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

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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.

 

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

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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.

The Wealth-Building Advantages Of Hiring An Options Strategies Adviser

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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.

Investing In ASX Options – Tips On Ensuring Success In Trading

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Compared to other economies, Australia fared particularly well during the height of the global economic recession, so it’s also not surprising that it was one of the very few countries that easily bounced back from the “economic devastation.” Consequently, a lot of investors directed their sights on the Australian stock market for they knew that most of the stocks it offers can secure substantial profit.

 

If you’re one of these people and you’re considering trading ASX options in the hopes of making more money, there really is nothing much to it; similar to trading other options, making the right calls is really what can generate the income you want. But how do you make sure that you’re making the right decision for your investment?

 

There are some considerations, of course; first of all, you need to make sure that your account is with a reliable broker. You wouldn’t want to be using a platform that will hold your profits hostage or is not even consistent in replying to your queries about your investment. It’s commonly advised as well to make sure that the broker offers a variety of ASX options and trading tools that you can use to increase your success potential.

 

Study the features of the options, too – the underlying securities, contract size, exercise price and expiry date. Getting information about these will help you decide which ones to trade either right away or for the long term.

 

Likewise, it’s imperative to stay abreast with popular trading strategies. TotalOptions.com.au actually provides traders a number of trading strategies that have all been proven effective.  There’s comprehensive information about every strategy describing their purpose, and you can easily choose one from the selection that you feel is required by your target outcome.

 

A continuous pursuit of knowledge about trading and the Australian stock market is also crucial for success. Like what they always say, “knowledge is power.” The more extensive the information on trading ASX options you have, the more strategic you can become with your trading calls – you can make in-depth comparisons and anticipate market behaviour due to the presence of certain variables and recent goings-on in the global trading community that can impact your investment returns. Plus, you can further modify or fine-tune your trading style so the results of your decisions would be more consistently successful. If you need more trading information, take time to read books that the best in the industry have written, or you can even sign up for training.

 

These are some valuable considerations if you’re interested in trading ASX options. Apply the lessons behind them and you can automatically increase your chances of getting a satisfying return on your investment.

Option Basics

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All stories should start at the beginning, so the option basics you should begin with are the definitions of terms that pervade all options trading.

Option Definition – An option is a right, but not an obligation, to buy or sell and underlying asset at a specific price and on or by a stated expiration date.

Call Option – A call options is the right, but not the obligation, to purchase an underlying futures contract at a specified price at a specified time.

Put Option – A put option is the right, but not the obligation, to sell an underlying futures contract at a specified price at a specified time.

Option Premium – The premium is the price you pay for the option. It represents the maximum risk you experience when you don’t exercise the option.

Strike Price – The predetermined price in the options contract at which the underlying asset is bought or sold.

At the Money –  An option is at the money when the strike price is close or equal to the current futures price.

In the Money – An option is in the money when the strike price is less than the market price of the underlying security.

Out of the Money –  The call option is out of the money when the strike price is higher than the market price of the underlying security. Puts are out of the money if the strike price is less than the market price of the underlying security.

Delta – A measure of the effect of change in the price of the underlying asset on the option’s premium. It represents the amount of the change in the price of an option for each move in the price of the underlying asset equal to one point.

Volatility – A measure of how fast and by how much prices of the underlying asset change. It is a measure of the rate of price fluctuations.

The Basics of Stock Option Trading Strategies

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Directional Trading Strategy

Going in line with the market and exploiting the trends of the market is termed as directional trading. This proves to be perfect for beginners when they enter into the area of options trading.

Bullish Stock Option Trading Strategies

These strategies are useful when the value of a stock goes up. But the evaluations of the extent to which the stocks will be up and the timeframe for which this tends is likely to continue play a vital role in optimizing this strategy. Bull Call and Bull Put Spread are the couple of strategies that come under this category. The billing stock option trading strategy that is usually taken up by a newbie is to resort to a simple call option that often proves to be profitable in bullish markets.

Bearish Stock Option Trading Strategies

The bearish stock option trading strategies are incorporated by traders when there is a downward movement of the stocks with the intention of getting profited in options’ trading. Beginners just opt for a simple put option in case of the bearish market trends. Brea call or put strategy can be used case of bearish markets to make profits with ease.

