Get the Odds in Your Favor Right Now
Taking Profits issues a strategy devised to significantly outperform the market using guaranteed option
function to get the Odds in your Favor.
IRA compatible
and can be used with Auto Trade.
Option Basics....
The first factor everyone should know, and for most people this is already known so it's nothing new, this is not a perfect world
and there is no trading strategy I know of that is perfect and will profit 100% of the time. Taking Profits using several strategies
and methodologies we believe help to swing advantages over to our side, and with that said, please continue reading my Strategies for Option Trading Success.
Option Definition
An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset
at a specific price on or before a certain date. An option, just like a stock or bond, is a security. It is also a
binding contract with strictly defined terms and properties.
Stock options today are hailed as one of the most successful financial products to be introduced in modern times. Options have proven to be superior and prudent investment tools offering you, the investor, flexibility, diversification and control in protecting your stock portfolio or in generating additional investment income.
Benefits of Trading Options:
Orderly, Efficient and Liquid Markets
Standardized option contracts provide orderly, efficient, and liquid option markets.
Flexibility
Options are an extremely versatile investment tool. Because of their unique risk/reward structure, options
can be used
in many combinations with other option contracts and/or other financial instruments to seek
profits or protection.
Leverage
A stock option allows investors to fix the price, for a specific period of time, at which an investor can purchase or sell 100 shares of stock for a premium (price) which is only a percentage of what one would pay to own the stock outright. This allows investors to leverage their investment power while increasing their potential reward from a stock's price movements.
Limited Risk for Buyer
Unlike other investments where the risks may have no boundaries, options offer a defined risk to buyers. An option buyer absolutely cannot lose more than the price of the option, the premium. Because the right to buy or sell the underlying security at a specific price expires on a given date, the option will expire worthless if the conditions for profitable exercise or sale of the contract are not met by the expiration date. An uncovered option seller (sometimes referred to as the uncovered writer of an option), on the other hand, may face unlimited risk.
Call Options
A Call option is a contract that gives the buyer the right to buy 100 shares of an underlying stock at a predetermined price
(the strike price) for a preset period of time
Put Options
A Put option is a contract that gives the buyer the right to sell 100 shares of an underlying stock at a predetermined price for a preset time period.
The value of stock options is derived from the value of their underlying securities, and the market price for options will rise or decline based on the related securities’ performance. There are a number of elements to consider with options.
The Strike Price
The strike price for an option is the price at which the underlying stock is bought or sold if the option is exercised. Strike prices are generally set at narrow intervals to be close to the market price of the underlying shares. Strike prices are set at the following intervals: 2 1/2-points when the strike price to be set is $25 or less; 5-points when the strike price to be set is over $25 through $200; and 10-points when the strike price to be set is over $200. Option prices can be obtained quickly and easily at any time on nasdaq-amex.com. Additionally, closing option prices (premiums) for exchange-traded options are published daily in many newspapers.
New strike prices are introduced when the price of the underlying security rises to the highest, or falls to the lowest, strike price currently available. The strike price, a fixed specification of an option contract, should not be confused with the premium, the price at which the contract trades, which fluctuates daily.
The relationship between the strike price and the actual price of a stock determines, in the unique language of options, whether the option is in-the-money, at-the-money or out-of-the-money.
- In the money: An in-the-money Call option strike price is below the actual stock price. Example: An investor purchases a Call option at the $95 strike price for WXYZ that is currently trading at $100. The investor’s position is in the money by $5.
An in-the-money Put option strike price is above the actual stock price. Example: An investor purchases a Put option at the $110 strike price for WXYZ that is currently trading at $100. This investor position is In-the-money by $10.
- At-the-money: For both Put and Call options, the strike and the actual stock prices are the same.
- Out-of-the-money: An out-of-the-money Call option strike price is above the actual stock price. Example: An investor purchases an out-of-the-money Call option at the strike price of $120 of ABCD that is currently trading at $105. This investor’s position is out-of-the-money by $15.
An out-of-the-money Put option strike price is below the actual stock price. Example: An investor purchases an out-of-the-money Put option at the strike price of $90 of ABCD that is currently trading at $105. This investor’s position is out of the money by $15.
The Premium
The premium is the price a buyer pays the seller for an option. The premium is paid up front at purchase and is not refundable - even if the option is not exercised. Premiums are quoted on a per-share basis. Thus, a premium of 7/8 represents a premium payment of $87.50 per option contract ($0.875 x 100 shares). The amount of the premium is determined by several factors - the underlying stock price in relation to the strike price (intrinsic value), the length of time until the option expires (time value) and how much the price fluctuates (volatility value).
For example: An investor purchases a three month Call option at a strike price of $80 for a volatile security that is trading
at $90.
Intrinsic value = $10
Time Value = since the Call is 90 days out, the premium would add moderately for time value.
Volatility Value = since the underlying security appears volatile, there would be value added to the premium for volatility.
Top three influencing factors affecting options prices:
- the underlying stock price in relation to the strike price (intrinsic value)
- the length of time until the option expires (time value)
- and how much the price fluctuates (volatility value).
Other factors that influence option prices (premiums) including:
- the quality of the underlying stock
- the dividend rate of the underlying stock
- prevailing market conditions
- supply and demand for options involving the underlying stock
- prevailing interest rates.
|
As with almost any investment, investors who trade options must pay taxes on earnings as well as commissions to brokers
for options transactions. These costs will affect overall investment income.
Sign Up or Go to "Time is Prime
and It's Guaranteed"....
|
