Online Trading - Stock and Option » Options

Trading Stock For Dummies

admin — Mon, 21 Dec 2009 06:14:02 +0000

Over the last year the current bear market that is taking place in stocks has left many stock traders facing relentless selling. For the beginner this experience has been made worse by not having the knowledge as to how the markets work and what they can do to protect themselves during the challenging economic times. While many are discouraged by this, the fact of the matter is that you can be able to protect yourself from the volatile market conditions and at the same time take advantage of the price irregularities that the markets will present the prudent stock trader with during the bear markets. This means using tactics that many beginning traders simply don’t know about or don’t understand such as:

Always use a sell stop: A sell stop is a sell order that is placed in advance, what happens is if the price of the stock hits a particular price which you determine in advance then it becomes a market order and you are out of the stock. The idea is to use this to protect you against buying something at high and then ridding it all the way down to the low. The biggest advantage that this has is you can set the sell stop at a particular point which could be a sign that the stock could be getting ready to go lower such as right below support (which is a major point that the stock stopped dropping previously and then reversed going higher). You can also adjust the sell stop upward to protect your profits and then when the stock does start to top out and go lower the sell stop will sell the stock leaving you in cash while it is going down, something that will help improve trading stock for dummies.

Buy after you see the follow through of a trend: A trend is when you see three consecutive points confirmed. What happens is many investors try to guess when the economy is going to turn around or if a company is going to beat their earnings based on what is happening in one quarter often leading to losses as they were just a little to early to get into the stock. What you want to do is see three consecutive quarters of better than expected numbers from a stock to confirm that they are in an earnings growth trend. When you are looking at any economic numbers you want to see three consecutive numbers in the same direction to confirm that a particular sector of the economy is expanding or contracting.

Clearly trading the markets during these challenging times can be very confusing for the beginning trader. To be able to successfully trade the volatile markets means that you must use tactics that will protect you as well as let you enter the stock at the right time such as: always use a sell stop and buy after you see the follow through of a trend will help you avoid the falling knifes, increasing your overall profits, helping you to be more successful at trading stock for dummies.

Options Trading 101

admin — Wed, 16 Dec 2009 18:56:51 +0000

The individual investor will typically include some stocks in their investment portfolio. And whether they are a long term trader or in it for much quicker returns, many investors understand and feel somewhat comfortable with the concepts and techniques of trading stocks.
Options tend to be much less understood – and therefore avoided. But Options can form an extremely valuable part of your trading strategy as they can provide tremendous returns!
So here I will try and give you some of the fundamental concepts behind trading options.
Options are a contract conferring the right to buy (a call option) or sell (a put option) some underlying instrument, such as a stock or bond, at a predetermined price (the strike price) on or before a preset date (the expiration date). Options officially expire on the Saturday after the third Friday of the contract’s expiration month but because the markets are typically closed on Saturdays, the Friday is commonly used as the expiration date.
A key concept to grasp is that, when you buy an option, you don’t actually own the underlying security. You simply own the right to buy (or sell) at a specific point in time. But, of course, the price of the underlying instrument and the time remaing before expiration both affect the value of the option itself.
So in trading options you have two main ways to make money on them:
- You can hold to maturity and then exercise the option (with the expectation that the underlying instrument is then worth more than what you are entitled to buy it at – your “strike price”)
- You can sell the option itself prior to expiration (in the expectation that the value of the option itself has risen above what you paid for it)
A great many investors do in fact hold until maturity and then exercise the option to trade the underlying asset. Assume the buyer purchased a call option at $3 on a stock with a strike price of $30. (Typically, options contracts are on 100 share lots.) To purchase the stock the total investment is:
($3 + $30) x 100 = $3300 (Ignoring commissions.)
So if, at expiration, the stock is worth more than $33 you’ve made a profit (You can sell your 100 shares for more than $3300 right away).
Speculating on the actual value of the option itself is the second alternative.
Let’s use the same example above.
You bought your options for $3 with a strike price of $30.
If the price of the underlying stock goes above $33 at any time prior to expiration, then naturally more people will want to try and get a hold of that option you own, because they see a high likelihood of making a profit off the underlying security. With the increased demand for that option, the value of the option itself will likely go up. So you can sell the option to that higher bidder for a profit.
For example, if the price of the underlying stock rose to, say $35 then the option itself may become worth, say $4 on the open market. So you sell your options for $4 and make a nice 33% return. Without ever having owned the underlying stock itself.
Those are the kinds of returns that make options so attractive.
Many brokers offer trading accounts to individual investors that allow options trading and frequently at very competitive commision rates.
It really isn’t very difficult to get started.
Options trading is risky, so manage your risk and your assets wisely and only use a small percentage of your overall portfolio for trading options. But do consider them as an additional component of your investment strategy, as they can yield tremendous returns when traded correctly.

