The Lucrative Options Trading Strategy

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There are different ASX options trading strategies available today, but which one should you choose in order to yield a decent profit? If you search on the internet and go through different investing forums, you will find plenty of options trading opinions that can confuse even the moderate investors. Some investors employ academic approach and analyse profitability and risk from that perspective, while others employ a more adaptable approach. One thing is for sure, however — the main reason why investors prefer options trading is that they want to earn better profits than they can through any other stock trading strategy. With the crazy swings of the Australian Share Market over the past few years, most traders and investors have started to realize the absurdity of simple strategies like “buy and hold”, and have been looking for reliable, profit-generating trading tactics.The Lucrative Options Trading Strategy

Is options trading lucrative?

Some investing forums will give you an impression that options trading in Australia is dangerous and risky. The fact is, any sort of trading is risky, but look at the magnitude of profit that options trading in Australia offers. In contrast to any other investment option, options trading yields exceptional returns. With a very small capital, you have the leverage to control big blocks of share, through which you can reap excellent profits whenever the market moves in the right direction. The disadvantage is that the same leverage also has the capability to erase your portfolio if the options trading strategy you are using does not address certain risk factors. Therefore, the answer to the simple question above is, yes. Trading option in Australia is lucrative, but in some circumstances, it can also be risky.

Is there any options trading strategy that can yield consistent profits?

Novice traders are often introduced to the simple ideas of buying call and put options. While this strategy is easy to understand and put to work, the truth is, in order to make it successful, you need to gain some skills for technical analysis that allow you to predict at least the direction and magnitude of the market swing. This simple strategy indeed provides the greatest potential for a huge profit, but in reality, such potential is not regularly achieved. Therefore, while the simple “buying call and put options” method has an excellent potential for a good profit, it is challenging to attain such potential on a regular basis.

Selling put options

Studies have shown that the most excellent options trading strategy, which can yield excellent profit on a consistent basis, involve not buying call options, but selling put options. Selling put options or selling credit spreads (suitable for those with lower margin limits), had proved to be more lucrative over the long run than any other options trading strategy. While the magnitude of profit is small than other options trading strategies, the consistency of making profit makes it the best strategy. Another excellent advantage of this strategy is that the technical analysis necessities for selling put options or credit spreads is not as tough as that required for other options trading strategies. The risks associated with this strategy are also less. With a solid trading plan, which includes an exit strategy, selling put options can yield more profit with less risk than any other trading strategy.

If you want to venture into ASX options trading, you will need study and understand different strategies and then develop a robust plan that can help yield consistent profit and at the same time minimise your risk. At Total Options, we provide Australian option education that can help you understand how options trading in Australia works. We even provide excellent ASX options advice that can help you yield consistent good returns with minimised risks. In order to know more about Total Options, visit www.totaloptions.com.au

Options Trading – The Best Way to Earn Excellent Returns

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Investing a portion of your salary is a sensible thing to do. While it is tantalizing to spend all your earnings in buying new things, take a rational decision to save money. Everything is unstable in this day and age, and saving some money can prove to be your one of the wisest moves. Once you have gathered a considerable amount of money through savings, you can turn your focus on using that money to earn some healthy returns. Yes, it is possible to earn excellent returns from money you made through saving. How? The safest way is by making careful investment in ASX options trading. Options trading in Australia has a number of benefits.

Options Trading – The Best Way to Earn Excellent ReturnsOne notable benefit of options trading in Australia is that you can invest in it with a small capital. As a matter of fact, most investors favour to invest in ASX options only because of their requirement of small capital, low risk, and good returns. As an investor, you can garner excellent profits by purchasing shares below market price and selling (writing) them above market price.

Another big advantage of ASX options is that unlike other types of assets, they offer excellent flexibility to investors. Whether the share price goes down, up or sideway, with proper ASX options advice, investors can cover their portfolio or book profit.

With ASX options, you can also build and spread out your portfolio. By spreading out or diversifying the portfolio, investors will be able to buy and sell shares, as well as be able to hedge against market uncertainties. Just like any other investment, there are some risks associated with options trading. With a good ASX options advice to create sensible options trading strategies, however, the risks that associate with options can be minimised.

Find an experienced options trading advisor with the help of the internet. Professional advisors, through their various income strategies, can help maximise your profits. They have ample knowledge and understanding about the Australian share market. They can help you solve your issues or answer questions about your investment. Finally, by teaming up with an experienced ASX advisor, you will be able to eliminate the speculation with taking investment decisions.

As for your part, you should absorb yourself in different resources relating to this form of investment as well as strategies such as collars options and covered calls that you can exercise in your favour. Once you are familiarised, confident, and have selected a proper trading strategy, you have to try to keep yourself at the top of the game by staying in sync with the current market developments. Try to invest on your own with the help of useful online resources and literatures. Alternatively, you can opt for Australia option education, which can give you deep insight about securities.

Whether you want to invest in ASX options by first gaining insight on them or simply with the help of an expert ASX options advice, the professionals at Total Options can help. Total Options is a collaboration of vastly experienced ASX advisors. They provide excellent advice on a range of ASX options trading strategies. In addition to professional advice, the professional at Total Options also provide ASX options education that gives investors a valuable knowledge on options trading in Australia.

Visit their website www.totaloptions.com.au to know more about them.

How to Play Safe with Options Trading in Australia

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Even though ASX option trading in Australia is commonly used financial product these days, it can be complex and highly risky in nature. On the other hand, good option trading strategies have the potential to make investing safer. ASX options are perhaps the most flexible trading securities out there and are also exceptional and versatile products, which investors, both novice and expert, can use to scale down risk and beef up profits.

