Selling Options » Currency Trading

Stock Option Trading – Starting Out On The Basics

admin — Thu, 21 Jan 2010 00:10:25 +0000

Stock option trading is not an advisable endeavor if you are new to the whole stock market game. If you delve into it unprepared, chances are, you may lose a lot of money as fast as you can make it. But doing your homework and starting out from the very basics can help groom you to be able to play in this complicated game. After all, this is a powerful investment tool if you plan to stay long in the stock market business.What Are Stock Options?First and foremost, it is important that you do not confuse an option with an actual stock. A stock option is actually a contract that gives the rights to either buy or sell the securities or commodities of a certain stock at a fixed price and within a specified time. When you trade options, you are basically just trading your privileges for securities or even certain merchandise involved, but not the stock itself.These stock options are actually very important in the market because they provide advanced investors with extra opportunities that could pave way to better returns in doing business within the stock market. Investors usually make use of these rights to evade from price declines, to give insurance for the price of a future purchase, or even to help them speculate future stock prices. There are two kinds of options –call options and put options. Call options basically give purchasers the privilege to buy underlying stocks, while put options allow the purchaser to sell the underlying stocks. How Do You Exercise Options?If you already own an option, you can exercise buying or selling its stock any time on or before its expiration date. This would allow you to trade the stock at a set price regardless of what the current market price is for that particular stock. And thus, you can have the privilege of buying or selling stocks in cases wherein you fear that prices might get too high or too low for you. In this way, you have certain degree of insurance on the investments that you make. A lot of investors simply make trades without any intent of possessing the underlying securities. How Do You Trade Options?In trading options, also take not that the pricing may be extremely complicated. But it will basically depend on two major factors –the pricing of the underlying stocks and the amount of time remaining within the contract. The price for principal stocks that accompany the options directly affects the price of the option. If the demand for the stocks is high, the price for the options will also go up and vice versa. The amount of time left within the contract for an option also determines the price. As time expires, the price for the option may go down as it may become less desirable. Take note that in the trading options game, investors use various trading strategies, which may all be very risky and complicated. And so, to become really successful in your attempts to profit from option trading, make sure that you at least familiarize yourself with the different strategies and consult experts who can give you good and reliable training.Stock option trading can be a very strong investment tool for anyone who does business in the stock market. However, keep in mind that for someone who is not as familiar with the different strategies and if you are new to the stock exchange, this may be a very risky endeavor to take on. And so, utmost caution for beginners is highly advised.

What are the Types of Risks in Forex Option Trading?

admin — Tue, 19 Jan 2010 00:15:34 +0000

Just as any other transaction in any type of financial market trading, the investor will always be facing risks. In the currency trading transaction involving forex options, some types of risks are to be expected. The main risk in options trading, just like with any other securities trading, is the value of the option changing over a period of time. The risks in forex options are even more complicated to predict and understand than that of the risks in securities trading. The beauty of the said risk is that it can be quantified and estimated. This can be done by using the hedge parameters of the option as well as the expected changes in the inputs of some models. To do the mentioned calculations, some technical valuation models have to be used such as the Black-Scholes and Ito’s lemma.

Two types of risks are involved in forex options trading, the pin risk and the counterparty risk. The first one is a special situation that happens only when underlier will close at/very close at the strike price of the option on the last day it was traded before the expiry date. This puts the seller in a situation wherein he is not sure if the option will be taken or allowed to expire. This would have the seller end up with an unwanted large residual position the day the market opens after expiry date.

The counterparty risk, although seldom happens and is generally ignored, involves the situation wherein the seller will refuse to buy or sell the assets agreed upon on the option contract. This risk may not happen at all if the trader makes use of intermediaries known to have strong financial capabilities. Only a major crash or widespread panic may bring about such situations.