Risk of âunlimited Losesâ in Naked Option Selling is a Myth!

admin — Tue, 15 Dec 2009 18:21:15 +0000

For option sellers it is disconcerting to hear people say that selling naked options is extremely risky because it carries the threat of âunlimited losesâ. Nothing is farther from the truth! Itâs a myth! Itâs about time we correct this misconception and put this fear to rest.

While theoretically the selling of naked options carries with it the potential for unlimited loses, in the real world this so-called risk is controllable to such a large degree as to be meaningless. Thousands of option sellers are successfully making a good living and growing their capital doing nothing but sell naked options. The fact is, all these successful traders are employing certain safeguards or protective trading strategies that allow them to defeat this âunlimited riskâ factor.

Those who believe that naked option selling has the potential for âunlimited losesâ are obviously misguided in their belief. Selling or writing naked options when done in a disciplined manner coupled with proper protective trading techniques and sound money management is no riskier than buying options. Seasoned options traders who specialize in naked writing regard option buying as a riskier, more speculative trading strategy. Statistics show there are more traders who lose money as option buyers than option sellers.

Options are decaying assets. They lose value each day that the underlying stock to which they are attached remains unchanged or moves in a negative direction. The magnitude of daily losses depends on many factors but the primary one being the behavior of the underlying stock. An option buyer (versus an option seller) is faced with this dilemma and can only be a winner if he correctly determines the movement of the stock and the magnitude of the move. If the market moves in the opposite direction or if it does not move at all, the option buyer is a loser. The option buyer must not only correctly foretell market direction but his prediction must be accompanied by a major move in the market. A less than significant move will still result in a loss for the option buyer.

On the other hand, the option seller takes maximum advantage of the decaying characteristic of options. As an option seller he merely sits and waits for the option to lose value daily to the point of being worthless on expiration day. He does not need to correctly predict market direction to generate profits. If he sells puts, he is a winner if the stock stays flat, a winner if the stock goes up. He can only lose if the underlying drops far enough to hit past his strike price position. This means that even if the stock goes down he is still a winner if the move is not far enough to hit his strike position. If he is a call seller, he wins when the stock drops, stays flat or moves up less than significantly. Admittedly, during the validity period of the option until its expiration date, the option seller faces the potential threat that the underlying stock may move continuously against him past his strike position, in which case there would be no limit to his loses. But this can only happen if the seller is careless enough not to watch and monitor his position on a regular basis!

Options are not âbuy and holdâ securities. All options traders, buyers and sellers alike, carefully watch their positions on a regular frequency. In their march towards expiration dates options are always in motion in tandem with their underlying stocks thereby continuously presenting opportunities for making profits or presenting danger signals for incurring losses. Option sellers are a more cautious lot than buyers and consequently sellers have developed various protective trading techniques to offset the so called âunlimited riskâ factor to the point where it is nearly a neglible risk. What are these trading techniques? Each option seller may have his own system but here are a few strategies that conquer the risk.

1.Â Â Â Â Â Â First and foremost and probably the most important thing to consider when getting into selling options is the choice of securities. Highly volatile stocks are most susceptible to the highest risks because of their potential for making dramatic price moves up or down. While volatile stocks tend to offer attractive option premiums, this benefit can be cancelled by the higher risk of a major negative move. A price gap out in a stock can cause severe losses. Conservative option sellers who make a living or grow their wealth selling options will often tend to play ETFs (Exchange Traded Funds) or Indexes instead of stocks. These securities seldom undergo dramatic one day moves and it is even less vulnerable to price gap outs.

