When the spot price decreases after I write a covered call is there a point at which I can nearly break even?

September 20, 2010 by  
Filed under Option Trading

I’ve been looking at writing a covered call. If I do this and the low spot price I will be losing money since my accident? N est? losing value. It still? To kind of get the premium for writing the llamada.Si I understand things correctly, the price of the option? No purchase too? n go? decreasing during this time for two reasons: 1. the call be? m? s outside money2. the due date is aproximaEsto means to be? able to close the option? n for less money it receives? during the writing of misma.Lo I’m wondering is if the price of the option that you keep enough r falls? ask you can close the option? ny sell the stock before it has lost m? s of raw I received from the option? No writing in the first lugar.Supongo this rarely happens, if ever, but am not sure and I’m looking for m? s of an explanation? n c? esto.He will it work? do that esprecio break even stock – premium recibidaNo I’m sure by qu? I feel a duty? to be a balance point slightly above the cost of the option? n contained in too? n. Something comoprecio stock – premium received + the option price? N actualEstoy sure this all sounds silly to anyone who understands things better but please bear with me “I’m trying to learn here?. I’ll try to give an example of what I’m pensando.Supongamos the purchase price of the shares was $ 50 and premium is $ 5.Yo understand that when the price of the accident? n reaches $ 45 that the premium is lost . If this was the day you due to complete sense that this is the point of equilibrio.Sin However, if a? N is not d? To expiration, so you could? To cost $ 1 to close the sense that position? No balance will be staying at was $ 46. However, in 46 d? Here who will be staying to cost? Nm? S to close the position? N. . . I’m guessing these n? Mere chase each other constantly. Is there any way specs? Fica situations traders know how are you to limit your p? Loss? For example, if the trade purchase of $ 50 to $ 5 bonus was a real commerce? Spec strategies exist? Ficas suggestive selling before the equilibrium point to close the position? n instead of waiting until after? s the point of balance? I love? to see the pros and cons of doing either of those and learn m? s about it. Thanks!

Forex Online Option Trading – Your Top 8 Questions on How to Consistently Profit With Forex Options

September 7, 2010 by  
Filed under Option Trading

Forex Online Option Trading

The ability to trade with high leverage as well as have freedom in choosing direction in the forex market has led many people to seek profits in currency trading, but few have considered the benefit of using options to trade the forex market. Most people either don’t know that they exist or are disappointed to find just generic strategies or advice for trading currency options. If you want to get your piece of the currency options market you need to learn and implement the strategies that the pros use into your trading. Kris Matthews answers common questions about currency options trading and reveals some secrets for making money in this market and avoiding the newbie mistakes. Forex Online Option Trading
1. How can I use currency options in my trading to minimize my risk and maximize my return? Currency or “forex” options have built in risk protection when you buy them. For a time period that you fix when you buy an option, price can move an unlimited amount against your intended direction but you’ll never lose more than the premium you paid. If price comes back, you still gain a profit, without ever getting stopped out! In this way your risk is controlled but you can make unlimited profits.
2. How is currency options trading different from regular forex (spot) trading? In typical forex trading, your position increases in value if you buy a currency pair and it goes up in value, while you lose for every unit it goes in the opposite direction. Simple enough, right? Options are special in that the more the currency pair moves against your direction, the rate of money you lose slows down and hits a limit, and yet your profit potential is unlimited if the market moves in your direction. Furthermore, by combining two types of options, known as “calls” and “puts,” you can construct trades that don’t depend on you getting the direction right! In fact, if you are better at guessing what price levels the market won’t touch, you can make money that way as well with currency options trading. You can’t do this with regular forex trading.
3. What’s the secret to profiting with currency options trading? In few other industries do you hear of as many tricks, strategies, esoteric jargon as options trading. You’ll hear of such strategies as “strangles,” “straddles,” “iron butterflies,” and more-but these are all just tools and aren’t the holy grail to riches that most educational sites tout them to be. If you want the “secret,” you need to do three things: 1. Determine the volatility and 2. Determine the direction of the currency pair of interest, and 3. Get time on your side. For the first point, you need to ascertain whether the market is in a high or low volatility environment. If price had a very large directional move over the last few months and formed a recent high and low on a daily chart, you’re likely entering a ranging, low volatility environment.
If price has been ranging for a few months and suddenly broke out strongly, you may be entering a high volatility environment. If volatility is high, buy options. If it is low, sell options. Secondly, learn how to gauge sentiment in the forex market, because that’s what drives the market in the time frame you’re interested in: not fundamentals or technicals. Align your options trading with the correct direction-if sentiment is bullish, buy call options or sell put options, and if sentiment is mixed, you may not have an opinion on direction and should either buy both calls and puts or sell both. Thirdly, you let time become your ally by selecting currency options that expire far enough in time from today such that you don’t fall victim to the short term randomness in the market that shakes out the newbie traders. Forex Online Option Trading
4. How do I trade currency options with the highest chance of winning? Trading currency options with a high win rate means that you judge volatility, price, and time well. If you can guess whether price action of a currency pair will be calm or explosive, whether it is likely to drift up or down, or neither, and how long of a time period you should allow for this to happen, you stand the best chance for profiting handsomely in this market. I can hear you now: “Well I’d own the world if I knew all that information ahead of time!” Yes, but successful options trading is about making educated guesses, not being right. Out of these three things, I find that the item that really boosts my edge is figuring out price direction with sentiment. I use indicators such as the COT report, currency strength meters, price reaction to news events, and behaviors of related futures instruments.
5. I’m just getting started and am suffering from information overload while I learn to trade currencies. Will options trading make this worse? This is where options get a bad reputation, but for poor reasons. My partner instructor, Paul, and I teach very simple strategies that involve entering no more than 3 options together at a time (meaning you would buy or sell 3 different options at a time), and we only use a few strategies that each work in different market environments (ranging OR trending) so you’ll be prepared for any type of price action. Learning these strategies is rather simple and gives you a better idea of how volatility and price action work in the currency market.
6. Can currency options be used for short term trading? Yes, but I don’t see the benefit in short term trading. You are just leveraging higher to capture more money out of smaller moves, are paying more for spreads, and have to deal with short term randomness of price action. Why not capture larger moves, pay lower spreads, and free up more time for your family and your hobbies by trading the medium or longer term?
7. Which brokers offer currency option trading? More platforms are starting to offer forex options trading as it is becoming more popular. For over-the-counter (OTC) retail trading, the better known ones are SaxoBank and Core Options. You can also trade options on CME/Globex currency futures, and options on the PHLX if you have a stock trading account. We are coming out with an OTC forex options broker platform that will be cheaper than current ones.
8. What kind of commissions/spreads do I have to pay for options? Are they expensive to trade? Options are a bit less liquid than the normal (“spot”) forex market, so the spreads are slightly higher, but if you are trading medium to longer term it should not matter. I would say that they are not that expensive at all. With typical over-the-counter (OTC) forex options brokers, you won’t pay commissions, but spreads can be from 5-20 pips depending on how exotic your currency pair is. Forex Online Option Trading