What Are The Strategies Involved In Options Trading?

admin — Mon, 18 Jan 2010 00:26:03 +0000

Just as in any form of financial market trading, the trader gains an edge if he makes use of proven methods and strategies. This holds true especially in Forex trading. Currency trading is the biggest financial market globally trading with the amount of more than 4 billion dollars daily.As big as it is, it is only expected to involved many types of transactions. One way to make money in foreign currency trading is through option trading. As its name suggests, what the trader buys or sells is just the right go through with the transaction if the agreed price and time come. A contract involving the agreement of the price and the expiration date will be drawn between the option buyer and the option seller. The trader pays a premium price to buy the right. He is under no obligation however to go through the transaction if he finds it not within his best interest.In forex options trading, various strategies can be used with two main goals in the mind of the investor, to gain profit and to hedge against other positions. Based on these two main purposes in trading options, two basic strategies are also formed, the profit motivated strategies and the hedging strategies. The first strategy speaks of the use of options trading to gain great profits with a very low risk of loses since only the premiums stand to disappear in cases of unsuccessful forecasts. Traders usually make use of these options during situations where there is an important report or event and movement in the market can be sudden. For hedging strategies, options are great in decreasing risks. Other traders make use of options along with stop-loss points that makes possible the potential for unlimited profit if price moves continuously against trader’s position.

Forex Options Trading – How to Make Money Alternatively in the Forex Market

admin — Thu, 14 Jan 2010 15:01:37 +0000

Forex market and Stock market also uses options. In the stock market there is what we call as stock options. These options would include two parties, the buyer and the seller. The seller would write down a contract of sale for his goods. There would be an expiry date and a predetermined price of the goods. The buyer would purchase the contract which entitles him to the right to purchase the goods but not the obligation to do so before the expiry date is up. If the price of the goods goes up, then that is the time for the buyer to execute the contract, pay the original amount, sell the goods for the now higher price and earn some money. In the Foreign Exchange or forex market, this is also one of the alternative ways to make money.

Termed as forex options trading, there are two ways to do this. First is the Single Payment Options Trading, also known as SPOT, and would require the buyer to predict and elaborate a scenario which could happen in the market; then he would get a premium quote for this. If the scenario happens or takes place as predicted, then he will receive a payout.

The other way of forex options, known as traditional options trading, is exactly similar to the stock options trading. This is a useful alternative as it carries a lesser burden of risk compared to other methods of trade. You will pay less money and risk only that in order to place yourself on a great advantage.

How To Start A Home Business With Options Trading And Credit Spreads

admin — Thu, 14 Jan 2010 01:06:07 +0000

If you are like most people, in these times of economic uncertainty you are looking for a way to earn extra money, that doesn’t take a lot of time, preferably from home and that doesn’t require a lot of capital to get started. If you fall into this category then options trading might be just what you are looking for. Although trading is a simple business to get started in, it is far from easy and be wary of anybody who tells you differently. Also you may have heard that trading options is risky, and while nothing in life is risk free, there are ways to substantially reduce the risk.

How much money do I need to start?

One of the beautiful things about options trading is it’s one of the few businesses that you can take for a free test drive to see if you can be successful at it. By trading in a simulator you can start your business with no money. Obviously you won’t be earning anything either, but you will be gaining valuable knowledge. You can find a simulator at CBOE.com. After you’ve traded in the simulator for a few months and become consistently profitable you can start with as little as $2,000.

Finding a broker

The first step in getting started in an options business is finding a broker. There are many (excuse the pun) options available, a few of the good ones include, OptionsXpress, TradeStation and Interactive Brokers. These are all members of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC), which are two organizations that protect you against fraud from financial brokers.

Putting the Odds in your favor

While this isn’t a comprehensive list there are a few things that you can do to stack the odds in your favor when dealing in stock options. First of all rather than buying puts and calls you can use credit spreads. This method of selling a higher priced option and purchasing a lower priced option alone will stack the odds enormously in your favor simply because this method can allow you to make money whether the markets go up, down or sideways. As a matter of fact using this method can allow you to win as much as 80-90% of the time, which is why professional traders use this type of trade to generate consistent income. The next thing you want to do is a bit of technical analysis and look at the S&P stock index. If the index is moving above it’s 200 day moving average you generally want to be purchasing stocks or using bull put credit spreads. If the index is moving below it’s 200 day moving average you should short sell stocks or use bear call spreads. How much can I earn? This can fluctuate depending on market conditions but by using credit spreads you can make anywhere from 5-20% a month. So with $10,000 you can generate anywhere from $500-$2000 in extra income a month.

