Posted on March 19th, 2010 
admin 
No Comments
This Straddles and Strangles eBook is and introduction into trading strangles and straddles. These are non-directional trades that take advantage of large share price movements. The information will teach what market environment a bought straddles and strangles are suited for.
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
ASX Option, Non-Directional, Option, Option Recommendations, options, Recommendations, Straddles, Strangles |
Posted on February 22nd, 2010 admin No Comments
These basic option positions when combined create option combination orders. These can be created via buying and selling options either put options or call options. Each of the following seminars and e-books will cover one combination strategy in more detail.
Summary
When buying options look to take advantage of their leveraged nature to allow large return with small capital outlay. When selling options look to sell when volatility is high and expected to decrease to help use time decay in your favour.
The information in this e-book is designed so the following Total Option Education Webinars and eBooks will build on this knowledge. The strategies in this book are used by traders everyday however they are normally used together to try and mitigate risks like time decay and volatility.
To receive ASX Option Recommendations or to learn more about trading options please request the complete Introduction to Options Trading eBook by contacting us on 07 5504 2244 or info@totaloptions.com.au
ASX Option, ASX Option Recommendation, ASX Option Recommendations, Buying Options, Call Option, Call Options, Combination Trades, Option, Option Recommendation, Option Recommendations, Option Trading, options, Options Trading, Put Option, Put Options, Selling Options, Time Decay, Trading Option, trading options, Volatility |
Posted on February 22nd, 2010 admin No Comments
When selling options, there are a number of variables to take into consideration. When you enter a sold call option your outlook needs to be that the share price will stay still or fall. Conversely, when you enter a sold put option your outlook needs to be that the share price will stay still or increase. Your objective is to sell time and you profit from your positions time decay. Also you can sell options when the volatility is high and expected to decrease throughout the trade. Your risk profile will determine whether you sell out-of-the-money calls for lower returns and lower risk at-the-money calls to receive more premiums with higher risk of exercise. Before placing any trade you must make sure there is enough open interest and volume through the options so liquidity is not an issue.
To receive ASX Option Recommendations or to learn more about trading options please request the complete Introduction to Options Trading eBook by contacting us on 07 5504 2244 or info@totaloptions.com.au
ASX Option, ASX Option Recommendations, ASX Options, Call Option, Option, Option Recommendation, Option Recommendations, Option Trading, options, Options Trading, Put Option, Selection Criteria, Selling Option, Selling Options, Sold Call, Sold Call Option, Sold Put, Sold Put Option, Time Decay, Trading Option, trading options, Volatility |
Posted on February 22nd, 2010 admin No Comments
When buying call options and put options it is critical to have good timing. When buying call options you don’t only need the stock to increase in value you need it to do so before the time decay in the option starts to affect the option value. Selecting the entry point (timing) of the trade can be assisted through technical and fundamental analysis. You can use technical analysis to identify break-out patterns to trade through buying calls or puts. It is important to make sure you buy enough time for expected movements. Also to make sure you buy your option at a reasonable price, you must analyse the volatility and make sure you are buying when volatility is low and expected to increase. Always make sure the option has enough open interest so liquidity is not an issue. If you stick to the blue chips this should not be an issue. Buying out-of-the-money calls is higher risk but potentially has large percentage returns. However, buying at-the-money calls has a higher delta but costs more so percentage returns are smaller.
To receive ASX Option Recommendations or to learn more about trading options please request the complete Introduction to Options Trading eBook by contacting us on 07 5504 2244 or info@totaloptions.com.au
ASX Option, ASX Option Recommendation, ASX Option Recommendations, Buy Call Options, Buying Options, Call Option, Call Options, Delta, Fundamental Analysis, Open Interest, Option, Option Recommendation, Option Recommendations, Option Trading, options, Options Trading, Put Option, Put Options, Selection Criteria, Technical Analysis, Time Decay, Trading Option, trading options, Volatility |
Posted on February 19th, 2010 admin No Comments
Writing a call represents a short call, which is a slightly bearish or neutral position. This strategy entails writing (selling) the call option with an obligation to sell a fixed number or amount of the underlying asset to the holder at a fixed price on or before a specific period of time. The trader or investor who executes this strategy is called the writer. The risk inherent of naked call option writing can be extremely high and always carries margin requirements.
The reward in this strategy is limited to the premium received for selling the call option. The risk is unlimited. Writing calls is used if you are bearish on the underlying asset, and is used basically to collect the option premium when a trader or investor feels that the call option contract will expire worthless, or will be worth less than the premium received.
