Archive for the ‘Option trading education - beginner’ Category

« Older Entries

An Option Trading System for Anyone

Wednesday, December 9th, 2009

Whether you are a beginner or an experienced options trader, it is likely that you see all kinds of offers, websites, and publications that promise to deliver the optimal option trading system. Do you think this is possible? Could a single set of steps be used over and over again to generate wealth and provide top-notch results?

If you have already been experimenting in the markets you know that the answer to those questions is going to be both yes and no. This is because market conditions are never consistent, and a single system or approach cannot always meet the needs or goals of every single investor. There are some approaches, however, that can implement a set of steps to reduce risk and protect wealth.

While no single approach can always be used, there is a way to use an option trading system that can succeed every single time that it is implemented. This is because there are some universal strategies that can usually deliver great results. What is important about these strategies is that they have been created to meet the needs of market conditions, and it is up to the individual investor or trader to be able to recognize the conditions when they are occurring.

What all of this translates to is the fact that any option trading system requires a great deal of understanding, knowledge, and education about the financial world and about options trading in general. It also requires some planning and goal-setting if an investor and their broker are to know that their efforts are a success and that they are on the right track. Why is that? If you don’t create some goals (i.e. – we want this option trade to hedge the value of this bullish stock) then you cannot measure the outcome properly.

Any sound system begins with the establishment of the basic goals or results desired. Consider that someone might implement some option trading tactics to create a stream of immediate income while someone else might be using options as a way to slowly improve their long-term capital investments. These are two very widely varying directions and they will not often be achieved through the same techniques.

For example, the person hoping to achieve a steady stream of current income is not likely to want anything to do the LEAPS (or Long Term Equity Anticipation Securities) because these tend to have expiration dates far into the future.

A good system or approach to using option trading to improve a portfolio will include some assessment, research and preparation, and will always look at the requirements of the investor as the primary guide.

VN:F [1.6.9_936]
Rating: 0.0/10 (0 votes cast)

Popularity: 4% [?]

Tags:
Posted in Getting started in options trading, Option trading education - beginner | No Comments »

Developing a Stock Option Trading Strategy

Wednesday, December 9th, 2009

Before leaping into any sort of discussion about the development of a proper or successful stock option trading strategy it helps to first accept one cold, hard fact – you must do the research. Without knowledge about the particular underlying asset you are fundamentally operating while blindfolded, or in other words, you are just guessing.

Naturally, any investor is going to have their own opinions and personal outlook, but the facts and the data are going to usually indicate where any particular issue is headed. This means that one of the first steps for any serious investor to make is to conduct thorough research about the vehicles in which they intend to place their money.

Options trading means knowing when to buy a “call” or a “put” option, and what to do with it before it expires. This is actually the very foundation of any stock option trading strategy because it is the primary way to make money in this venue.

In all reality, the true “strategy” comes from knowing what to do with any investment in the face of market trends. For example, common option trading knowledge says that a bullish market or stock requires the purchase of call options because the asset is going to gain in value. This is usually referred to as a long call strategy. On the flip side, when a market or particular issue is declining (known as being  “bearish”) most investors set out to purchase put options. This is referred to as a long put strategy. Either way, the investor is usually hoping simply to see the item move far enough in the given direction to both cover the cost of the premium and to deliver a profit.

If the above paragraph is confusing in any way, it is quite likely that you need to enhance your knowledge about options trading. This is actually the key part of any sound strategy because an investor cannot make the right choices without first knowing all of the “basics” of options trading. Even if you are planning to hire a brokerage or financial firm to help you with developing your portfolio, you must understand what it means to operate in options trading if you are going to see the greatest returns.

Once you understand whether buying or selling options are right for the particular issue and current market trends, you will also need to understand any other factors that might affect the outcome of the investment. This is best done through study; and modern investors have the Internet as well as formalized, guided programs to help them reach their goals.

VN:F [1.6.9_936]
Rating: 8.0/10 (1 vote cast)

Popularity: 31% [?]