Reducing Your Risk

1.Start off by trading in a simulator at CBOE.com

2.Always use a stop loss or have your positions hedged.

3.Never trade with money that you need to pay for you day to day expenses with such as rent and bills. Nervous money always loses.

If you’d like to find out more about options trading and credit spreads click on the link in the resource box below and sign up for a free 10 part course.

Currency Options Trading – 2 Powerful Option Strategies for Triple Digit Gains

admin — Tue, 12 Jan 2010 00:48:04 +0000

While many traders like to trade forex. Currency trading options if used correctly, can give you two great advantages that can lead you to long term trading success. Let’s take a look at them… Here we will look at how to buy options correctly and take advantage of limited risk and unlimited gains and how to sell options and get odds of 90% success in your favour!1. Option Buying For Big Gains The person who buys an option gains a huge advantage and that’s staying power. You don’t have to worry about price swing against you in the short term, so long as your option trades in the money at expiry you win. You have unlimited profit potential and strictly limited risk which is the premium you have paid for the option. Most traders constantly get stopped out by price swings against them in the short term and buying options allows them to ride out these swings. There are two golden rules you should keep in mind when buying options. The first point is to buy at or in the money options only and to have plenty of time to expiry. Of course what most traders do is go for cheaper options a long way from the price and don’t buy far enough forward. In betting terms these are long shots and you will lose, as the odds are not in your favour at all. 90% of options expire worthless so you need to do what most option traders don’t. You need to buy time and that means close or in the money options and if you have a sound forex trading strategy and do this, you can make a lot of money with currency options trading. 2. Selling Options for Big GainsLet me ask you a question – How would you like to trade with odds of 90% in your favour? Of course you would and you can by selling options. The option buyer of course has unlimited gains and limited losses and 90% chance of failure. The seller on the other hand, has a 90% chance of success, unlimited risk and a limited gain. The key here is you have huge odds on your side and while the gains may be limited they add up, unlimited risk simply requires a spread of options and good money management. Option sellers do the reverse of what a buyer does – You sell options, with little time to expiry to get time decay on your side and you sell out of the money options as the odds are in your favour. Option sellers requires a good account size and you should spread your risk but with 90% odds on your side that options expire worthless and using the above tips to make even more money, you can build long term gains with the odds firmly on your side. Currency options trader’s suits all traders novices will love the comfort of limited risk and buying time and the well capitalized serious trader will love the great odds he gets selling options. Look at the above in greater depth and you will find options are a great tool to lead you to long term currency trading success.

Everything You Wanted To Know About Forex Option Trading

admin — Thu, 07 Jan 2010 14:57:58 +0000

Forex option trading is also known as currency option trading. It refers to the process where a trader signs a contract to buy and sell currency with an objective to make profit because currency rates keep fluctuating depending upon the changing economic and political events. However, you don’t actually buy the currency itself when you enter such contract – you only buy an option to purchase that currency at a fixed price at a certain time in a future date. This way, the amount of invested initially will determine the amount of potential profit or loss. Two Possible Outcomes

When you invest in Forex option trading, one of two things may happen. One – you will not receive even a single penny when the option expires out-of-the-money. Two – you will receive a 65-71% payout the option expires in-the-money. However, there are a few websites that offer a certain amount back even if the option expires out-of-the-money. If you carry out the option trading through such websites, you can expect to get at least 15% back even when things go wrong. How Are Currency Options Traded?

You can do Forex option trading in pairs, such as GBP/JPY, USD/EUR, and others. The first currency in the pair carry a value of 1 and it is referred to as the base currency. The second one is referred to as quote currency and its value keep changing, telling you how much amount (of the second currency) you will need to buy one unit of the base currency. For example, if the currency pair you are trading in is USD/INR = 48.5, it means you will need 48.5 Indian Rupee to purchase one US dollar. If the India Rupee becomes stronger, the value of the quote currency (i.e. US dollar) will decrease. Likewise, if the US dollar becomes stronger, you will need more Indian Rupee to buy one US dollar. Thus, your profit or loss will entirely depend upon the fluctuations in the currency rates. Overall, if you have a deep understanding of how currency loses and gain value in relation to one another, you can easily become a successful trader and make huge profits through Forex option trading. The more you educate yourself, the better are your chances of success.

