With options, even if you kept your ‘bet’ size the same, say 20 contracts for each and every trade, you could make a great living off just one stock even if you never increase your position size. But if you wanted to taste a little of that compounded, ‘parabolic’ growth increase your options position size by 20% to 30% max every time you double your account (never increase it to 100%!).
In case you’re reading this and do not have a profitable Stock Option Trading System or stock there are excellent systems available through doing a little reasearch. You can try and figure a system out on your own or you can short cut success by obtaining some one else’s system or service and emulate what they are doing.
Here are some basic trading system approaches that can net out consistent profits: Trade trends. Trade pivot points. Trade swings in the direction of the trend. And that pretty much covers it for successful moneymaking, directional options trading that’s worth your time.
If your profits are bigger than your losses then you have a winning trading system. You don’t necessarily have to win more than you lose. Yes you can actually make money by losing more than you win if your winners are big enough and your losers are small enough.
The issue when trading options is that when you lose you can easily take a 25 to 50% ‘haircut’ or more of your position just by simply stopping out through stock price action. This also goes to show that you will want a system that doesn’t lose too often when trading options – remember that. Plus you’ll want your winners to be able to be really big so trend and pivot point systems can perform the best.
This brings up the issue of making a fortune in options trading without losing your shirt.
There is nothing worse than making a fortune in options trading then quickly giving that fortune back. If you’ve ever done that you can understand why people jumped off bridges and have tall buildings in 1929 during the great stock market crash. It’s a most miserable feeling because you get so high and excited, and happy from your gains and then if you lose that if worse than never having had obtained it in the first place. So promise yourself now that you’ll never put your self in that position and that you’ll aggressively guard your profits at all times.
So that said let’s figure out how to grow a trading account rapidly without losing it.

Stock Options Trading Strategies

admin — Thu, 26 Nov 2009 18:00:03 +0000

The first thing that you have to know before trading in stock option is that stock options are not stocks, and just because you trade in stock that does not license you to trade in stock option by default. When you are planning to trade in stock option, you should find out as much as possible about the stock option. Search the internet and get all the possible information that you can get on that topic.

Only being aware of what you think about the option is not enough, it is prudent to know what others think about the option also. You should talk to people who trade in stock options, read books on that topic and do everything possible to keep your self abreast of all that is related to stock options. Doing this should fairly give you an idea of trading in stock option, to get some practical experience; you could also try “trading on paper”

There is no ground rule to choose the winner stock, you have to do an extensive research on your prospective company and then decide whether it is worth while to invest.

The basic things that you ought to check in the company are; 1. Company’s track record; it is important that you look at the performance of the company in the past few years. 2. Check the price of its stock and its volatility; more often than not after a technical analysis of the stock price you will be able to speculate its price movement. 3. Keep an eye on any current news such as stock split, mergers or accusations or any other investment that the company may be going in to.

In option trading, you can make money either ways. If you expect the stock price to rise, you should buy a call option. A call option is a right that the option holder enjoys, to buy the stocks of the specified company at a specified price. This specified price is called the exercise price. Now, if you buy a call option you will gain if the stock price rises, because you have the right to buy the stock at the exercise price at the expiration of the option. This way you can acquire the stock at a lower cost and sell it in the open market at the market price, there by booking profit. You can also sell the call option if you are expecting the stock price to fall. In this case there is one catch; you are exposed to unlimited loss and limited gain. Your gain is the premium amount that will be paid to you by the buyer of the option, on the other hand if the stock prices rises instead of falling then you will have to buy the stock at a higher price from the market and sell it at the lower exercise price, to the buyer of the call option. This is a naked or an uncovered call option. You can hedge yourself by purchasing a call option with a lower exercise price and a longer maturity. Similarly when you buy a put you are expecting the price to fall and when you sell a put you are expecting the prices to rise.

If you trade correctly and maintain the right balance of risks you can surely emerge a winner in stock option trading.

Trading Stock Options – Basic Option Trading Strategies

admin — Mon, 23 Nov 2009 14:21:59 +0000

If you’ve been trading stocks for some time and have never tried options, then you may want to give them a go. Stock options are more speculative but offer flexibility, diversification and control to protect your stock portfolio or create more investment income. So, here are some things you should know about options.

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.