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Trading Option Greeks Ebook – What 3 Important Clues the Options Trading Greeks “Delta” Tell You

September 3, 2010 by  
Filed under Option Trading

Trading Option Greeks Ebook

The options “delta” is one of the important component of the options greeks. As you might have already known, the options greeks offer you clues to the likely behavior of an option’s price movement in relation to the corresponding price movement of the underlying share.
Besides the delta, the options greeks also include other components such as the theta, gamma, vega & rho etc. In a nutshell, an options delta is basically a measure of the change in the option price resulting from a change in the price of the underlying stock. The delta is usually expressed as a decimal value in the range of between 0. 00 to 1. 00. The other components of the options greeks are also represented in decimal value. In this article, we would explore the 3 critical information that the options delta could reveal to an options trader so that it would give him or her a clearer picture of the potential price movement of the options so as to help him or her make a better options trading decision.
The first information that an options delta could reveal is that it could tell the options trader the percentage chance of an option trade. This percentage chance refers to the percentage chance in which a particular option would end up in-the-money. By the way, when an option goes in-the-money, it would be said to have attained “intrinsic value” and thus would be worth some value to the options trader when he or she either sells the options position or exercise the option. Thus, an option with a delta value of 0. 80 would mean that it has a 80% chance of finishing in-the-money. Trading Option Greeks Ebook
The second information that the options delta provides is the percentage change that an option trader would expect of an option position. This means that the delta would determine the percentage change in the options price movement in relation to the corresponding change in the price of the underlying stock. For example, an option with a delta value of 0. 60 will move 60% of every one-point movement of the underlying stock. If the underlying stock moves $1. 00, then the option would move $0. 60. So if an option has a delta value of 0. 90, the option would move $0. 90 on every $1. 00 movement in the underlying stock; I guess you get the point.
The last important information that the options delta can provide is the hedge ratio, which is the amount of deltas needed to properly hedge a particular trading position. For example, an investor who wants to implement a delta-neutral strategy may buy up 100 shares of the underlying stock and hedge the position with 2 nos. of at-the-money put option which have a delta value of around 0. 50 each. Since the underlying stock has a delta of 1. 00 and the delta value of the 2 put options would add up to the delta value 1. 00 too, this would thus establish a delta-neutral trading position.
As mentioned earlier, the options delta is an important component of the the options greeks which could tell an options investor how to determine the likely price movement behavior of the options in relation to the corresponding price action of the underlying stock. The delta basically determines the percentage chance, the percentage change and the hedge ratio requirement of an option trading position. Thus, the options trader is advised to take a look at this important component of the options greeks the next time he or she make a options trading decision. Trading Option Greeks Ebook

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