|
|
|
|
|
Options Trading
Option use is the best when the volatility is at high levels and the stop
loss point on a particular stock is about the same price as the cost of an
option. Also time spreads are also the highest as volatility increases the
option premiums. "Call options" is a contract giving the holder the right to
buy 100 shares of the underlying stock within a certain time frame. The concept
is like leasing a car. You have the right to buy this car at the end of the term
but instead of paying the whole premium up front like in buying options, you pay
it to the financing company by monthly installments. Your lease expires at the
end of the term and just like an option, you may exercise it, (buy the car or
buy the stock), or just let it expire, (give back the car or do nothing on the
options side.) It is that simple. "Put options" are the opposite as it gives you the right to sell 100 shares
of the underlying stock also within a certain time frame and at a certain price.
If the stock falls below this price, (called "strike price"), you will be
guaranteed to sell at your strike price. Obviously the shorter the time you buy
for protection, the cheaper you pay. A one month premium is less expensive than
two months and so on. Theoretically, if you want downside protection for an
infinite time period, then the premium will equal the price of the stock. Both these definitions are for buying puts and calls as the buyer has the
right to exercise or sell their puts at any time prior to the options
expiration, (the period one has purchased for.) Please remember that a buyer
has the right while a seller is obligated as this is a very important
distinction.
For Instant Access, Just one winning trade |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