Options Trading… Small Risk, Big Payout For Small Investors

admin — Thu, 31 Dec 2009 13:16:01 +0000

Even though trading in the market is, in many circles considered gambling, it appeals to people for a wide variety of reasons. All of the reasons preferably lead to only one conclusion, making money. Whether you’re interested in just trading part time, you must treat it as your own business. You don’t need a lot of money to invest, however, you can lose a lot if you’re not completely dedicated. Those people who “play” the market for fun, had better have money to burn. For the rest of us let me go over your options. The popularity of option trading has grown over the past couple of decades, mostly due to everyone having easy access to the internet. Like most things having to do with the market, options began as way that commodities could be assured of a future price. No one knows who came up with the concept, but to hedge their bets options were created. Remember, an option is a contract between a buyer and a seller that gives the buyer the right, BUT NOT THE OBLIGATION to buy or to sell a particular asset (the underlying asset) at a later day at an agreed price. What began more than 150 years ago at the Chicago Board of Trade, Kansas City Board of Trade, the Minneapolis Grain Exchange, and the New York Cotton Exchange, has evolved into the fastest way to make or lose a fortune.Like penny stocks, options appeal to small investors because the initial cash outlay is smaller than actually having to purchase the assets. It is for this reason that many go swimming in the option pool without first learning how to swim. Before they know it, they are in the deep end, treading water and going under. Many of the online brokers have their new clients show proof of option trading experience before allowing them to trade in options. So why, you ask, should someone even consider toying with option trading? The answer is, you shouldn’t. Unless of course you already know a little something about day trading. The modern trader does not hold onto an option very long. In most cases the option gets sold the same day it was acquired. The secrets to finding the right asset to option are twofold. You must look for a stock or commodity that has a lot of movement, up or down doesn’t matter. Second, there must be higher than normal volume. If you are not properly trained or at least have some options market knowledge, you can lose your investment in an instant. I am of course referring to the American market where an option may be exercised on any trading day on or before expiration. A European option may only be exercised on expiration. There are several different styles of options available. This is just one of the many things you must know about to become a successful options trader. Types of options are Exchange traded options which are: 1. stock options, 2. commodity options, 3. bond options and other interest rate options 4. stock market index options or, simply, index options and 5. options on futures contracts And…Over-the-counter options: 1. interest rate options 2. currency cross rate options, and 3. options on swaps or swaptions.This is why you must be knowledgeable and confident before attempting to do even one option transaction. I don’t profess to being an expert, but I do know of some. I obviously don’t have the time to go into all the details now, but at my site Market Mentalist you will find all you need to know about investing online. There is access to some of the top trading systems available including software, books, newsletters, and Forums. Whether you are an inquisitive novice or a seasoned pro Market Mentalist offers the online investment resource you just might be seeking.

Options Trading

admin — Sat, 19 Dec 2009 00:31:59 +0000

If you are one of those who want to gain huge profits from stock options, then it is very important for you to understand the meaning of option trading. At times it can be difficult to learn the exact difference between trading in the stock market and trading in the stock options market. In fact option markets are parallel to futures markets, that give you the right as a holder to buy or sell the underlying commodity for a specific price on (European options) or before (US options) a specific date in the future (known as the expiration or exercise date). Based upon the similar fundamental instruments of futures, it also has similar contract specifications. However, the options are traded differently. Available on futures markets, on stock indexes it can be traded on their own using various strategies, or can be combined with futures contracts and used as a form of trade insurance.

Options trading actually act as a best means to earn money. It is more like giving out cash in exchange for potential profit. You buy assets or things of value, with hopes of producing income in the end. It is available as either a Call or a Put, depending upon whether they give the right to buy, or the right to sell. The Call options give you the right as a holder to buy the underlying commodity, and Put options provide you the right to sell the underlying commodity. However, be it a call or put option, it can be bought or sold on registered exchanges. You deal with buyers and sellers of options/stocks, hoping to bring in more profits.

