Option Trading – Bull Call Spread

Posted on April 20th, 2012 admin No Comments

This is a recent trade of Option Expert William Chien, if you are interested in speaking to William about his option trading strategies call 07 5504 2244.

(This publication is not providing advice, it is just published as an example.)

 

FXJ appears to be resting on its long term uptrend line at the $0.72 level before it moves higher again (see below daily FXJ chart).

 

Hence, I would recommend the following FXJ bull call spread trade to take advantage of a potential rise in the FXJ share price.

 

Buy 400 May FXJ $0.75 call & Sell 400 May FXJ $0.85 call for a net debit of about $0.02 per spread GTC; costing about $800 in premium (before brokerage)

 

  • Low risk: maximum potential loss = $800 plus brokerage
  • No ongoing margin requirement
  • High potential profit: if FXJ trades up to $0.85 as per my projection, then we will achieve a profit in excess of $2,000 (see below payoff diagram)

 

Although the recommended trade size is 400 spreads, client can elect to trade a different size to suit their risk tolerance.

Please ring the Dealing Desk and ask for William on 1300 73 66 22 if you are interested in his Option Trade.

 

Option Trading - Bull Call Spread

The Basics of Stock Option Trading Strategies

Posted on May 20th, 2011 admin No Comments

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.

The Bought Strangle Strategy

Posted on March 24th, 2010 admin No Comments

The bought strangle, is a volatile option trading strategy that profits when the stock goes up or down strongly. The Strangle is a similar to the bought straddle. The strangle is in essence a technique used to place a straddle at a cheaper price. The strangle requires a lower debit amount to put on and works exactly like a straddle. One should use a strangle when one is confident of a move in the underlying asset but is uncertain as to which direction it may be. These uncertain moves can be identified through both fundamental and technical analysis.

Establishing a strangle simply involves the simultaneous purchase of an out-of-the-money call option and an out-of-the-money put option on the underlying asset. An out-of-the-money call option allows you unlimited profit to upside when the stock moves higher than the strike price with limited loss to down side. An out-of-the-money put option allows you unlimited profit to downside when the underlying stock moves lower than the strike price with limited loss to upside. Combine them both and you will have a strangle which profits when the underlying stock moves up or down beyond the strike price of the respective options. As the out-of-the-money options in a strangle is cheaper than the at-the-money options in a straddle, a strangle is sometimes described as a “cheap straddle”.

Author: Matthew Gartrell

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

Sold Straddle

Posted on March 22nd, 2010 admin No Comments

A sold straddle is a non-directional options trading strategy that involves simultaneously selling a put option and a call option of the same underlying security, strike price and expiration date. The profit is limited to the premiums of the put option and call option, but it is risky if the underlying security’s price goes up or down much. The deal breaks even if the intrinsic value of the put or the call equals the sum of the premiums of the put and call. This strategy is called “non-directional” because the short straddle profits when the underlying security changes little in price before the expiration of the straddle. The short straddle can also be classified as a credit spread because the sale of the short straddle results in a credit of the premiums of the put and call.

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

US Income Strategy Recommendation: Lowe’s Companies Inc (LOW)

Posted on February 24th, 2010 admin No Comments

This is an Income Strategy Recommendation for investors looking to invest in the US market via US options. This recommendation is similar to the last two month as the trade last month expire safe/profitable and has returned $3410 USD and still believe LOW is a good investment. The recommendation is buy LOW shares at a discount to market. The recommended trade is to sell put options on LOW with the intent to purchase the shares. This recommendation is designed for investor looking to generate monthly income with capital protection. Instead of buying LOW shares today at market at $23.05 we can place this trade which gives an equivalent entry price at $22.52 a discount of 2.3% and a price I am happy to buy the shares at.

Trade

  • Sell 22 contracts LOW March $23.00 Puts @ 58 cents
  • Buy 22 contracts LOW March $21.00 Puts @ 10 cents

Net Credit 48 cents

Shares per contract = 100

Trade Summary
Maximum Profit $1,056 USD
Maximum Loss $3,344 USD
Breakeven $22.52
Return on Share Value 2.09%
Annualised Return on Share Value 25.04%
Return on Risk (ROR) 31.58%

If exercised we will purchase 2,200 shares at $23.00 which is a trade value of $50,600. When entering this trade you need to be aware and able to purchase the shares if exercised.

Brief Overview

Lowe’s Companies, Inc., together with its subsidiaries, operates as a home improvement retailer in the United States and Canada . The company provides a range of products and services for home decoration, maintenance, repair, remodelling, and property maintenance. It offers home improvement products in various categories, such as appliances, lumber, paint, flooring, building materials, millwork, lawn and landscape products, fashion plumbing, hardware, lighting, tools, seasonal living, rough plumbing, outdoor power equipment, cabinets and countertops, nursery, rough electrical, home environment, home organization, and windows and walls.

Reason for Trade

  • Technical Analysis – LOW is a buy at these levels with strong support at $22.00 and $23.00 and our breakeven is below this level.
  • Return on Risk above 30%
  • Capital Protection at 93.25%

US Option Income Strategy – Register your interest here…

We are now providing full service US option recommendation for the US options market. To register your interest in receiving US option recommendations or opening an account please contact me for more information.

Chart

If you would like to place the LOW recommendation, please email me your account number and quantity of contracts.


To receive US Option Recommendations or to learn more about trading options register for our US Option Trading please contact us on 1300 368 316 or info@totaloptions.com.au

Introduction to Option Trading: Combination Trades

Posted on February 22nd, 2010 admin No Comments

Introduction to Option Trading

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

Selection Criteria – Selling Options

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

Selection Criteria – Buying Options

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

Sold Put Option

Posted on February 22nd, 2010 admin No Comments

Writing a put represents a short put option, which is a slightly bullish or neutral position. This strategy entails writing (selling) the put option with an obligation to buy a fixed number or amount of the underlying asset from 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 put writing can be extremely high and always carries margin requirements.

The reward in this strategy is limited to the option premium received for selling the put option. The risk is unlimited. Writing puts is used if you are bullish on the underlying asset, and is used basically to collect the premium when a trader or investor feels strongly that the put option contract will expire worthless, or will be worth less than the premium received.

Selling put options can be an alternative to buying shares. For example rather than buy 1000 BHP at the current share price $30.00, you can sell at-the-money puts expiring in a month and receive $1.50 ($1500). This means your break even price on the shares is $28.50. You have basically sold insurance so if the share increases you get to keep the $1500 and sell another put option. If the share decreases you have bought the share at $28.50 instead of $30.00 anyway. There are many more variables to take into account regarding this strategy which will be discussed later in the course under income strategy. Please contact me in the meantime if you wish to discuss trading this strategy.

Summary:

Market Outlook Neutral/Bullish
Risk Limited to strike price less premium
Potential Reward Premium Received
Premium Received at purchase, margin required
Time Decay (Theta) Positive
Volatility (Vega) Negative


To receive The ASX Options Recommendation 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

Sold Call Option

Posted on February 19th, 2010 admin 1 Comment

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