Neutral Stock Option trading strategies

They can internally be categorized as bullish and bearish on volatility. The very common neutral trading strategies are straddle, strangle, butterfly, time spread and condor Straddle and Strangle are stock option trading strategies that entail equal number of call and put options with the same expiration date. The only distinguishing factor is that the strangle strategy ahs a couple of strike prices associated with it while the straddle has only one. Butterfly spread involves puts and call in bullish/bearish markets. Three strike prices are associated with this spread. The lower two are for a bull spread and the highest of the three prices is for a bear spread. Condor is analogous to butterfly. The difference is the different strike prices associated with the short put and short call.

A stock option trading course can further elaborate on the other stock option trading strategies in detail. Get to know the pros and cons of each and arrive at your own unique strategy to help you succeed in options trading in the long run.

Option Trading Strategies

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Option trading strategies are trading methods to help an investor reach their investment goals for their portfolio. The best option trading strategy for one individual may not be the best for someone else. After making an educated decision about investment goals, the investor should focus their efforts on the best option trading strategies tailored to deliver those results.

A common goal for options trading is to make a profit. There are two basic ways investors profit from options trading. An investor can make money solely by trading options. Profit can also be made by exercising a stock option and buying or selling the stock.

For example, if someone buys call options and the price of the stock goes up, the investor can buy that stock at the strike price specified in the call option. That person can sell those stocks immediately to make a profit.

If someone has the option trading goal of owning a stock at a good price, that investor would use a different option trading strategy. An investor wanting to own stock may choose to sell a put option to give the buyer of the put the opportunity to sell the investor the stocks they want at the strike price.

Some stock investors use option strategies to protect their stock investments. A protective put is such a protective measure. The investor might buy a put to limit any loss in the value of the stock by giving the investor the right to sell the stock at the strike price. A protective put is also called a synthetic long call or put hedge.

Another protection strategy is an equity collar. The equity collar is used to protect stock the investor owns. An investor using an equity collar purchases one put option and sells or writes one call option per one hundred shares of the stock that the investor owns.

The state of the market can affect which option strategies are used. For example, if the stock is bullish meaning it is rising in value, the investor might want to use a option trading method called the bull call spread. A bull call spread is when the investor purchases an at-the-money call option and sells an out-of-the-money call with a higher strike price.

Similarly, a bear put spread is an options trading method that can be used if the investor expects the price of the stock to drop. To use the bear put spread strategy, the investor buys a put option on a stock and sells a put option for the same stock at a lower strike price.

Investors need to learn how to implement option strategies that will yield the results they want based on their investment goals. Details about various strategies for options trading can be researched online. The investor may want to consult an experienced investor.

Options Trading: Writing Covered Calls

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One of the reasons I like investing in dividend stocks is that I feel that they are inherently less risky than non-dividend paying stocks. Each time a dividend is received, a small gain on your invested capital is ‘locked in’. However, in volatile markets, price fluctuations can be significantly greater (in percentage terms) than any dividends received. To help combat drastic swings in valuation, and to augment the income received from dividends, I’ve adopted a strategy of writing covered calls on suitable long positions.

Writing Covered Calls:
Writing covered call options can be thought of as getting paid for writing a limit sell order. As with a limit-sell order, a sell price is specified when the options order is entered which limits the maximum achievable capital gain when the contract is in force. If this sell price is not met when the option expires, you keep the options premium received (free money!) and the stock. The difficulty in implementing a covered call writing strategy is determining a personally acceptable maximum potential rate of return over the duration of the contract in relation to the options premium received.

Prerequisites:
As each call option represents 1000 shares of the underlying security, a covered call writing strategy can only be adopted on long positions involving at least 1000 shares. In addition, your brokerage account must also be approved for options trading.

Determining an Appropriate Options Series:
Determining what options series to open is highly subjective and is based on a number of factors unique to each investor such as the commission required to write options, the desired annualized yield from options premiums, and the minimum annualized capital appreciation. To determine the options series that I write for each of my positions, I use the following guidelines:

1.) Expiry Month
The expiry month of the options series determines how long the options contract will be in force. As an options’ time value decreases as it approaches expiry, writing contracts with an expiry far in the future will increase the options premium received for each contract. However, as the time value of options decays more rapidly the closer you are to expiry, the annualized options yield (premiums received per year) can be greater by writing options with expiries in near months (up to three months out).

