How Covered Calls are Beneficial

Posted on admin No Comments

How Covered Calls are Beneficial

Writing covered calls can be an excellent strategy to increase investment income. It is a conservative option trading strategy whereby investors write (sell) call options against the holding of the underlying shares. Using the covered calls strategy, the investors get to earn a premium by writing (selling) calls. At the same time, they also get to enjoy all the benefits of underlying share ownership, such as voting rights and dividends. To understand how a covered call is beneficial, look at the following scenarios.

Before looking at the scenarios, let us first set up a situation.

The Situation

Suppose the shares of ABC Company are trading at $15. So you purchased 500 ABC shares for $7,500 ($15 x 500). Now you decide to employ a covered call strategy. So by employing a covered call strategy, you sell someone the right to purchase your ABC shares for $15.50 for the few days for a premium of $1. This means that you are selling a call (1 call equals 100 shares) with a strike price of $15.50 and a premium of $1. Your transaction and cash flow will be:

Your Transaction

Your Cash Flow

You buy 500 shares of ABC for $15

- $7,500

You sell 5 calls (each for 100 shares) of ABC at $15.50 for $1 premium

+ $500

 So your initial investment is $7,000 ($7,500 – $500).

Now let us look at the different scenarios that could happen at the call expiration day.

Scenario 1

At the expiration day, the share remains unchanged at $15. Your calls will expire worthless because why should anybody buy the shares for $15.50 if they are available in the market for $15. Now your transaction and cash flow will be:

Your Transaction

Your Cash Flow

You purchased the 500 shares of ABC for $15

- $7,500

You kept the premium of 500 shares (500 x $1)

+ $500

You sell 500 shares of ABC for $15 (expire day value)

+ $7,500

 So at the end, you still made $500. How? Well, your initial investment was $7,000 ($7,500 for 500 shares less $500 premium on covered calls) and you sold your investment for $7,500 (500 shares x $15 (share price at expiration date)).  That gives you a profit of $500 on your initial investment or say, just over 7% return. This was just without any stock movement. Let us look at scenario 2 where the share price increases.

Scenario 2

At the expiration day, the share price increased to $16. You are being “called” from the owner of the options you sold—you are obliged to sell your ABC shares at 15.50 (your strike price). Ok, now let us again look at the return:

Your Transaction

Your Cash Flow

You purchased the 500 shares of ABC for $15

- $7,500

You kept the premium of 500 shares (500 x $1)

+ $500

You sell 500 shares of ABC for $15.50 (expire day value)

+ $7,750

This results in a profit of $750…your initial purchase price $7,000 (premium included) minus sales price $7,750. It is almost 10.7% return on investment.

What if the share price drops? Well, let us look at scenario 3 for that.

Scenario 3

At the expiration day, the share price dropped to $14.50 So now your return will look like:

Your Transaction

Your Cash Flow

You purchased the 500 shares of ABC for $15

- $7,500

You kept the premium of 500 shares (500 x $1)

+ $500

You sell 500 shares of ABC for $14.50 (expire day value)

+ $7,250

 Adding up the above figures, you still make $250 profit, even though the price of your shares dropped. You will keep on making profit as long as the share price remains above $14.

Looking at the above three scenarios, opting for covered call strategy is not a bad idea at all. Further, if you have an expert covered calls advice, you can substantially increase your investment income. If you want the best covered calls advice in Australia, then get in touch with Total Options. They have a vast experience in options trading in Australia. They can also educate you on how options trading and covered calls work in Australia.

Options Trading in Australia – The Best Way to Earn Healthy Returns

Posted on admin No Comments

ASX

Who doesn’t want to earn healthy returns? Everyone likes to see his or her money multiply. Opening a savings account and depositing money in it will ensure steady returns, in the form of interest, but it is a slow form of earning returns. Besides, the returns are not too significant. Starting a business, any sort of business, will yield decent returns, but it requires considerable capital to get started. Careful investment in real estate will also yield good returns, but again, it needs huge capital. So what is the best possible way to earn healthy returns without spending a fortune? The answer is quite simple…invest in the options trading in Australia.