Tags: ,
Posted in Option trading education - beginner | No Comments »

Getting an Option Trading Education

Wednesday, December 9th, 2009

There is an old adage that the best way to learn is “by doing”, but this is not necessarily a universal truth. Consider those who jump into the financial markets without any underlying knowledge or experience. More often than not they see their small nest eggs disappear almost instantly and their hopes dashed. With something as simple as an option trading education, however, these same people could have started small and slowly learned how to craft a successful portfolio that had a ton of risk management built into it.

In the modern world there are many different ways that people can enjoy the learning process. There are colleges offering degree programs entirely through the online experience, there are seminars sponsored by a huge number of organizations and institutions, and there are also self-guided study programs available on the Internet or through the purchase of software packages.

For someone hoping to get an option trading education the choices are quite diverse. The Chicago Board Option Exchange makes all kinds of educational and informational materials available through their website, but so too do many other groups and organizations as well, including colleges, financial companies, and even some brokerages.

What would something like an option trading education actually involve? There are many varieties, terms, models, strategies and theories around options trading, and it behooves anyone who intends to seriously enter into the markets to know as much as possible.

While some people think that they can accurately gauge which direction an index, commodity, or particular stock might be heading, to make a savvy option investment requires a great deal more than just a valid opinion. For one thing, a good investor needs to know all about the “moneyness” of their decision. They must also consider the time until the investment expires, and any possibility for unexpected volatility.

All of this translates to a need for education, and someone who hopes to financially flourish in this particular area is going to have to really understand where to find accurate data and information about those underlying assets for which they intend to purchase options. They must also know the right strategies for any point in time. Consider that a level market that is viewed as somewhat neutral can still yield returns if the investor understands the various approaches available to them.

A good and thorough education is going to look at the buying and selling of options, the various strategies, the vast range of terminology required, and the most modern approaches to actually beginning to participate in trading.

VN:F [1.6.9_936]
Rating: 0.0/10 (0 votes cast)

Popularity: 4% [?]

Tags: ,
Posted in Option trading education - beginner | No Comments »

How to Explain Option Trading

Wednesday, December 9th, 2009

Before jumping into any new form of investment, it is important that you are able to thoroughly understand the activity. For instance, can you explain option trading? If it is something that you will direct your nest egg or income towards, you must be able to understand exactly what it entails.

Someone who is able to explain option trading will certainly have a very clear understanding of the basic terminology, procedures, and strategies. This is not as simple or even as “basic” as it sounds. Option trading is a somewhat unique approach to leveraging information and creating a certain level of risk management, and it doesn’t even have to involve the purchase of a single stock, security or commodity.

If you can explain options trading clearly and in very few words then you are probably a good candidate to begin participating in this lucrative approach to investing immediately. If you find that an explanation is a bit too difficult to tackle, however, you may want to spend some time doing research, participating in a few classes or seminars, and developing a much clearer and adequate base of knowledge before you make your first investments.

One major mistake made by millions of investors is to simply hand over their hard-won income to a trader or brokerage without first understanding what is going to be done with their money. Even if a financial professional explains what portion of the portfolio is going to be directed at options trading, it is not good enough if the actual investor doesn’t really know what it means.

So, what is a basic explanation of options trading? Without entering into a huge amount of detail, suffice it to say that an option is a contract between a buyer and a seller. The buyer is purchasing the “right” to buy or sell at least one hundred shares of an underlying asset (which could be a stock, commodity, or other financial vehicle) at a predetermined price. The seller or “writer” is obligated to honor the terms of the contract.

How does this work in the world of financial trading? It is actually very simple – let’s say you are a buyer who believes a particular stock is going to rise in value by a certain time period. You approach a writer in order to purchase a “call option” to buy that stock at a fixed price before a certain date. If you exercise the option you can purchase that stock for the guaranteed price, or you can just sell your option for the profit. While that is the most streamlined and overly simplified explanation, it does indicate the way that options can be used to leverage risk.

VN:F [1.6.9_936]
Rating: 0.0/10 (0 votes cast)

Popularity: 38% [?]

Tags: ,
Posted in Option trading education - beginner | No Comments »

Learn How to Trade Options

Wednesday, December 9th, 2009

If you are someone involved in the financial markets you are probably seeking at least one way to manage your risk. Whether you have a large amount of money available, or you have a small nest egg that you would like to improve, you should take the time to learn how to trade options.

