Stock Options Trading – How to Profit From Falling Stock Prices
Mar0
Normal 0 false false false EN-US X-NONE X-NONE
When it comes to making money on the Stock Market you will find everyone has their own view on the best strategy to use.
One of the most common strategies to make money in the short term is to buy shares and sell them at a profit once the share price has risen.
This is called Stock Trading, and can be a very effective way to profit from shares.
However just lately we have been looking at a downward and quite volatile move in our markets.
Right now many traders are sitting back ‘waiting for the market to get back to normal’ before they begin to profit again, but who knows how long bear markets last?
And what are these traders going to do for CASH in the meantime?
I believe in trading a strategy that suits the direction of the market, not waiting for the market to eventually comply with the criteria of just one particular strategy.
While everyone else has been running the other way in the present market conditions, there are quite a few traders who have been making consistent profits.
How are they making money on falling stock prices?
Well there are several ways to achieve this, some more complicated and costly than others. The most affordable, easy to understand and easy to implement trading vehicle I have found that will help you make money on a falling stock is Put Options.
Put Options began many years ago as a hedging instrument. That is they were designed as an insurance instrument for shares.
Basically a Put Option is a contact that relates to a particular stock and gives you the right to sell that stock at a fixed price within a certain period of time. For this right we pay a premium.
So an example of hedging would be if you owned some shares that you paid $ 20 for and bought a put option for insurance. This would give you the right to sell your shares at any time (during the life of the option) for $ 20, even if the share price fell to just a few dollars.
How do you make money using PUT options?
The most common way is to trade the actual Put Option and NEVER buy or sell the stock. This is called Options Trading.
As the share price drops in value, the value of the Put Option actually INCREASES. You want to buy puts in a falling market and then sell for profit.
Let’s imagine that ABC shares are trading at $ 40 and our analysis tells us that the price may fall even lower.
We could buy an ABC $ 40 Put Option and for this we might pay $ 2.
We now have the right to sell those shares at any time before expiry of the option for $ 40. But we don’t own the shares, nor are we interested in owning the shares.
Soon after we buy the option, the share price falls to $ 30. So if we wanted to, we could buy the shares now at the market price of $ 30 and sell them with our put option for $ 40 resulting in a $ 10 profit.
That sounds appealing?
To do this however, we would have to come up with the $ 30 each share to be able to buy them before we could get that $ 10 profit in our hot little hands. What if we don’t have that kind of money to spare?
Here’s the power!
Because the share price has fallen, our Put Option could now be worth $ 12. And because we only paid $ 2 for it initially, we are now looking at a $ 10 profit.
We would then sell the put option on the market for $ 12 and realize our $ 10 profit, and all we had to come up with to do this was the initial $ 2 we paid for the option contract.
This is called leverage and it is a very powerful way to make money from a smaller amount of money.
And the maximum amount we stand to lose if we get it wrong? Just the $ 2 we paid for our option in the first place.
Options Trading Forum for beginners to advanced traders
To your ultimate success
Lorraine James
Mail this postPopularity: 1% [?]
Is Technical Analysis Better Than Fundamental Analysis
Mar0
Options Trading: Reversal Pattern - when to get in and when to get out
When Trading the Stock Market or Investing for the long term there are two methods of analysis an Investor may choose to base their decision making process on.
Technical Analysis and Fundamental Analysis.
But how do we know which is the best method to use?
That really depends on the strategy you are using and your desired outcome.
Let me explain…
FUNDAMENTAL ANALYSIS is the study of a particular company’s financial and management details.
There are those investors who believe that they can make an estimate of the value of a company’s stock price, as well as how it may perform in the future, just by looking at the company’s profits and expenditure history, as well as the level of company debt and it’s strength of management.
They form a view as to whether the company will remain profitable for the future and if it can offer solid ground for investment.
This method of analysis is strongly recommended if you are investing your money in the marketplace for long term gains and capital growth.
TECHNICAL ANALYSIS is the study of the share price history of a particular stock using a stock chart and just a few graphing tools and indicators.