2.Â Â Â Â Â Â Careful monitoring of position â As mentioned earlier, option sellers tend to be a cautious lot and anyone who sells options and does not watch the progress of his position can only be considered dumb or stupid. One does not need to be glued to his computer screen and watch every move in the stock market. He only needs a cursory look at the market now and then to see how things are developing. When a situation starts building up where oneâs short position may be in danger, action can immediately be initiated before it degenerates into a bad situation. The option sold may be bought back immediately at a slight loss before it gravitates to bigger losses. This slight loss can be no more than what an option buyer would be exposed to in a similar negative scenario. And this is assuming the option seller does nothing more than buy back the losing position. But if his monitoring is combined with the other strategies illustrated below then the risk of loss is nearly nil.

3.Â Â Â Â Â Â Â Use of stop losses â For the trader who does not have the time to occasionally watch the market he may use stop losses on his positions at the same time that he initiates the short positions. There is no need to explain here what a stop loss is as it is presumed anybody who is in the stock and options market knows what this is. Additionally, with the advent of online trading, electronic alerts can be initiated with brokers so that when a perilous situation starts developing an automatic alert signal is sent to the traderâs email, iphone, or cell phone.

4.Â Â Â Â Â Â Use of credit spreads â Here again there is little need to explain what a credit spread is as once more it is assumed that options traders know what this strategy entails. This trading method coupled with careful monitoring and the use of the stop loss is enough to almost guarantee that the option trader will never be exposed to the fear of âunlimited lossâ.

5.Â Â Â Â Â Â Use of the roll-out feature of options â This is one strategy that is not being used to maximum advantage by many option sellers. Based on their personal trading experiences and extensive use of this feature those who have been using it swear by it as a powerful defensive strategy in preventing losses in option selling.

Strategy number 5 above is effective enough when used alone and by itself, but when combined with the other strategies above, the whole system becomes a formidable program that almost totally eliminates losses in option selling. One particular options seller has personally developed his own system of using a combination of all the above in his option trading activities and he says with much confidence that he sleeps very well at night thinking he will never ever be subjected to the so called risk of âunlimited lossesâ. He has written an e-book about his system and in it he describes in much detail the methodology he uses in overcoming the risk. Anyone interested may visit his web site at: http://www.theoptionseller.com

For those who are contemplating of getting into the option selling business, pay no heed to the naysayers. Next time you hear someone say ânaked option selling is extremely risky due to the potential for unlimited lossesâ that person is most likely an option buyer who has never ventured into the lucrative field of option selling. His remark obviously comes from his ignorance of the inner workings of options and the various safeguards available to the option seller. To the knowledgeable option seller the risk of losing money is less than the risk facing the option buyer.

Reduce Your Risk With Stock Options

admin — Mon, 14 Dec 2009 06:21:33 +0000

Options trading, and specifically writing options, is normally poorly understood, and more often than not, poorly communicated. This is why most people dismiss it as too complicated or too difficult. So many traders are put off trading in options purely because of lack of knowledge. But once educated in this area you will find you can actually work options to your favour to produce regular income and reduce your risk.Options are just one type of Derivative. They’re a financial instrument which has another asset as its underlying base and includes futures and warrants. They provide exposure to shares but they deliver greater leverage and enable you to trade bullish or bearish markets and make money regardless of the direction the market is trending.People trade options for the leveraged factor. For a minimal capital outlay you can generate great profit, but leverage is a double-edged sword. When you win, your profit can sometimes be ten times the amount the underlying share has moved, but when you lose your loss is magnified to the same extent. There are two types of options, call option and put option. An option is a contract written by a seller that conveys to the buyer the right, but not the obligation, to buy (in the case of a call option) or to sell (in the case of a put option) a specified quantity of shares at a specified price (strike price) at or before a certain date in the future. In return for granting the option, the seller collects a payment called the premium from the buyer. A call option will rise in value exponentially when the underlying share rises in value and a put option will rise exponentially when the underlying share decreases.You will hear plenty of horror stories about people’s experience trading options. Some of these stories may be based on truth, so it is important to know why people are sometimes repelled from trading options after being introduced to the market. Usually they have only employed a buying of options strategy, which is called directional trading and requires a high level of concentration and knowledge about where markets are heading because if your stock goes the other way to which you intended you will be at a loss, a leveraged loss at that also. More investors lose money when adopting this buying of options only strategy. It is believed to be up to 80 – 90% of people lose money when buying options for directional trading. This is because the buyer needs their option to move further in-the-money to make a profit, and if it doesn’t they will be looking at a loss. In-the-money means the share price has to go up for a call and down for a put. This is why it is imperative you explore the other side of options and see the advantage of being the seller. When you have sold another trader an option, you have put yourself in the enviable position of having sold a depreciating asset. The value of an option decreases exponentially the closer it gets to expiry, it will lose two thirds of its value in the last third of its timeframe. Once an option has been purchased, if it is out-of-the-money (share price is below option strike price with a call option and above with a put option) at expiry, it will be worthless. The seller will have the money in their bank account and the buyer of the option will be holding a worthless asset. The buyer’s view of the option moving further in-the-money has failed.There is one advantage though with buying options, but it is only when buying a put option to protect shares you already own. If you own 1000 shares for example you can buy put options to insure those 1000 shares at a strike price at or close to your purchase price. What that means is, if the share price is below your strike price at the time of expiry, you can automatically have those shares sold at your nominated strike price.When used correctly options can definitely give you regular income as well as protection for your capital thus reducing your risk. But when used incorrectly, can quickly demolish your trading account.