Why? They are one of the rare opportunities that can allow someone to make money from declining values or a “bearish” market just as easily from a bull market that is on the rise. You will be able to see some great returns with only a small amount of investment, and may never even need to own a single share or commodity. In fact, most active traders rarely exercise their options to buy or sell a particular stock, and will simply take their profit by trading out of the option instead.

When you learn how to trade options you will be able to use your market research to leverage your actual investments without further expenditures on stocks, securities, or other underlying assets.

Where can you learn how to trade options? The Internet is a fantastic resource for some basic information and tutorials, but if you want step-by-step guidance it is always advisable to investigate formal training through a valid agency.

For instance, the Chicago Board Option Exchange is the center of the options exchanging world, and was the first to offer listed options in the early 1970s. They provide interested investors with a large array of instructional and information materials about their activities, and how to participate in them profitably.

Although you may be considering the use of a brokerage for your options trading activities, it is a much wiser choice to first ensure that you have a solid understanding about the issue. Consider that there are many different strategies used by successful traders, and there are times when specific activities are far more beneficial. For example, you should know that a good “put” buying strategy is the wisest course of action during an extremely bearish market, while a good “call” buying program is what to follow during bullish periods instead.

If you cannot easily define such terminology, strategies, and theories describing options trading, you cannot reasonably begin the process of using this approach to portfolio enhancement. Visiting a few websites, understanding the language connected to the practices, and knowing where to find good research materials will help you to develop sound strategies, or work with your broker in the most effective and productive ways possible.

VN:F [1.6.9_936]
Rating: 0.0/10 (0 votes cast)

Popularity: 1% [?]

Tags: ,
Posted in Getting started in options trading, Option trading education - beginner | No Comments »

Sound Strategies for Options Trading

Wednesday, December 9th, 2009

Although there are many recognized strategies for options trading they are not of value if they don’t guarantee some basic results. For example, options trading was first implemented as a means of helping investors to find some new ways to hedge investments or manage risk in their portfolios. This means that it is an approach to investing that reduces risk and costs while also protecting profits and allowing a bit of diversity.

This also means that strategies for options trading are extremely wide-ranging. Consider that an investor is going to have to have a good and reliable technique to apply when they are holding a somewhat bullish stock in a market that seems to be a bit shaky or unreliable. The same investor may need to determine what to do with items that are remaining neutral or even beginning to decline. Generally speaking then, most strategies for options trading should be able to build wealth regardless of market conditions – this means that they are supposed to do more than just insure against loss or hedge current holdings.

So, how do you develop strategies for options trading? The primary step in creating some infallible plans is establishing goals. It is impossible to draw a map without an actual destination in mind, and this applies just as equally to the creation of any investment strategy that relies upon options trading too.

While knowing where to go is essential, the terrain or conditions must also be taken into consideration too. This usually requires a bit of study, research and education because options trading can be a bit trickier than it might initially appear to be. Consider that an investor considering the purchase of a call option is going to have to look at the strike price, the expiration date, and the premium that the seller is requiring. Only by making a fully informed decision can the investment be an assured winner regardless of current conditions.

Of course, the information required for a sound investment will also usually include a few other details such as the “moneyness” of the option and the implied volatility that can usually bump up the costs as well. Such factors tend to indicate that the investor has to have a good bit of knowledge around the option too, and how it is expected to perform over the short term.

For example, the strike price and expiration are usually flexible and if the investor knows that an asset is going to rise dramatically in a short period of time they can use their established system or strategy to make the right decisions.

VN:F [1.6.9_936]
Rating: 0.0/10 (0 votes cast)

Popularity: 2% [?]

Tags: ,
Posted in Option trading education - beginner | No Comments »

Understanding an Options Trading Strategy

Wednesday, December 9th, 2009

Do you know what an options trading strategy is? If you work with a broker and have an investment portfolio then you may want to take some time to understand this concept. Just like the rest of the financial market, the options trading industry requires the investor to have an understanding of current conditions, the performance of their holdings, and any anticipated changes that might yield (or lose) income.

Clearly this means that an options trading strategy is necessary for the most beneficial results. The main question then is how to go about developing a strategy? That requires clear-cut goals and plans, but options trading is such a flexible activity that it can help all kinds of investors to meet their goals.