Australian Securities Exchange, the ASX, is one of the top-10 exchange groups in the world. Its average daily turnover is comparable to the Deutsche Boerse, London Stock Exchange, and New York Stock Exchange. It offers a variety of trading products and services, including shares, futures, warrants, and several others that would surely help earn healthy returns. Each of these products and services has their own pros and cons, but pros of one specific product, the “ASX Option,” easily outweigh its cons. Let us look at the pros of this particular ASX product.

First thing to note is that option trading does not require big capital. One can begin options trading with low capital. Many seasoned investors invest in options because of their high returns and low risks. These investors can reap excellent profits by buying shares at prices lower than the current market and selling them at prices higher than the current market.

Another benefit of options is that, unlike other ASX products and services, they offer an excellent flexibility to the investors. With a proper ASX options advice, investors can insure their portfolio or book profit irrespective of whether the price of share goes up or goes down.

ASX options also offer a way to build and diversify the portfolio. With portfolio diversification, an investor can yield higher returns with less risk. Speaking of risks, there are some risks associated with options trading. With the expert ASX options advice, however, the risks can be minimised.

For investors without any experience, it is advisable to work with a professional options trading advisor. An advisor, with various strategies, helps maximise profits and at the same time minimise the level of risks. Such a professional has an in-depth understanding about various ASX products and services. An advisor will promptly help answer the queries relating to an investment. By working with an expert advisor, an investor while making an investment decision will at least be able to cut the guesswork.

Investors on their part should also get acquainted with all the available ASX resources relating to options trading and strategies like covered calls and covered calls collar that they can exercise to their advantage. Once familiar, confident, and determined with the right trading strategy, the investors have to try to keep themselves on top of the game by keeping abreast with the current market developments, which could have some impact on the investment. The investors should try investing on their own with the help of useful resources and literature that are available online. If it is too complex to understand, investors can also seek Australia option education through which they can gain an easy understanding about options trading.

Total Options, a collaboration of expert and experienced options advisers in Queensland, can help investors seeking to invest in ASX options trading. They have considerable experience and extensive knowledge of various ASX products and services. Whether it is ASX options advice or Australian share market advice, they ensure that their clients are able to earn healthy returns with minimum risks. Aside from expert advice, options advisors at Total Options also provide Australia option education, which gives investors an excellent insight on options trading.

ASX Options Trading Strategies

Posted on admin No Comments

Like any other trading strategy, option trading has its risks, but the risk level can be made low, and it is more lucrative than stock trading. The best thing about options trading is it allows investors to develop a wide variety of strategies with different risk profiles.

ASX Options Trading Strategies

Many people consider option trading a risky strategy, suitable only to speculators; it is not the case though. With the proper approach or the right options trading advice, an investor can generate consistent investment income or provide insurance for his or her share portfolio. Below are some ASX options trading strategies, which may help minimise risk and yield good profits.

  • Selling Credit Spreads: – With minimum efforts, it is possible to grow your portfolio by 10 to 12 percent every month. Simplicity ensures success and, therefore, this strategy is not suitable for overactive traders or those who over analyse everything. All an investor needs to know is how to perform a simple trend analysis of the market, and on the group of certain selected stocks. This credit spread strategy is profitable and it is easy to implement.

 

  • Selling Covered Calls: – If an investor already owns a stock, then he or she can reduce the cost of that stock effectively by writing (selling) covered calls on that specific stock every month. Besides, if the market is flat or down, selling covered calls may yield excellent investment income. One great thing about covered calls is that a covered call writer retains voting and dividend rights on the underlying stock.

 

  • Buying and selling “Deep-in-the-money” options: – This is an excellent option trading strategy. It enables investors to buy stocks effectively at about half price and, therefore, double their profit. Because the investors’ trades are all short term, they are not bothered about dividends or other aspects about buying and holding stocks. They, however, do benefit as the price movement of the stock precisely matches the price movement of the option they purchased.

 

  • Complex strategies: – Various complex strategies, such as collars, butterflies, strangles, and several others can reduce risks and help yield high profit. The only downside of such strategies is that they are all expensive in terms of brokerage fees or the high cost of an option itself.