Options Trading Strategies, Basic Concepts

admin — Wed, 09 Dec 2009 06:30:37 +0000

When venturing into the options market, the best way to get the lay of the land is to be acquainted with at least some of the more elementary concepts. These will aid the new investor in successfully executing basic trading strategies.
Two basic terms, the call and the put, are the epicenter of the trading strategies. To buy a call confers the right, not the obligation, to buy at a price that is pre set. Conversely, puts give the buyer the right to sell at a pre set price. Options are both sold and bought, meaning that the seller grants the buyer the right and takes on an obligation to fulfill the other side of the trade.
The variations to this maneuver include:
Long Calls
The long call is the easiest to understand and is the most basic concept. MSFT (Microsoft) traded at $28 with June 31 options that were to expire on the third Friday of June. The strike price was $31, meaning that it was pre set so if exercised it had to be bought at that price.
Short (Naked) Calls
When the writer, the person selling the option, does not own the underlying stock and the option is exercised, then he or she is obligated to sell. Under those circumstances, that action is considered a naked call. Because the person is on the selling side of the contract, his position is considered to be short.
The short call status incurs the most profit by the amount of the premium if the market price of the underlying asset decreases. When the price exceeds the strike price by more than the premium, then the short position takes a loss.
Long Put
When a trader anticipates that the future market price of an asset, such as a stock, will fall before the expiration date is able to sell the stock at a fixed price. The buyer, put buyer, is not obligated to sell the stock, but he or she does have the right.
If the market price does drop below the strike price before the option expires and the decrease is more than the premium paid, then the seller profits. If the price increases or fails to drop enough to cover the premium then the trader will allow the contract to expire worthless.
Short Put
When a trader speculates that the future market price will rise, they can sell the right to sell an asset at the predetermined price.
If the asset’s market price increases, the short put position incurs a profit that is equal to the amount of the premium. This amount excludes any transaction costs and commissions. However, if the price drops below the strike price by more than the premium amount then the writer loses the money.
There are several trading strategies that are basic to the market. These strategies employ the characteristics of four basic trading positions. These strategies have one of several outcomes: pure profit plays, speculating on gaining a profit or creating a combination of speculation and hedging.
When positions move in opposite directions, it is called hedging. Hedging bears a profit less that sheer speculation, but they do compensate by offloading a certain degree of the risk.
Bull spreads and bear spreads are common strategies that can help the trader manipulate the market, depending on the market emotion. Bull spreads utilize a long call with a low strike price and combine it with a short call at a higher strike price and a short put with a higher strike price. On the other hand, bear spreads use a short call with a low strike price and a long call with a high strike price. Alternatively, the short put can be used with a low strike price and a long put can be used with a higher strike price.
There is a great deal of software on the market that can aid in these types of trades. Options trading software can offer users concrete demonstrations of the how these strategies work. They show how they behave under different assumptions regarding future prices, volume and other factors, combined with various expiration dates and strike prices to show how these different scenarios can result in a profit or a loss.