Selling calls has a very useful function when combined with a share portfolio. The strategy is called covered calls. Rather than selling your shares you can sell at-the-money calls and receive a premium. You can use your shares to produce a monthly income and if the share price is above where you sold the call you sell the shares anyway and receive the premium as well. This is a simplified version but in a sideways to up trending market is very profitable. This strategy will be discussed later in the course under a number of strategies including covered calls, collars and income strategy. Please contact me in the meantime if you wish to discuss trading this strategy.
Summary:
| Market Outlook | Neutral/Bearish |
| Risk | Unlimited |
| Potential Reward | Premium Received |
| Premium | Received at purchase, margin required |
| Time Decay (Theta) | Positive |
| Volatility (Vega) | Negative |
To receive ASX Option Recommendations or to learn more about trading options please request the complete Introduction to Options Trading eBook by contacting us on 1300 368 316 or info@totaloptions.com.au
ASX Option, ASX Option Recommendation, ASX Options, Call Option, Call Options, Collars, Covered Call, Covered Calls, Income Strategy, Naked Call Option, Option Recommendations, Option Trading, Options Premium, Options Trading, Short Call, Sold Call Option, Trading Option, trading options, Writing a Call, Writing Calls |
Posted on February 19th, 2010 admin No Comments
Buy 1 contract CBA May 2500 Put option @ 180 cents
This option gives you the right to sell 1000 CBA shares for $25.00 each, on or before the expiry date in May. If CBA decreases strongly below $25.00 by expiry of the option, you have locked in a higher selling price for the shares.
As the buyer of the option, you have a choice as to whether you want to exercise and sell the 1000 CBA shares or if you just want to sell the option.
For example, if you are right in your assumption, and CBA falls to below $25.00 over this time, you have locked in a higher selling price for the 1000 CBA shares at $25.00. You could elect to exercise your option and sell the shares, receiving the full face value of $25.00 per share plus other fees and transaction costs that might be applicable. Also, the option premium you paid at the start for this option would be deducted from the $25.00 selling price, so the break-even on this trade will be decreased by this amount.
Alternatively, if you decide that you don’t want to sell the shares, perhaps you were interested only in participating in the decrease in CBA’s share price; you could sell the option and profit from the increase in premium.
Worst case scenario, should CBA increase above $25.00 over this time, your option would lose value. If CBA is above $25.00 at expiry, the option would expire worthless. Should you now want to sell the shares, you could sell them at a higher price in the market. Even though the initial premium paid might be lost, the increased sale price of the shares will at least partially offset this.
Trade Summary
Exposure 1000 shares
Initial Investment = $1,800
Max Loss = $1,800
Breakeven = $23.20
Max Profit = $23,200
To receive ASX Option Recommendations or to learn more about trading options please request the complete Introduction to Options Trading eBook by contacting us on 07 5504 2244 or info@totaloptions.com.au
ASX, ASX Option, ASX Option Recommendation, ASX Option Recommendations, ASX Options, Bought Put Option, CBA, Option, Option Premium, Option Recommendations, Option Trading, options, Options Trading, Put Option, Shares, Trading Option, trading options |
Posted on February 18th, 2010 admin No Comments
Buy 1 contract BHP May 3000 Call option @ 230 cents
This option gives you the right to buy 1000 BHP Billiton Limited (BHP) shares for $30.00 each, on or before the expiry date in May. If BHP rises strongly above $30.00 by expiry of the option, you have locked in a lower buying price for the shares.
As the buyer of the option, you have a choice as to whether you want to exercise and buy the 1000 BHP shares or if you just want to sell the option.
For example, if you are right in your assumption, and BHP rises to above $30.00 over this time, you have locked in a lower buying price for the 1000 BHP shares at $30.00. You could elect to exercise your option and buy the shares, paying the full face value of $30.00 per share plus other fees and transaction costs that might be applicable. Also, the option premium you paid at the start for this option would be added onto the $30.00 purchase price, so the break-even on this trade will be increased by this amount.
Alternatively, if you decide that you don’t want to buy the shares, perhaps you were interested only in participating in the increase in BHP’s share price; you could sell the option and profit from the increase in premium.
Worst case scenario, should BHP fall below $30.00 over this time, your option would lose value. If BHP is below $30.00 at expiry, the option would expire worthless. Should you now want to purchase the shares, you could buy them at a lower price in the market. Even though the initial premium paid might be lost, the decreased purchase price of the shares will at least partially offset this.