 

Selecting the best option trading strategy is easy if the right information is available. While above strategies may seem difficult to understand, especially to the novice investors, they certainly can help generate consistent investment income or at least reduce options trading risks. Alternatively, investors can also team up with professional advisors who can provide an expert ASX options advice. Along with Australian share market advice, professional advisors, like at Total Options, can also provide option education, which helps investors gain deep insight about how option trading in Australia works.

To get in touch with professional option trading advisors at Total Options, just follow this link http://totaloptions.com.au/

Choosing the Right Adviser for Options Trading in Australia

Posted on admin No Comments

If you decide to invest your money in ASX options trading, one vital decision you need to take is to choose a reliable advisor.

To trade in the share market, you may already be utilizing the services of a broker. However, if your broker gives advice, in addition to share market advice, on derivatives such as options, it is obligatory they be qualified to advise on such a derivative.

invest your money in ASX options trading

The requirements of option traders are not same as to those of traders who just deal in share trading. Option trading in Australia requires more frequent monitoring than equity trading because of the added risks affiliated with it. You have to be confident that your ASX options advisor delivers the level of service that you require.

Different types of broker

Options’ trading in Australia is carried out through three different types of broker. They are

  • Full service brokers – Such brokers offer you advice as well as research and other services like option education.
  • Discount brokers – These brokers do not offer advice, but they just carry out instructions to either buy or sell. You can give them instruction over the internet or just by a telephone call.
  • A combination of full service and discount brokers – Such brokers will execute trade service while also offering limited other services.

You should choose a broker as per your trading experience, your knowledge in options trading, your confidence in trading, and time.

Qualifications of an ASX options adviser

An options adviser, to give advice relating to derivatives transactions, needs to be accredited by Australian Securities Exchange. The design of the accreditation program is such that it makes advisers capable of giving expert advice and other services on ASX derivatives. ASX specifies two levels of accreditation—Level 1 or Level 2.

A Level 1 accreditation advisor can give advices on

  • Exercising warrants
  • Writing covered call options
  • Taking options
  • Selling options to close on taken position

A Level 2 accreditation advisor can give advices on

  • Taking or writing LEPOs (Low Exercise Price Options)
  • Writing options
  • Multi-leg option strategies

To become a Level 2 accreditation holder, a candidate must first achieve Level 1 accreditation.

Commission Structure

Commissions the brokers charge may vary and they can be

  • A flat fee on a per transaction basis
  • A Percentage basis where a broker charges a certain percent commission on the gross value of the transaction
  • A combination of a flat fee and percentage basis where a broker will charge a flat fee for transactions of a certain value, and thereafter will charge on a percentage basis

In case if you happen to be an experienced options trader, doing research and price monitoring on your own, you may simply need a broker to carry out your orders. For such service, you can pay a little commission. If you are amateur or new to Australian stock market, you need to have a professional and experienced options adviser work for you and forego the cheap commission option.

Selecting the right adviser

You will first need to contact several options advisers in order to find out the details about the following aspects

  • Their investment philosophy
  • The services they offer
  • The commission they charge, and on what basis
  • The size of investments they handle

It is advisable to meet the potential adviser face-to-face before making your decision to choose them. With your potential adviser, you should feel comfortable, and you should also have the confidence that they will offer the kind of service you need. A good adviser not only provides the right advice but educates their clients, as well. If you are in Queensland, professional and experienced option advisers at Total Options are the best people to contact with, and begin your trading career.

ASX Options Trading – The Best Way To Invest Your Savings

Posted on admin No Comments

Investing some proportion of your salary or earnings is the wise thing to do. Even though it is tempting to spend all your salary and earnings shopping and purchasing new things, make a rational decision to save some money, and at the same time, be profitable. In this day and age, when everything is volatile, saving money can prove to be your smartest move. Once you have enough money in your savings account, you can shift your attention of making that savings earn good returns for you. However, how can you make your savings generate good returns? Well, the best way to start is by investing your savings in ASX options trading, which has several benefits.