Trade Options Online (Kindle Edition)

admin — Thu, 03 Dec 2009 16:29:28 +0000

In this fully updated book, options trading innovator George Fontanills arms you with the knowledge and skills youneed to unleash the phenomenal power of your computer to become a successful online options trader. Following a concise review of the basics of online trading–including hardware and software requirements and essential online resources–Fontanills cuts to the chase with step-by-step coverage of proven managed risk option trading strategies. Specifically designed for online traders, these tested off-floor techniques provide you with a sure-fire method for consistently building up your trading account. Drawing upon his years as a leading international options educator, Fontanills makes it easy for you to master online options trading by walking you through a series of hypothetical trades that demonstrate how to compute the maximum risk, maximum profit, breakevens, and exit alternatives for each strategy. Trade Options Online also includes a comprehensive guid (more…)

How to Profit from a Market Correction: Diversified Trading Strategies

admin — Tue, 01 Dec 2009 06:16:11 +0000

What happened to the stock markets these past two weeks?
Anyone at all involved in investing or trading no doubt personally experienced it- the stock markets went through a major correction! And in these days of the “World Economy” such a correction can be triggered by news from anywhere in the world. As it did this time. Poor economic news from China prompted a sharp world decline in stock prices in just a few days.
And many investors, especially long term investors made big losses.
And they’re probably asking:
“Is there some way I could have avoided making losses during that period?”
Well, the answer is absolutely Yes.
Obviously trying to predict such a correction and get out before it happens is extremely difficult, and honestly more a matter of luck than anything else.
But by diversifying your trading strategies you can definitely avoid losses during such times – and in fact make healthy profits instead!
The key is to employ a mix of trading techniques that take advantage of a variety of trading timeframes.
Avoid putting all your eggs in the “long term” basket and look at complementing your trading with styles that make returns over the shorter term as well:
- Swing trading is an excellent way to capitalize on market movements over a period of just a few days or weeks.
- Day trading of course, allows you to make returns on stock movements within just one day.
And, mix up how and what you trade:
- Include Short Selling in your trading techniques. By selling a stock or index short, you are looking to profit from downward moves. This is just as valid as trying to buy low and sell high. And offers an important hedge against a market correction
- Also, there are now Inverse and even Double-Inverse indices that can be traded quite easily. DOG is the symbol for the Inverse Dow 30 Index and DXD is the Double Inverse Dow 30. By owning these, you are essentially short selling the major stock indices.
And, contrary to popular belief, it is not difficult to begin trading in this manner.
Over the years online trading has exploded in popularity and, as a result, the resources, tools, strategies and infrastructure available to the ordinary investor have become enormous.
- Online brokers offer trading accounts with extremely low commissions that allow investors to trade all kinds of different instruments (stocks, options, futures, forex) over all kinds of different timeframes (day trading, swing trading, long term trading).
- A large number of trading strategies and systems are also available online. And many such systems, offer a spectrum of short term and longer term strategies in a single service.
- And online trading platforms have become very sophisticated, offering complex analysis tools and even the ability to develop and back test trading strategies.
So, what simple steps can you take to profit during rising markets AND market corrections?
- Long Term trading: Allocate a portion of your trading funds to long term investments (over many months). Make your profits from the overall market trends – remember to take those profits periodically so that you’re not caught by a sudden downturn. And look to include some of those Inverse Indices in your portfolio. They can act as a tremendous hedge against market corrections.
- Medium Term trading: Allocate a portion of your trading funds to Swing Trading. In this way you capitalize on the medium term trends in the markets or individual stocks. Practically all financial instruments go through these medium term swings as traders are constantly trying to determine the right longer term price by buying and selling at support and resistance levels. And by taking both Long and Short trades on these swings you stand to profit in both directions!
- Short Term trading: Allocate a portion of your trading funds to Day Trading. This allows you to completely take the longer term market factors out of the equation. By trading within a single day, it really doesn’t matter that there was a long term correction. You profit anyway. With the right strategy, you would undoubtedly recognize the selling opportunity presented on the day(s) when there is a market correction. And by selling short you stand to make enormous gains that day!
- Ask your broker how to set up an account that allows you do trade in this way. You’ll be surprised at how simple it can be to get setup.
Much is written about diversifying your investments. But don’t just look at diversifying your holdings. Diversify your trading strategies too.

Low cost online trading company reaches $1.65 billion mark

admin — Wed, 25 Nov 2009 06:21:57 +0000

14th August 2009

Melbourne

Trader Dealer Online announced today it has executed over $1.65 billion in trades since the company’s acquisition by MDS Financial Group in April 2008, demonstrating a significant growth in trade volumes and values.