How to Play Safe with Options Trading in Australia

Hazards with Options Trading

Greed – It is the biggest threat, which is entirely human in origin and is not inherently associated with options trading. Many people begin to invest in ASX options simply because they see huge profit in them and dream of “getting rich quickly.” Of course, there are huge profits and chances of getting rich quickly with options trading, but right trading strategies are essential for that. Unfortunately, sentiments of greed often tempt people to forsake trading strategies and begin gambling.

Trading on Margin – Selling ASX options entails providing a margin, just in case if a trade becomes a loser. Oftentimes, this margin condition does not equal the total cost that an investor has to bear should his or her trade gets trashed (which can happen pretty swiftly). This could without doubt, leave the investor in debt to his or her broker.

Loss of Investment Capital –For investors who have invested in shares and stocks, a slump in the market can set them back a small percentage, which usually is below 10% (unless if the market crashes seriously). During options trading, despite trading significantly smaller amounts of money, it is possible to lose 100% of the amount that the investors have put into the trade.

How to Play Safe with Options Trading

Adhere to a Trading Plan – First create a good trading plan through study and research, and hone it by practicing using a stock market simulator (paper trading). During paper trading, make sure that you have traded for a number of times so that you are able to experience several trades going against you—it is the best way that helps you discover how to read the signs of danger. Finally, adhere to your trading plan.

Proper Technical Analysis – Over analysis often results in a bad trade. The fundamentals for technical analysis for options trading in Australia can be different from those of stocks. Additionally, each options trading strategy features its own set of analysis techniques. Once you have opted for a good strategy, find out exactly which kind of analysis is called for, and stick with that.

Moderate Capital Allocation – Do not over allocate your capital. Most ASX options advisors advise that you do not commit anything in excess of 2% of your funds to any trade. Adhering to this advice makes it possible to take in a number of losses while still able to retain some trading power. If you write (sell) options, it is wise to leave about 15-20% of your funds readily available. It will allow you to “buy” yourself out of a bad trade just before it becomes a substantial margin liability.

Options trading in Australia offers a number of rewards that a wise investor can exploit. At the least, they offer investors an easy way of lowering the buying price of a share, or of hedging against loss. Options are often a source of secure, consistent revenue. Before diving into options trading, find out about various strategies, ensure to implement the proper technical analysis, and do not be inspired by greed.

If you want expert ASX options advice or want to learn about options trading in Australia, get in touch with experienced and professional advisors at Total Options.

The Basics Behind the Covered Calls

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Despite the popular notion that is constantly being perpetuated by the mainstream media not all options trading strategies place an undue amount of risk on an investor’s portfolio. It certainly is true that many speculative techniques, such as selling naked calls and puts, increase your overall risk, there are numerous option trades that are not only safe, but are also moderately conservative. Perhaps the most widely used option strategy available to the average investor is selling covered calls.

The buy write strategy, as selling covered calls is also known as, is a relatively straight forward and simple technique to execute. As the seller the only thing you really must have is at least 1000 shares for every call option you want to sell. This is important since each option contract controls 1000 shares of the underlying asset. Additionally, selling a covered call gives the purchaser the right to buy a certain number of shares of stock at a certain price as long as the buyer actually exercises his or her right to do so.

As compensation for selling these options the seller receives payment, called a premium, from the buyer. This income stays with the seller regardless of the ultimate direction the underlying stock takes. It should be noted that the buyer has the right to buy the stock yet is under no obligation to do so. In fact, approximately 75% of all option contracts that are held until maturity expire with no value. Savvy investors know this and are constantly looking for ways to use covered calls to turbo charge their investment returns even in neutral or slightly declining markets.

Perhaps the most important part to this entire investing technique is that the seller actually owns an appropriate amount of stock to cover them in the event that the price of the underlying stock closes above the option’s strike price. If the investor did not own the underlying stock, and the options were executed, he or she would have to actually go out into the open market and buy a sufficient number of shares at the current market price to cover their obligation.

As there is no cap on how high the price of a stock can rise the investor would be exposed to an almost unlimited potential liability. It is, therefore, highly recommended that intelligent investors stick with covered call strategies as their option trading technique of choice.

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.

Understanding the Basics of Covered Calls

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Despite what the mainstream media would have you believe not every option trading technique is risky. Did you know that writing covered calls is often considered to be one of the safest, most conservative investment strategies available to the average investor? If you needed any further evidence of just how conservative this strategy is it should be noted that you can even sell covered calls within your individual retirement accounts. Perhaps the main reason why people have the erroneous belief that options are risky is simply because they do not understand the basic terminology involved.

When an investor decides that they want to start selling covered call there are just a few things they need to get started. The first thing they need to do is get permission to trade options from their Option broker. Most online platforms allow options trading by default so this typically involves reading a short pamphlet and then signing a form stating that you know what you are doing. After that, all you need is to own at least one hundred shares of the underlying stock for every call option that you want to sell.

Selling a call option essentially means that you are agreeing to sell a specific number of your shares of stock to another investor at a predetermined price. If the buyer exercises their rights to buy your stock you are then obligated to sell it to them at the strike price regardless of what the current market value of the stock is. This is perhaps the main reason you will always want to be in a covered position. In this instance, being covered simply means that you have a sufficient quantity of stock to sell the buyer without having to go into the stock market and buy it.

Of course, the seller would never agree to sell the rights to their stock if there was not something in it for them as well. Anytime an investor buys an option that must pay the seller a premium. This premium is based upon numerous factors such as how much time is left until the expiration date and how close the current market price of the underlying stock is to the strike price of the option. The premium income that the seller receives is what makes this technique so profitable.

Savvy investors know that most options that are held until the expiration date will expire with no value. As such, selling covered calls against stock positions that you already own is a very lucrative investment strategy when executed correctly.

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

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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

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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

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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

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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