To receive ASX Option Recommendations or to learn more about trading options please request the complete Introduction to Options Trading eBook by contacting us on 07 5504 2244 or info@totaloptions.com.au
ASX Option, ASX Option Recommendations, BHP, BHP Billiton Limited, BHP Options, BHP Shares, Bought Call Option, Call Option, Long Call, Option, Option Recommendations, Option Trading, options, Options Trading, Trade Example, Trading Option, trading options |
Posted on February 18th, 2010 admin No Comments
A bought call option purchase is also known as a long call option, which is a bullish or very bullish position. It gives the holder the right, but not the obligation, to buy the underlying asset at the exercise price on or before a specific period of time. The risk for the holder is limited to the premium paid for the option. The reward is unlimited. The bought call strategy benefits from an increase in the price of the underlying asset.
Buying calls is a bullish strategy that can be used as an alternative to the outright purchase of the underlying asset, giving you the benefits of limited risk and increased leverage. To profit from bought calls you are looking for a break out with a very bullish move. One way to identify this move is by using technical analysis.
If a call is in-the-money you can exercise your right to buy the shares at the strike price. The reason for exercising would be to hold the shares instead of closing the option and locking in the intrinsic value at expiry. Most option holders will close the position instead of exercising their right to buy the shares. An alternative strategy for buying shares is to sell put options.
| Market Outlook | Bullish |
| Risk | Premium Paid |
| Potential Reward | Unlimited |
| Premium | Paid at purchase, no margin calls |
| Time Decay (Theta) | Negative |
| Volatility (Vega) | Positive |
To receive ASX Option Recommendations or to learn more about trading options please request the complete Introduction to Options Trading eBook by contacting us on 07 5504 2244 or info@totaloptions.com.au
ASX, ASX Option, ASX Option Recommendation, ASX Option Recommendations, Bought Call Option, Buying Calls, Call Option, Call Options, Long Call Option, Option, Option Recommendations, Option Trading, options, Options Trading, Put Option, Put Options, Sell Put Options, Time Decay, Trading Option, trading options, Volatility |
Posted on February 18th, 2010 admin No Comments
Theta is the ratio of the change in an option price as the expiry date approaches. An option value declines over time if the share price stays still. As an option approaches its expiry date without being in-the-money, its time value declines since the probability of that option being profitable (in-the-money) is reduced. If time decay works against buyers of options, then it stands to reason that it must be working in favour of option writers (sellers). To mitigate the effect of time decay you can trade place option spreads where you sell against a bought position. (More detail in Bull Call & Bear Put Spreads Seminar)
Time decay of an option accelerates as it approaches expiry see the below chart. In particular, notice how in the last 30 days before the expiry of the option the time decay is most rapid. This means that an option will lose more time value in the last 30 days before expiry than at any other time during the life of the option.
Buying out-of-the-money options (a long way from the current market price) with less than 30 days to expiry will require substantial moves in the underlying market in order to become profitable. Most times these out-of-the-money-options will expire worthless. Look to take advantage of this fact by writing (selling) these options as part of an overall strategy when time decay is most pronounced.
To receive ASX Option Recommendations or to learn more about trading options please request the complete Introduction to Options Trading eBook by contacting us on 07 5504 2244 or info@totaloptions.com.au
ASX, ASX Option, ASX Option Recommendation, ASX Option Recommendations, Bear Put Spreads, Bull Call, Option, Option Price, Option Recommendations, Option Spreads, Option Writers, options, Options Trading, Theta, Time Value, trading options |
Posted on February 17th, 2010 admin No Comments
Dividends can have a significant affect on option premiums. When dividends increase it causes call option premiums to decrease in value and put option premiums to increase in value. Basically call option premiums have an inverse relationship to dividends. When a share goes ex-dividend the share price decreases accordingly by the amount of the dividend. This price movement is priced into the options value so it is very hard to profit from buying puts before the dividend unless you expect the share price to fall more than the dividend value.
To receive ASX Option Recommendations or to learn more about trading options please request the complete Introduction to Options Trading eBook by contacting us on 07 5504 2244 or info@totaloptions.com.au
ASX, ASX Option, ASX Option Recommendation, ASX Option Recommendations, Buying Puts, Call Option, Dividend, Dividends, Ex-Dividend, Option, Option Premiums, Option Recommendation, Option Recommendations, Option Trading, options, Options Trading, Put Option, trading options |
