Option Trading :
Options Transactions
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| Investing in options can be risky, and investors should know about these risks. Part of the risk arises from the fact that options are complicated, so here is a simplified explanation. |
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Option Trading :
What is Options Trading?
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| Options can seem complex, but the following information, along with the Glossary available at the left, will help you to understand the terminology of the option markets and some of the basic concepts. |
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Option Trading :
Managing Volatility Risk in Your Option Trading
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| Many customers I talk to, particularly beginners, seem to focus almost exclusively on the price of the underlying and time left in an option when assessing the risk of an option trading. However, no one that trades options should ever enter a trade without being aware of the current volatility situation, and understanding how likely changes in volatility would affect the trade. OptionVue 5 has tools and information that let you manage your risk effectively -- and balance risk versus reward. Neglecting volatility can cause you to seriously underestimate the risk involved in a potential option trading. |
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Option Trading :
The Move From Stock Trading to Option Trading Isn't a Slam Dunk
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| Stock option trading traders have always been faced with the additional work of not only correctly predicting the underlying security's price, but then also choosing the appropriate option trading strategy. But most stock traders mistakenly figure they can easily make the transition from stocks to options. As easy as falling off a log, right? Maybe not. There are differences that traders need to keep in mind when making the transition to options tading. |
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Option Trading :
Master the Four Fears of Option Trading
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| Merriam-Webster's dictionary defines fear as "an unpleasant, often strong emotion caused by anticipation or awareness of danger, going on to explain that fear...implies anxiety and usually the loss of courage." This definition of fear is useful in helping define the issues that traders face when coping with fear. The reality is that all traders feel fear at some level, but the key is how we prepare to address our concerns related to taking on risk as a trader. |
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Option Trading :
Strategies to Generate Income
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| There are two primary strategies I would consider as an options trading seller in search of consistent cash flow. The first strategy is known as covered call writing (to "write" an option is to sell an option). The second approach is known as naked put selling. The strategies are relatively similar, and are detailed below. |
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Option Trading :
When an Option Trading is Needed
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| Forex and futures contracts can be used as a way to hedge firm committments. However, as soon as you deal with a potential commitment, it might be dangerous the use firm commitments -that's what they involve- for hedging purposes. As shown, forex and futures contracts are often used by somebody who needs protection against the risk of a price change. |
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Option Trading :
Company Stock Options Trading - The Real Story
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| Two of the clearest mistakes in the determination of a company's earnings per share are the accounting rules for goodwill amortization and for company stock options. Beginning in 2002, the accounting for goodwill amortization will be handled correctly (no longer treated as a deduction); in time, stocks option trading will likely be treated more accurately as well (no longer ignored as a deduction). |
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Option Trading :
Option Types
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| Option Types - Introduction
Whilst there appears to be an extraordinary and confusing array of forex options the majority of them fall into just a few categories. From these basic building blocks more complex and tailored structures are engineered to meet the hedging needs of end users. Calls and Puts
Since in every forex transaction one currency is bought and another is sold the same is true of option trading transactions. |
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Option Trading :
Option Trading Pricing Dynamics
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| The most famous option trading pricing theory work was done by Black and Scholes. Their work has been subsequently modified for valuing options in a number of markets (e.g. Garman-Kohlhagen for currencies, Black for futures, the Binomial model for American option trading). The basic idea of these models is to specify the condition that a dynamic hedge should be able to be created between an option and the underlying instrument, and then to use the fact that the resulting riskless portfolio should earn the risk-free rate. |
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Option Trading :
Forex Option Trading
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| Options on forex trading? It's really no different to options trading on shares, real estate or whatever. The basic premise is that the buyer of an option has the right but not the obligation to enter into a contract with the seller. Naturally the option owner exercises this right when it is to his/her advantage. Currency options specify a forex contract and give the owner the right to enter into the specified contract during a pre-agreed period of time. |
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Option Trading :
LEAPS as an Alternative to Buying the Stock
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| LEAPS are an attractive alternative to stock ownership. Not only do they have a better risk/reward profile, inexpensive LEAPS are easy to find and thus come with an inherent edge. LEAPS stands for Long-term Equity Anticipation Securities. As far as I'm concerned, LEAPS are just long-term options -- longer than the standard listed options. The only other thing special about them is that the exchanges consider them securities and allow brokerages to lend you up to 25% of their value. Not all brokerages honor this, however, and I wouldn't take advantage of it if mine did. |
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Option Trading :
Buying and Selling Volatility
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| Options are like a 3D chess game. The three dimensions are price (of the underlying), time, and volatility. The most misunderstood and neglected dimension, and often the last thing a novice trader learns about, is volatility. |
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Option Trading :
The Beauty of V-Trading
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| Volatility trading, called V-trading for short, has two attractive sides. First, there are always trading opportunities no matter what’s going on in the general market. More importantly, there are always positions you can take that place the odds in your favor. I enjoy going to Las Vegas, but the odds there are definitely not in my favor! That’s why V-trading is better, way better. |
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Option Trading :
Why Futures Options?
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| Equity option sellers should consider futures options for one very big reason…more liberal margin requirements. This difference between the two worlds, equities and futures, is so dramatic that expected returns can vary more than two-fold on duplicate spreads in corresponding chains. For the option seller, this can mean big money. |
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Option Trading :
Sitting on your Hands? Consider Call Backspreads
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| The tech markets looked like a they were in a complete nuclear meltdown over the past year or two. All the way to China. I think it has everyone in a dejected silence – especially advisors who have called the bottom once or twice already and been proved wrong. But that's what true bottoms feel like, I suppose. Everyone gets disgusted and dumps. Willing buyers are too scared to step in. Is there an appropriate option strategy if you think this might be the bottom, but are too fearful to put your toe in the water? |
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Option Trading :
Opportunities to Use Horizontal Debit Spreads
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| The horizontal debit spread (often called a calendar spread) is a neutral strategy and is a good strategy to use in choppy, sideways markets. When you can catch the nearby options trading at a higher IV (implied volatility) than the farther out options, you can put on a horizontal debit spread at considerable advantage. |
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Option Trading :
Using the Covered Combo in Volatile Markets
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| In tumultuous markets, you would think there would be abundant options trading opportunities. Turns out, it’s not that simple. Options are very expensive now, which would suggest finding a way of selling them, but what is a good, safe way of selling them? Covered writing is okay, but leaves you holding the bag in a swift decline. Naked writing is dangerous in a volatile environment. |
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Option Trading :
Using Covered Writing to Enhance Returns
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| Many traders use covered writing to enhance the returns from their long stock portfolios. A covered write is the sale of a call option “against”, or “covered by”, a long position in the underlying. When you sell calls against your stocks, you are giving someone the option of buying your stock from you any time during the life of the option for a stated price -- the strike price -- of the option. In return for giving up all possible gains above the strike price you receive cash for the options you sold. |
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Option Trading :
Using Combinational Option Strategies
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| I have written about all the main option strategies. And many of our articles here are about combinational strategies – using two or more options simultaneously. The reason I’ve sought to bring your attention to the various strategies is to show how each strategy is such a unique tool. Much like hydrogen and oxygen combine to form a unique substance (water), putting options together into various combinations results in some amazingly unique risk/reward profiles. |
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Option Trading :
Black-Scholes Option Pricing Model
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| The Black-Scholes option valuation model consists of a rather complex mathematical formula developed by two famous economists in the early 1970's, which permits one to calculate what the "theoretical" price of an equity option should be. |
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