One of the most significant benefits of ASX options is that you can begin investing in them without having a big capital. In fact, many investors prefer to invest in options only because of their low risks and high returns. As an investor, you can reap good profits by buying shares below current market value and selling them above current market value.

Another benefit of options is that they offer great flexibility to investors in contrast to other types of assets. With expert ASX options advice, you can insure your portfolio or book profit regardless of whether the share price goes up or goes down.

Options are also an excellent way to build and diversify your portfolio. With diversified portfolio, you can buy and sell shares, as well as use options to hedge against current market volatility. Like any other investment option, there are risks associated with options. However, with proper ASX options advice to form good options trading strategies, the risks associated with options can be minimised.

With the help of the internet or through recommendation, find a reputable and reliable options trading advisor. Such advisors, through various income strategies, help maximise your profits with the minimum level of risks. They are professional and have a complete understanding about the Australian Securities Exchange. They also promptly help answer issues or questions relating to your investment. Finally, and most importantly, by getting help from an expert advisor, you will at least be able to eliminate the guesswork when making investment decisions.

On your part, you should engross yourself in all the available resources pertaining to this form of investment as well as strategies like covered calls and collars options that you can exercise to your advantage. Once you are well acquainted, confident, and have chosen the right trading strategy, you have to try to keep yourself on top of the game by staying in harmony with the latest market developments, which can have some influence on your investment. Try investing by yourself through useful resources and literature. Best, you can also go for Australia option education through which you can gain better understanding about securities.

Whether you want to invest in options with the help of an expert advice or you want to invest in options by first gaining a complete insight on them, the Total Options can help you. Total Options, based in Queensland, is a collaboration of professional and experienced option advisers. They provide expert advice on a diverse range of option trading strategies. Along with expert advice, Total Options also provide option education that gives investors a valuable insight on options trading in Australia.

Practical Trading Strategies That Lay A Good Foundation For A Long Trading Career

Posted on admin No Comments

There’s a bounty of trading strategies out there and new trading enthusiasts are developing their own in hope of pushing the industry further. These are all fantastic developments, but long-time trading professionals claim that these trading strategies are only fully effective if people know how to support them with practical life strategies.

 

For example, it’s crucial to recognise that a trader has to have the right mindset or psychological makeup to make sound trading tactics work. They need to fully understand the principles behind these strategies by doing their homework, getting background information, and performing other such tasks for correct application that would yield target results. Likewise, they need to be able to trade without letting their emotions, or things like their family circumstances, affect their trading judgment. If a trader fails to acknowledge the importance of having the right psyche for trading, not only will the activity be frustrating, but it will also be impossible to create a career out of it.

 

Another practical strategy that’s highly recommended by seasoned traders is to develop focus. Since it’s so easy to do other things while trading, a lot of traders fail to go the extra distance in making sure that they have thoroughly studied their options and the moves to make. Also an issue is the desire to try all the strategies available at once – not only will their understanding of the strengths of these strategies be compromised, but the final trading call will likely be the result of a confused process as well. The key is to focus on the goal and that one established, trusted path of getting there.

 

Third is to simplify the process. So many traders insist on complicating what they need to do when strategies have already been defined clearly, and the steps have been laid out in an organised fashion. Experts have drawn the process up; they have tried it and proven its efficacy, so there’s no need to deviate from it and improvise especially if you have not yet tried it before. So much time can be wasted trying to figure out what else needs to be done, when traders can simply do something that’s been proven effective, and benefit from it already.

 

And the last is to work on your “timing.” When you make the trading call, how you organise your day so you can cater to other things that may demand your time, which hours of the day are most productive for you – these all pertain to the value of timing in trading. The great thing about trading is that it will allow you to do other things, and with the rise of advanced technology used for it, it has become so much easier and more convenient to do. However, it’s crucial to truly understand the time and set a schedule for trading so it will not rule your life. A lot of traders tend to let the activity take hours, which they could be dedicating to their families and other responsibilities — but with a set schedule for trading, work-life balance can be maintained.

