Why Trade Options?

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Why Trade Options?

Leverage

Options are an investment product used for its leveraged nature. Many traders turn to options because they can start investing with just a fraction of the money that would be required to trade the underlying asset. Trading in options can allow you to benefit from a change in the price of the share without having to pay the full price of the share. The option premium you initially pay is your maximum risk. A bought call option also has potential unlimited returns. The risk vs. reward characteristic of buying options is the primary reason traders use options.

Flexibility

Options can be used for a number of different objectives. Portfolio managers use options to insure or hedge their portfolios. Traders use options to take advantage of market conditions that can not be traded with just the underlying share. If you can accurately analyse the direction of the underlying share, there is an option strategy that you can use to make a profit. These strategies can profit whether the underlying shares goes up, down or sideways. This is exactly what this seminar series will teach and is the reason I trade options.

Share Portfolio Management

Options can allow you to build and manage a diversified share portfolio. You can use options to either buy or sell shares. If a sold put is exercised you are obligated to buy shares. Additional income can be generated by selling calls. If a sold call is exercised you are obligated to sell the shares at the exercise price. Options can also be used as a form of risk management. Bought put options allow you to hedge against a possible fall in the value of shares you hold. This can be considered similar to taking out insurance against a fall in the share price.


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

Covered Calls – Monitoring Trades

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The share price increases this is great for your trade and there are three things you can do:

1. Do Nothing

2. Roll out sold call for a small credit to avoid unwanted option exercise

3. Wait to be exercised and lock in profit

The share price falls there are a number of different things you can do with the covered call position:

1. Do Nothing

2. Close out of entire position sell shares and buy back sold call

3. Buy back sold call

  • This will be bought back at a lower price and therefore locking in a profit.

4. Protect Capital

  • Buy a put option to if you think the share price will continue to fall
  • This will reduce the risk of the trade significantly
  • More information on protecting shares from a fall can be requested.


To receive ASX Option Recommendations or to learn more about The Covered Call or The Buy – Write Option Strategies please request the Covered Calls eBook by contacting us on 07 5504 2244 or info@totaloptions.com.au