Stock Options Trading – How to Profit From Falling Stock Prices
Mar0
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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
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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
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Stock Options Investing 6 Common Mistakes Investors and Traders Make, And How You Can Avoid Them
Mar0
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Whether you have decided to begin Stock Trading or Options Trading, there is a very strong chance you will commit some or all of the common mistakes I’m about to share with you. Successful investing requires confidence and desire, but most importantly, discipline.
Even the most successful traders and investors have more than likely broken their rules at some stage of the game. You may develop a great skill for reading stock charts and have brilliant results in paper trading, but how well you manage your way of thinking, and in turn your money, will dictate your success with stocks and options.
Mistake #1: Not Having an Exit Plan Before Buying
All successful investors/traders have an exit plan before they even enter a position. The reason is simple: You must have a plan and stick to it, otherwise every decision you make will be emotional, not rational.
Even worse, the larger your trading position, the less rational your decision-making will be. By making all your decisions before taking a trade, you are less likely to react with fear. Emotional decisions are generally always poor ones, leading to large losses and small gains.
Mistake #2: Plunging Too Much into a Stock all at Once
By plunging, the investor makes two mistakes, putting themselves in a perfect position for their emotional decision-making to run wild:
1) They purchase entirely too large a position in a single stock.
2) They do it all at once.
Once a huge position has been taken, whether the stock price begins declining or increasing, the emotions of plunging work against the poor investor. If the stock declines, the investor will either get scared and sell out with a loss, or hold on with hopes of the price coming back (which may never happen).
If the stock increases in value, the large dollar gain is often hard to resist, and the result is that the investor cuts their potential winnings short by selling out too soon.
In short, plunging causes you to cut your profits short and let your losses keep mounting…exactly the opposite of what you should be trying to accomplish.
Mistake #3: Failing to Cut Losses
All traders and investors will have stocks show themselves to be losers. Once a stock starts to decline it can become a vicious cycle. The more and longer a stock declines the more it is apt to continue declining, or continue going sideways. For this reason, it is important to exit the position and stop the bleeding once it becomes apparent that you have chosen a loser.
There are several reasons investors do the opposite:
* Novice investors tend to hold on to their losers, hoping that the stock will someday pull itself together.
* Some hold on because they can’t accept that their analysis was wrong. The Market is ALWAYS right.
* Some reason that as long as they don’t sell, then they haven’t really lost anything. This is an error because the value of their stock is the current market price, not what they paid for it.
Mistake #4: Choosing Stocks that are in a Downtrend
Investing in stocks that are in a downward trend is the most common mistake among novice investors. To profit from such a strategy, you need to be right about two things at once..
1) That the stock’s slide will end (a surprising number never do until they become worthless)
2) The timing of when (and at what price) the stock’s slide will end.
Your chances of being right about both things are pretty slim. More often than not, you will get wounded trying to catch a falling knife.
Investors like Warren Buffett have made a fortune buying stocks when the crowd don’t want them by following a strategy of value investing. Follow the link below for more information.
Mistake #5: Adding to a Losing Position
Amateur investors quite commonly add more funds to a losing position. The reasoning behind this sounds something like…”I bought the stock when it was $20. Now it is $10, so it’s twice as good a deal as it was at $20. Besides, my average cost per share will come way down once I add to the position”
This strategy is fool-hardy and very rarely works.
Mistake #6: Falling in love with a stock
It’s a common mistake to have a good run with a stock and then decide that you will never sell it. Some people have a hard time parting with something that has been so good to them, but what your emotions tell you to do and what you should do are two different things. Save the ’till death do us part’ thing for your marriage, not for your stocks. Even billionaire investors like Warren Buffett take profits occasionally.
Discipline and solid money management rules are the keys to success. Be strict with yourself and adhere to your written trading plan. Value Investing
Learn Options Trading Strategies
To your ultimate success
Lorraine James
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Earning Profits In Options Trading?