 

Understanding The Risks And Benefits Of Covered Calls

Posted on admin No Comments

For those who are not too familiar with common trading jargon, you may not readily understand the concept of the covered call strategy and its function in trading activity. To shed some light on it, basically, it’s a low-risk strategy where an investor or trader holds a long-term position in an asset and writes/sells call options on that particular asset in hopes of generating a bigger income from it.

 

However, like all strategies for trading and investments, using covered calls has both benefits and risks. It’s imperative to know what they are so you can take a step back and analyse your trading situation before applying this strategy.

 

The most important advantage is that compared to all the other known low-risk strategies out there, it’s said that becoming an expert at covered call writing can secure the highest profit – much, much higher than if other strategies were used. Everybody’s into trading to harness wealth, so this advantage is surely the most attractive.

The second benefit covered calls offer is the way traders actually have more control over the outcome. Writing a call allows traders to really examine the conditions their stocks are dealing with and determine the best decisions on what should be done, say, if the stock’s value declines after the traders have entered a position, or if the price of the stock appreciates. The trader who has mastered covered call writing has that great opportunity to fortify his wins and mitigate losses.

 

As for the risks or disadvantages, profit potential, when investors have established a covered call position, is automatically limited to the strike price (the price at which a put or call option can be exercised). So, if you were too hasty in writing a $70 call on a stock that you originally purchased at $65, and due to an unexpected twist of events the market dictated that that the new value of the stock is already up at $85, you have no other option but to sell at the price that you have written. Instead of a $20 profit, you limited yours to a mere $5.

 

And the second risk is that due to the simplicity of the move, a lot of investors are easily convinced that they already know everything that needs to be considered in employing covered calls, only to realise that they’ve traded too soon. It takes at least three to four months to fully explore the capabilities and potential of this strategy.

 

Therefore, for those who want to use covered calls to help themselves reach an advantageous position as traders or investors, it’s crucial to get some mastery in it. This is possible through persistent study, practice, and proper coaching from respected names in the trading industry. In time, they can truly expect to make the strategy work optimally for them in securing trading success.

 

The Importance Of Having The Right Mindset In Trading ASX Options Successfully

Posted on admin No Comments

Currently, the Australian Stock Exchange is thriving particularly well. A lot of people are encouraged by the solid performance of the Australian market as well as the lingering optimism within the economic sector. Further reinforcing this are recent reports that the ASX’s profit is up by 10 percent — it’s surely no wonder, then, that the country’s proving to be an important player in the global economic scene.

 

And because of all these, locals and foreigners have a lot of confidence in investing in ASX options. Knowing how a considerable number of them perform well consistently in the market, trading these options holds great promise for profitability. It’s all good, but profitability or success in trading does not always depend on ideal conditions (although that’s always a contributing factor). To yield wins in trading ASX options, it’s imperative to know the dos and don’ts, the strategies that all professional traders highly recommend, and the right attitude or mindset to have so trading can become a reliable source of income.

 

From the three things mentioned, it’s important to discuss how trading ASX options successfully is achieved by having the right mindset because most easily get lost in the abundance of tips on how to score wins. Trading professionals declare that “…having the right psychological makeup to follow the rules of an established trading system can make a whole lot of difference in one’s trading career.” This then goes to show that a sound trading system is not enough to ensure success; the trader’s ability to implement the system properly with the right discipline and motivation is what nets in not just an attractive income, but also positive and valuable experience.

 

It’s imperative to be a completely logical trader, devoid of emotions (for emotions tend to cloud judgment and force people to just react instead of thinking clearly about the cause and effect of certain actions first). Most people are naturally driven by emotions, and perhaps even the very decision to trade is prompted by some strong desire, but professional traders say that success in trading and maintaining a trading career can only be possible if traders know how to take the emotional factor out of the process.

 

While it may seem hard since it’s like going against man’s natural makeup, there are trading trainers or coaches that can help those who want to be successful traders in developing this right psychological mindset. Step by step, they guide their students into the thoroughly logical way of understanding market performance and the many variables that impact it. These coaches make sure “newbie” traders fully understand the principles to apply and become smart traders that do not just rely on favourable market conditions, but can also emerge as winners no matter the market conditions.