The approach of a technical analyst is completely different to that of a fundamental analyst. They don’t care at all about the “value” of a company because they are only interested in the movements of the company’s share price in the market.
Using Technical Analysis Software and different tools such as trend lines & support and resistance, a technical analyst is able to study the supply and demand of a stock to determine which direction or trend might continue in the future.
In summary, Fundamental Analysis is based on what SHOULD happen, while Technical Analysis is based on what DOES happen!
When Trading the market for short term gains, Options Trading your analysis should be more focused on the technical aspects of a company using their stock chart.
In simple terms, Technical Analysis studies the prices and volume of a stock in an attempt to understand the emotions in the market itself, rather than the components that make up the market.
It is true that some fundamental aspects can influence the movement of a share price (such as company announcements) however you need to remember it is people who actually drive the market and you can see their sentiment in the price bars on a chart.
Price movements are based on the emotions of Buyers and Sellers (supply and demand).
If people wanting to sell are dominating the market, you can SEE this on the chart with trend lines that are sloping downward.
If people wanting to buy are dominating the market, you can see that too on the chart with a trend line in an upward direction.
And even if both the buyers and sellers are uncertain as to where the price will head, you can actually see their indecision in the price bars or candles on the stock chart (This is called an Inside Day).
Simple tools, available with most good Technical Analysis Software, are all you need when Options Trading or Stock Trading for short term gains. And if you understand the benefits and limitations of this method of analysis, it can give you a powerful set of tools or skills that will enable you to be a better Trader and Investor. More Resources
To your ultimate success
Lorraine James
Mail this postPopularity: 3% [?]
Options Trading For the Bold and Speculative Investor
Jan0
Looking for a versatile, speculative and highly opportunistic source of investment? Why not indulge in some options trading?
The basis of options lies in an underlying asset which is the subject of sale or purchase. This object can be anything ranging from a security of some sort, a piece of property or even a futures contract. There are primarily two persons involved in the contract namely the buyer and the seller. The seller charges a premium for granting the buyer the ‘option’. Now it is in the hands of the buyer to exercise the right of sale of the underlying asset which is called a ‘put option’ whereas if he chooses to buy the asset, then it is known as the ‘call option’. Thus the seller has to buy or sell the asset at the agreed price which is called the ’strike price’. At times the buyer retains the asset until it’s time period expires
The amount of leverage provided by option trading is immense. Very little investment can lead to large number of underlying stocks. But only the sophisticated or experienced investor need venture into this area for fear of possible large losses. In fact options are an extension of your knowledge or opinion in stocks. Thus a good analyzer of the stock market would certainly perform well in this field.
The option trader is often in a better position of risk then the stock trader. This is obvious in a case where the price of a particular stock drops and the stock holder suffers a huge loss having paid an amount equal to the face value of the stock, the options trader having invested only a percentage of the face value of the stock say 10% or even lesser will stand to lose only that much.
Options trading also offer the advantage of buying an equal amount of ‘put options’ as the number of shares you own. This is an excellent method of preventing a drop in the value of the shares owned by him and this method can be called ‘Protective Put’.
Keep in mind that not all stocks are available for option trading and those which are not are known as ‘Optionable stocks’.
The best way to start off with this trading is to open an online options trading account and then practice with call options for those stocks which seem to have an increasing value tendency and exercising put options for those stocks which show a receding trend.
Use all knowledge you accumulate through extensive research and direct it to structure risk and reward. Try and generate as much income from them rather than engaging in a speculative game.
Make sure you carry enough capital before you venture into this business. Do not stand to lose by investing your entire savings into options because with the blink of an eye it is possible to lose millions therefore make options an addition to your portfolio and not a sole income generator.
Be adequately prepared for any losses since this is essentially an expected part of the trade.
You can easily lead the markets if you can crack the code for the options trading. To know more about option trading and its benefits, you can visit http://www.optionstradingbusiness.com
Mike Bordon is a renowned SEO professional and author of many articles and e-books. Presently he is working as the editor of spotwriters. You can contact him to get your articles done. Article Source:http://www.articlesbase.com/day-trading-articles/options-trading-for-the-bold-and-speculative-investor-1755361.html
Mail this postPopularity: 3% [?]