Mar0
Options are a terrific way to protect profits and hedge. They are also a fantastic approach to increase profits, at times substantially. Though, one of the keys to undertaking all this really is being familiar with how you can use them properly.
Sadly in the market, options are still very poorly comprehended. This means that many folks wind up using them wrongly. The best way for individuals to obtain a full understanding of options and the way best to utilize them, is through a total options education.
However, even that may be not enough, potential traders must have the right kind of training. You can find a huge variety of training organizations and courses on-line, but many will train options in exactly the same way. This can be to basically show their students text book options strategies and systems and then leave them to go live in the marketplace.
This can be Okay, and fulfills basic requirements, but some students have difficulty out of this position, due to the fact that they do not genuinely recognize the way to find the opportunities when these techniques, or methods can be used.
To effectively profit from options, traders need an options training company that can initially guide them on the way to track down and identify opportunities in which options may be used, then go onto to teach them the proper techniques and approaches to realize the utmost benefits.
Preferably these companies also need to give students with the opportunity to practice their ability and study together with profitable professional traders, in live marketplace situations.
This sort of practical experience can really end up being invaluable, even though it is something that few will ever have access to. Though in the end, if you are serious about becoming successful with options, they really should attempt to find an options education firm that can offer you this type of tuition.
To check an independent assessment of the top options trading organizations that can show people how to first find possibilities in the marketplace and then show Options Trading System, and Smart Investing, just simply follow the hyperlink.
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Options Trading Strategies-Commodity-Currency Spread And Carry Trading
Feb0
Take your Options Trading to the next higher level by trading with the pros at the Live Trading Labs. Turn $200 into $100K in just 3 months with this Penny Stock System. Win your FREE COPY of the High Velocity Market Master HVMM System ($2,997) by taking this quiz. Don’t forget to get your FREE copies of the Ultimate Day Trading System that can trade stocks, forex and futures and the Universal Capital Growth Trade Tool!Many currency traders don’t know much about options. Currency options are a highly profitable method to make money from a trend in the currency market. Many traders simply focus on spot trading. If you combine spot trading with currency options, you can multiply your portfolio return many folds. There are some currencies that are popularly known as commodity currencies. You can trade these currencies with commodities using options!
For example, South Africa is the world’s largest exporter of gold. Its currency Rand is intimately correlated with gold prices in the international market. When you find the spread between gold prices and RAND to be unusually wide and out of its historical relationship, you can simultaneously trade a gold call and a rand put in case the spread between RAND and gold prices is negative or the other way around.
Now, Australian Dollar (AUD) also has a strong correlation with gold prices as Australia is also a major exporter of gold in the world markets. Now AUD is one of the commodity currencies that you can trade with Reuters Commodity Index if you find the spread getting wider than the historical relationship.
Ever thought of carry trading. Many trader do it. You too can try it. Hedge funds are the expert in carry trading. One of their popular trading strategies is carry trading. You see noone want the money to sit idle without making any return. Carry trading is a nice way to profit with the interest rate spread between two currencies. You look for a currency pair that has one currency offering a much higher interest rate as compared to the other. You buy the high interest rate currency and sell the low interest rate currency.
In the last decade, Japanese economy was facing stagflation. This forced the Japanese Central Bank (JCB) to lower the interest rate to almost zero. So carry traders started selling Japanese Yen (JPY) and buying other high yield currencies like British Pound (GBP) or the New Zealand Dollar (NZD) that were offering a much higher interest rate. Now, carry trading like any other currency trading strategy is risky. The risk is of a sudden large drawdown when the risk aversion of the carry traders increases all of a sudden on hearing a breaking news.By taking put and call positions in the two currencies, you can hedge the risk of a large drawdown.
Now, in the last decade when JPY was popular with the carry traders, GBPJPY was one of the popular carry trading currency pair. But many carry traders faced larged drawdown by taking this carry trading position. If you know a little bit about spread analysis, you can study the historical correlation between the two currencies and accordingly take a put and call position to hedge against a drawdown!
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