What Are Covered Calls?

Posted on admin No Comments

One of the cardinal rules of investment is fully understanding the terminologies used as well as the strategies implemented. This allows the trader to make sound investment decisions as well as minimise associated risks.

 

In options trading, one of the strategies used by many seasoned investors is covered calls. But what exactly is a covered call option?

 

Owning a stock entitles you to several rights. These rights include the option to sell stocks at their current market value any time you wish to. In covered call writing, you are selling to the buyer such a right at a predetermined price prior to the expiry. Essentially, the buyer attains the legal right to purchase shares of the underlying stock at a predetermined price (also called strike price). If you (the seller) own those underlying shares, the options are called covered because the shares are not purchased at an open market and at a predetermined price.

 

This strategy is viewed by many options traders as conservative strategy. It is particularly beneficial for traders who are bullish or neutral in their outlook on some of the equities in their portfolios. Investors who are looking to trade upside potential for downside protection and those who want to be paid for the assumption of the obligation of selling stocks at a strike price should also consider this strategy.

 

This strategy can be implemented when you want to produce income from some of the stocks in your portfolio. Other investors utilise this strategy in order to profit from option premium time decay. It is also advantageous to make use of covered calls if you want to keep your stocks for the long-term, either for the dividends or the tax benefits. Some investors who feel that the value of their stocks won’t appreciate or even drop in value opt for this strategy. Finally, a lot of investors who feel that their stocks are overvalued use this strategy to their advantage in order to profit.

 

It is important to note, however, that this strategy has its risks. If you are going to use this strategy, it is important to hold on to the shares. If you do not, you risk what is called a naked call. In a naked call, the potential for loss increases when the stock increases in value. If such happens, your next recourse would be to purchase back the option position. However, you may suffer some losses, both in terms of cash outlay and profit.

The Wealth-Building Advantages Of Hiring An Options Strategies Adviser

Posted on admin No Comments

Investing for the future is never an easy task, and it has become even more challenging and complex with the way the global economy and financial landscape has changed into a fast-evolving, highly volatile environment in the past few years. There are a number of reasons for this, from the political to the environmental to the technological – everything is moving at top speed and growing at an exponential rate. Empires are built in the blink of an eye. Dynasties crash overnight. Startups become supernovas before you know it. It seems that there’s always something booming or zooming or exploding, for better or for worse. All these developments can have a huge impact on the wealth-building project of any diligent options strategies investor.

 

People who go for options strategies as an investment tool know that combining a share portfolio with options provides multiple benefits: consistent flow of income, the ability to buy and share shares at a profit, the capacity to increase income by utilising it and the opportunity to have an insured and diversified portfolio are just some of the few reasons why it can be a valuable and lucrative choice.

 

The flexibility of options strategies also provides the investor sufficient protection regardless of the direction the market is taking. The options strategies are as follows: share insurance for your share portfolio, collar options as an income-generating tool equipped with capital protection, selling put option for those looking for another way to purchase shares, covered calls that focus on the share portfolio, and the income strategy as an advance form of covered calls strategy. Whether you are utilising it for your Self Managed Superannuation Fund (SMSF) or for private wealth building, the right options strategies allow you to manage risks more effectively in today’s dynamic market.

 

Figuring out which of these best suits your capacity, needs, preferences and expectations can be confusing. Despite putting much time on learning about the markets, private investors will still need expert-level knowledge and sophistication if they want to ensure their investments are protected and their financial status is secured despite uncertain times. Expertise is only gained through experience, and this is where the services of a professional investment adviser can be crucial.

 

Your investment adviser can map your specific situation amidst the current financial landscape and help you craft the right strategy that is objective, forward-looking and predictive rather than reactive. Advisers will also focus on furthering your wealth-building literacy by helping you understand trends and concepts that are important to consider when making decisions. In a number of ways, your investment adviser can be a consultant, guide, teacher and confidante, playing a vital role in your life as you prepare for your future. Investing in the right advisory service before you invest can be just one of the smartest investment moves you can ever make.