Consider that there can be an options trading strategy in place for times when the markets take a nose dive, improve dramatically, or even when they remain stable or neutral for a long period of time.

Perhaps it is best to first explain a bit about the various activities available to those who are interested in options trading, and how these can be strategically used towards the meeting of financial goals.

In the world of options trading, the investor can choose to both buy and sell – just like those working in the stock markets. The main difference is that those selling and buying options may never have to actually own the underlying assets. Instead, they are working with legal contracts around the performance of those financial vehicles and then gaining or losing financially based on the terms of the contract.

For example, an investor may believe that a particular stock (for which they do not own any shares) is going to increase dramatically in value over the course of the coming weeks. They do not, however, have the income to make the investment in the actual stocks at the current time. Instead, they purchase a “call” option that guarantees them the opportunity to make a purchase of the stocks at a fixed price for a specific period of time. If the stock does indeed spike in value before the option expires the investor can either make the purchase at the significantly lower price, or they can sell the option for a profit instead.

This exchange is not free of charge, and this is where a good strategy must be in place in order to identify if the “strike price”, the “premium” for the option, and the “expiration date” on the contract will all add up to the amount of profit desired.

VN:F [1.6.9_936]
Rating: 0.0/10 (0 votes cast)

Popularity: 15% [?]

Tags: ,
Posted in Option trading education - beginner, Options trading resources-general | No Comments »

Using an Options Trading System

Wednesday, December 9th, 2009

If you are an investor or financial professional who insists that they have a single, appropriate options trading system you are probably way off the mark. This is because there is no single way to accomplish the many different goals required by modern investors. Consider the improbability of a single system being able to manage risk, leverage assets, hedge a single investment and function in a bull and a bear market in the same way. It just isn’t possible, but there are some tactics that have withstood the test of time and of wildly fluctuation financial scenarios.

For example, there is a standard options trading system or approach for times when a market is extremely bullish. This is known as the “call buying” strategy which can be easily implemented by seasoned and amateur investors alike. It simply accepts that overall market conditions as well as the price of a single financial vehicle are on the rise. The investor then considers the likelihood that a single item will increase to the required amount before the expiration of the option. If the math works and the investment or option will yield the desired results, the deal is done.

Of course, this is one of the most basic options trading systems, and there are dozens of other reliable strategies that can be implemented for bearish, bullish, and even neutral markets. The thing that helps to make a system or strategy applicable and appropriate is that it meets the goals of the individual or the broker.

Because there are so many different ways to create wealth from options trading it helps to make a thorough study of the various methods found to be the most successful. Obviously this is not something that can be done in a matter of hours, and is often helped by the availability of study guides, interaction with peers or teachers, and even through formal classroom work. There are all kinds of websites and organizations that offer such valuable information, but it does pay to first assess the goals of the student or individual.

For example, a good two or three day seminar may offer more valuable information to an experienced professional than an enormous software package would. This means it is important for the student to formally understand their needs and goals before committing the time and money to their studies. One outcome that should be looked for through any course of study (whether it is a lengthy guided study or a simple seminar) is the guarantee that the student will understand how to yield returns on options regardless of all current market conditions.

VN:F [1.6.9_936]
Rating: 0.0/10 (0 votes cast)

Popularity: 6% [?]

Tags: ,
Posted in Option trading education - beginner | No Comments »

A Straightforward Day Trading Education Isn’t Impossible

Thursday, November 12th, 2009

If you’re attracted to the idea of becoming a day trader, you will quickly find that your eyeballs are coveted by dozens, if not hundred, of day trading education programs.  Many of these programs come with so many bells and whistles they practically drive themselves over to your house and fold your laundry.  However, when all you want to do is understand how day trading works and how to make money, the pile of systems and tools can be frustrating.  Fortunately, a straightforward day trading education isn’t impossible to find.

1. Start with the Fundamentals

To get your feet under you, start with the fundamentals.  Ignore courses promises complete expertise or overnight millions.  Look for less flashy materials that emphasize understanding the core mechanics of exercising a trade, managing your cash flow, and profiting even after commissions are deducted.