Useful Tips on Option Trading
Jan0
Can options trading be a gamble? Often it is for certain people who get the same level of excitement and adrenalin rush from the speculative market as in the case of any gamble. Sadly these people tend to lose more than they make due to their lack of knowledge of option strategies. This is where you need to ask the question – How to trade options?
First and foremost, make the right decision regarding the underlying stock. The profit from options is closely related to the movement of the underlying stock. The trader should be aware that he has entered into a contract to trade with more or less 10,000 shares of the stock chosen and he will do well to learn to trade with multiples of one contract to minimize the losses likely to occur.
After you have mastered enough on the subject of options, you can easily engage in online options trading which is the most convenient way to carry on trade. But remember that answers to your frequently arising queries on options will remain unanswered if you don’t have adequate knowledge of margin accounts, premiums, strategies etc. It’s also necessary to have a contingency plan to escape huge losses. Also make sure your online dealings are with a fair and reputed broker so that you don’t end up paying huge amounts of fees.
Next, you need to educate yourself about ‘call options’ and ‘put options’ while mastering the options trade. The call option enables the trader to buy a stock at a predetermined price before the period of expiry to exercise this right. There is no obligation here though. The put option is just the reverse being the right of the trader to sell a specific stock at a set price before expiry. ‘Premium’ is of course the amount paid to the seller for the option. Exercise price or strike price is the above mentioned predetermined price for which you sell or buy the underlying asset.
You need to understand perfectly the risk factors associated with options. Be aware of the fact that this is an area where you can stand to lose your entire investment in a single shot in case the price of the underlying stock moves against your speculation. Options also carry an expiration date which implies that if your stock fails to regain its position before the expiry date then every penny invested disappears into thin air.
A seasoned options trader will wisely invest in calls and in puts too so that he spreads his investment to minimize his losses. No use in researching only the particular stocks in which you intend to invest, there are different factors which influence the shifts in market trends like politics, unemployment, budgets etc which you need to study in detail while you look out for trade options. Be methodical in your analysis, prepare a spreadsheet indicating performances of all your calls and puts and thus keep a good track of your earnings and losses.
You can easily lead the markets if you can crack the code for the trade options. To know more about option trading and its benefits, you can visit http://www.optionstradingbusiness.com
Mike Bordon is a renowned SEO professional and author of many articles and e-books. Presently he is working as the editor of spotwriters. You can contact him to get your articles done. Article Source:http://www.articlesbase.com/day-trading-articles/useful-tips-on-option-trading-1755458.html
Mail this postPopularity: 3% [?]
Strategic Option Trading – The Power of Support and Resistance Levels and How to Trade
Jan0
A resistance level is the opposite of a support level. It is where the price tends to find resistance as it is going up. This means the price is more likely to "bounce" off this level rather than break through it.
However, once the price has passed this level, by an amount exceeding some noise, it is likely that it will continue rising until it finds another resistance level. The SMF Pro Trader Resistance Levels are calculated using mathematical stock trading formulas we have designed over 20 years to target exact resistance levels to the penny. This goes far beyond and is very different from your standard day trading technical analysis utilizing daily moving averages.
Resistance Levels calculated at StockMarketFunding.com allow stock trading students to pinpoint the exact prices the market makers use as support and resistance. We teach people in our school how to apply mathematical ranges on minute period moving averages, daily period moving averages, and weekly moving averages. Understanding how trade stocks and identify confirmation of lows and highs are established are key to having the best entry both on long and short positions.
Breakouts typically occur when stock trade in a consolidated range within our stock trading formula. The longer the consolidation period, the stronger the breakout both to the upside and down. Sometimes you need to pay more for an equity or an option because the trend is established and you actually have less risk you are buying the low end of the range and it has been established the sellers have been accommodated.
Visit the SMF Pro Trading School to learn more about stock trading.Learn how to trade options <
Mail this postPopularity: 2% [?]