My rule of thumb for most stocks is that using an expiry date three months into the future tends to provide a balance in terms of capital appreciation potential, options premium received, and trading commissions.

2.) Strike Price
The strike price of the option series sets the maximum price that you can ‘sell’ the stock for as long as the options contract is in force. In choosing a strike price, I look at the worst-case total return (capital gains over the life of the contract plus options premium received less commission) of the stock over the two to three month period to expiry.

In general, I tend to write out-of-the-money options with strike prices that allow a total return (not including dividends) of between 5-6% over the length of the options contract.

3.) Options Premium
As compensation for limiting the potential for capital gains over the length of the options contract, I want to receive at least a 5% annualized options yield (net of commission) on each position I write covered calls on. Ideally this yield would be higher, but with small positions (writing 1-2 calls at a time) commissions significantly reduce the options yield.

After examining a stock’s call option chain, if I cannot identify an expiry month and strike price that will provide an the annualized options yield greater than 5%, and a worst case total return (less dividends) of greater than 7%, I will not write the contract. Instead, I will wait until a more volatile market (options pricing increases with market volatility) and then enter into the position. Otherwise I do not feel adequately compensated over the duration of the options contract for the potential of lower capital gains.

Performance of Options Strategies:
Writing covered calls on open long positions will generally under perform the market in strong uptrends, but outperform the market in downtrends, flat markets, and provide equivalent returns during modest uptrends. By underperforming during strong uptrends and outperforming in downtrends or flat markets, the overall year-to-year highs and lows in the portfolio will be closer together resulting in lower portfolio volatility.

Over a number of market cycles, the total long-term return of covered call writing should at least equal that of straight buy-and-hold investing. However, the income generated by a portfolio active in writing covered call will be significantly greater than that of the buy-and-hold investor. This can allow for more frequent reinvestment of dividends and options premiums which can help to increase the overall compound growth of a portfolio.

Sold Strangle

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The sold strangle is the converse of the long strangle. The call and put options are sold instead of bought. The investor loses if the underlying security increases or decreases enough; but if the stock price remains stable then the options expire and the investor gets to keep the premiums.

To receive ASX Option Recommendations or to learn more about straddles and strangles please request the complete Straddles and Strangles eBook by contacting us on 1300 368 316 or info@totaloptions.com.au

What Strategy to Trade?

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Bull Call Spread
The primary reason for buying a bull call spread is an expected increase in share price. This is a directional trade and the aim should be a high percentage return. The reason for placing a bull call spread is that the calls are expensive so sell an out-of-the-money call will reduce the cost of the trade. This strategy is suited for break out trades and trading trends.

Bear Put Spread
The main reason for buying a bear put spread is an expected decrease in share price. The aim of the directional is to have a high risk vs. reward ratio. The bear put spread can be traded when buying puts is too expensive due to high volatility and selling an options against the bought puts reduces cost, breakeven, volatility effect and time decay effect. The trade is suited to a share price in a downtrend. This strategy is suited for break out trades and trading trends.

Bear Call Spread
A bear call is traded when you are expecting a sideways share price movement to a slight decrease in share price. The bear call spread is a credit spread and can be traded as a type for income. The risk vs. reward can be set up depending on the aim of the trader whether to have high probability small profits or low probability high returns. This trade is suitable when volatility is high and expected to decrease. The bear call spread is traded to take advantage of time decay.

Bull Put Spread
A bull put spread is best suited for a sideways to upward trending share price. The bull put spread is a credit spread and can be used as an income generating strategy. The bull put spread is best implemented when there is high volatility in the puts your outlook is volatility to decrease. This may be because the share price is just above a major level of support or at the bottom end of a trading range. The bull put strategy is traded to take advantage of time decay.


To receive ASX Option Recommendations or to learn more about Bull Call Spread, Bull Put Spread, Bear Call Spread, Bear Put Spread Strategies please request the Option Spreads eBook by contacting us on 1300 368 316 or info@totaloptions.com.au