You’ll also want to take time to learn the relevant trading terms for each market in which you trade.  There are a number of quizzes and other programs to ensure that you understand all of the lingo and the different trading functions you can execute.  Skip these basics, and you could suffer some embarrassing losses later.

2. Add as You Learn

Once you have the basic terms and principles under your belt, you will be ready to start adding layers.  Set a rule for yourself that you won’t launch another day trading education course until you’ve master the current set.  This will keep your educational program linear and manageable, without overwhelming you with data.

When you master one topic, test yourself before moving on to the next.  Don’t hesitate to build your own resource library, either.  Reading it once and remembering it later isn’t always easy, and when the pressure’s on you will appreciate having your own reference material and notes handy.

3. Suit Yourself

As you add strategies and work through different day trading education programs, you will undoubtedly uncover some strategies that seem to work better for you than others.  Some traders are better at rapid-fire systems and like executing multiple trades a minute.  Others prefer a more moderate pace, foreign stocks, bonds, and so on.  Find the niche and the trading style that best matches your personality and get comfortable with the fit between your style and the system.

Many traders feel that this is one of the most important elements of a day trading education—finding your style.  They insist that a system only works as well as the person running the system, and that you will trade more comfortably and profitably in a system built to accommodate your personal style.  Try several to determine which is the most appropriate for you over time.

4. Continuously Study the Craft

Finally, you will want to ensure that you build time into your trading schedule to continually study the craft.  Between regulatory changes and market swings, there is always something new to learn.  Shutting yourself off from new strategies and techniques limits your profitability over the long term, and can make you unprofitably arrogant.  Always seek to improve and enhance your skills!

VN:F [1.6.9_936]
Rating: 7.0/10 (1 vote cast)

Popularity: 100% [?]

Tags: , ,
Posted in Option trading education - beginner | No Comments »

An Options Trading System to Cut Losses

Thursday, November 12th, 2009

One of the main principles of any successful options trading system is to hold onto your gains and cut your losses.  Some traders even consider this to be the most important principle of trading.  Unfortunately, the heavy losses suffered by options traders year in and year out indicate that many people are not adhering to this principle.

Fortunately, there is an options trading system you can use to cut your losses and walk away a winner—even if things aren’t going according to plan.  In fact, this particular trading strategy is designed to protect your core investments against adverse market movements.

Known as protective equity puts, this options trading system works with your existing stock portfolio.  It functions as a way to arrest a downward slide in share price—at least for your personal portfolio.  It is an effective strategy to use if you are worried about market uncertainty or future falls and would like to get a bit of insurance to protect yourself against a heavy financial loss.

To use this options trading system, you need to identify the stocks in your portfolio that you are bullish about in general, but worried about overall.  Although protective equity puts have traditionally been used only on individual stocks, they can also be used for ETFs and some index funds.  In this way, you can get insurance on most of your existing portfolio.

Once you have your list together, you will want to determine what percentage of each position you would like to protect with puts.  Most traders opt to insure the entire position, although depending on your reasoning and motivation for being in the stock in the first place you may opt for a partial put option.  Either way, remember that protective equity puts are sold in units of 100 shares, so you will want to even out your investments accordingly.

The next stage is to bookmark your current share prices.  This will serve as a reference point on your protective equity puts.  You will want to buy your protective equity puts for a share price that is just below the current share price of the stock.  These puts give you the right to sell your holdings at the price you’ve lock in at a future date.

Depending on your confidence in the market, the size of the investment, and the market trends you are working with, you may choose short term or long-term contracts for the puts.  If you want to lock in profits as you go, you can choose shorter dates for the puts and renew them at slightly higher share prices as the underlying stock rises.

If the stock goes down, with the protective equity puts in place you will be able to close out the position with a relative small loss.  If you determine that even at the lower price you’d like to keep your holding, you are under no obligation to sell it and can simply let the protective equity puts expire.  Its an options trading system that many stockholders over look, but it can protect you against financial ruin.

VN:F [1.6.9_936]
Rating: 9.0/10 (3 votes cast)

Popularity: 5% [?]

Tags: ,
Posted in Option trading education - beginner, Option trading education - intermediate, Trading put options | No Comments »

« Older Entries