The best part about Options Trading is that you can have a better control on both the probability of risk and the consequence of risk. In stock trading, you cannot actually control the prospect of loss because you win only if the stock goes up. But option trading reduces the probability of danger as there are options strategies that profit when the stock goes up, down and sideways all at once. Besides this, it also reduces the consequence of risk through leverage.

Today, certainly the success in options trading is determined by price movements and investor’s attention to either volatile or commodity stocks. Proper control using bear market options trading strategies can certainly put extra cash in your pockets. Moreover, it can further give you the edge when the next bull market occurs.

Option Trading Software- 12 Valid Reasons To Go In For Option Trading Software!

admin — Wed, 02 Dec 2009 13:25:50 +0000

Even in earlier days, most people looked upon the trading business as a lucrative one. The scene is no different today. As a matter of fact, the business is attracting more and more people all the time! Along with “people” growth, there has also been “technological” growth. The result is sophisticated softwares that provide help to the trader/investor in realizing his/her dream of generating huge revenues. The latest one to join the bandwagon is option trading software!
Below is a detailed commentary on the trading world, and how it has ultimately led to the development of option trading software–
(1) Looking at the history of the trading business, it has brought about so many changes. The business has expanded globally, giving rise to international trading markets and exchanges. For example, the New York Stock Exchange and the London Stock Exchange. The capital turnover is quite massive. And people are rushing to invest in stocks and bonds, hoping to get a share of the profits!
(2) All courses on economics focus on trade now-a-days; it has become so much a part of our lives! Actually, regional and international trade have become sources of wealth for developed countries like the United States. Looking at their progress, other developing countries (especially those from Asia) are also jumping into the fray.
(3) What Asian countries do is, export the products that they manufacture to other countries. The payment is made in dollars. These dollars are in turn used to import foreign products. Thus, the performance of the export trade decides the economies of the respective countries.
(4) More lucrative is the foreign currency exchange market, otherwise known as Forex! The capital in circulation daily is around $1.5 trillion, making it the cynosure of all eyes! Of course, there is commodities trading too, and some people are very interested in venturing into that arena also.
(5) What does one have to do in “trading”? Be like a sales agent. The investor/trader purchases what he/she wants, and then tries to sell it at a greater price. With more and more successful trades, the profits keep growing! Sometimes, the revenue generated in a single day itself is quite large!
(6) There is a certain term that the investor/trader needs to be familiar with, when venturing into the trading world–that is, options trading. There are particular “options” that are selected and that work better than others in the market. It is to this end that the option trading software was developed later on.
(7) What exactly are “options”?
They are actually contracts that afford “buyer rights”. The investor/trader is free to buy or sell any amount that he wants to, of a particular security, which could be stocks/commodities. The price for buying, and the price for selling are already determined beforehand (depending on market trends). The purchase/sale has to take place within specified time limits only. The investor/trader is not bound by any obligations.
(8) Contrast option trading with futures trading. The buyer who goes in for futures trading is under an obligation to pay the ordered security at the price asked for. Also, the pre-determined date has to be adhered to. In the same way, the seller is under an obligation to deliver the ordered security on the particular date specified and stick to the price asked for.
(9) In option trading, as mentioned before, the buyer is not obliged to do something that he/she does not want to do. If he/she feels that the security is not going to yield any profits, he/she can allow the option to lapse. What is lost in the process? Only the initial payment made.
(10) The person who chooses to take up options trading would be well advised to also go for option trading software so that risks are minimized. The software can be a guide to some amount of profit, if not 100% profits.
(11) The price may seem too high–$400. In fact, many may feel it is an unwanted luxury, well worth staying away from. But for a neophyte in the trading world, option trading software promises to be an extremely useful tool. It helps in making the right decisions.
(12) Finally, how is option trading software valuable to the trader/investor?
To illustrate with an example, there may be a “call” (for selling) option or a “put” (for buying) option that the investor/trader is dealing with. Despite knowing the market movements, if the buyer pays too much for a particular commodity, he/she stands to lose. The reverse is the case with an underpriced commodity. The risks are therefore lessened by the option trading software.