Tom Boland, Manager of Trader Dealer Online said, “Since the acquisition of Trader Dealer Online from the Opes Prime administrators, we have been working hard to make sure that the best service is provided to our customers”. He continued to say, “We have been growing at a very fast rate during the first half of this year, and look forward to the continued growth during the next half. We have some further innovations that will be introduced to Trader Dealer customers during this period that should see our customer numbers continue to increase.”

About Trader Dealer Online

Trader Dealer Online was acquired in April 2008 and is a majority owned subsidiary of MDS Financial. In an announcement to the ASX in May 2009, MDS Financial stated its intention to take 100% ownership of TDO in the short term.

Trader Dealer Online offers execution-only services for equities, options, warrants and CFDs for the self directed online investor and trader.

The unique Block Rate Trading approach to charging brokerage appeals to professionals and ensures that retail investors and traders are able to trade like professionals without excessive brokerage costs. Retail Brokerage is a flat rate of $33 including GST for trades up to $200,000 in value (a trade of $1 million in value costs only $253.00, one of the lowest rates in the market today).

Trader Dealer’s brokerage fee allows a trade to be split into 12 different price steps in the one direction over a trading session to allow customers to better manage their orders. Trader Dealer also offers a wide range of execution options when it comes to software all of which can be found by visiting

www.traderdealer.com.au

The Safe Harbour for Online Trading â Wsd Financial Limited New Zealand

admin — Mon, 23 Nov 2009 18:35:44 +0000

WSD has a FREE demo platform that offers continual streaming price quotes, news service, charting and accountancy package. Why not try it out through the link above?

The WSD advantage: As a regulated, audited and professional Forex provider WSD is the ideal partner to trade the markets with. We have tight spreads with prices that remain firm regardless of market conditions. During normal trading hours the price quoted is good for up to 50 Lots and as we have no dealer intervention – you can be assured that this is the market price. There is no start up fee or commission to be charged whatsoever. That means you receive all the benefits a professional trader should be offered without the charges that normally accompany price / news / chart / accountancy packages from other brokers. WSD only requires a minimum USD1, 000 to open your account and has a steadfast âNo negative balancesâ policy. This means that should your equity move down to 10% of the margin required then positions will be closed for your safety. WSD can offer any manner of leverage trading from 1:1 to 1:500 and accounts can be maintained in the client’s currency of choice. WSD offers 40 currency pairs, including Gold and Silver, for you to trade and are able to list others upon request. WSD’s charting package comes with over 30 easy to use technical indicators ranging from an âAccelerator Oscillatorâ to âWilliams Percent Rangeâ and almost every charting tool in between. WSD offers an up to the minute real time integrated news feed keeping you up to date with all t the nnews and market developments as they happen. WSD is regulated in New Zealand by the NZX and Securities Commission and around the globe by the various bodies whilst being audited by one of the world’s top foremost audit houses on a quarterly basis. WSD clients also benefit from the technical and fundamental daily reports generated by its specifically sourced trading expert at WWW.DIME.CO.NZ at no cost to you the trader. Download WSD’S platform today and visit our website to see for yourself how trading Forex through WSD will be one of the best decisions you have made in the market yet!

Commodity Options: Trading and Hedging Volatility in the World’s Most Lucrative Market (Hardcover)

admin — Wed, 18 Nov 2009 21:19:31 +0000

Don’t Miss out on Today’s Hottest Trading Arena: Commodity Options! “The authors have written the definitive work on trading commodity options. Their in-depth knowledge of this subject is legendary among industry professionals and expert traders alike, and their ability to relay their knowledge through text, pictures, and the spoken word is unparalleled in our industry.” –Lan Turner, CEO, Gecko Software, Inc. “This book captures the realities of commodity option trading in a simple and easy- to-read presentation that will be beneficial for traders of all sizes and skill levels.” –Chris Jarvis, CFA, CMT, Caprock Risk Management, LLC “Even the most experienced investors often overlook the fact that options on futures are fundamentally different from options on stocks. This book fills that gap and sets the record straight with clear and concise descriptions that are easy to understand. Guaranteed to become a true source of value creation for anyone interested in tradin (more…)