Protect Your Stocks Using Put Options
Feb0
Hoping and praying that the stocks that you just bought will go up is not the best strategy to use, however it is the one very often used by the average Joe stock trader who is learning how to trade. The only salvation they have is that in bull markets most stocks will go up.
Statistics show that in a bull market about 75% of the stocks will follow the general trend and go up, and in a bear market 75% will also go down. Trading with the trend is the best way to trade as 9 out of 12 stocks will follow the trend and give you the best chance of making gains on your stock purchases.
The most important thing that you can do is learn to trade from a good trading mentor, and also learn about other startegies such as swing trading.
But what if you own some good stocks and don’t want to sell when the market is clearly going down, or about to go down?. There are a couple of tactics that you can consider, both of which involve the use of options, CALL options and PUT options. There is the well known strategy called Covered Calls, and the much lesser known one called the Married Put.
If you are going to trade options it is essential that before you start trading you get the best option trading education that you can. You should also practise until you are comfortable with the process. This is a very important point that must be taken seriously, if you don’t understand the terminology and theory then you should not be trading options. If Put option, Call option, Married Put and Covered Call are new to you then don’t trade until you have studied sufficiently.
Selling call options against your stock in 100 share increments is the basis of the covered call strategy and it can provide about a 2-7% buffer against the loss in stock price. However a bigger drop in stock price will not be compensated for using the covered call strategy, in general.
Stocks in a bear market, and even in a bull market, can drop quickly on news or earnings releases, as much as 15 to 40% within a month. Using covered calls to protect your stocks will only provide limited protection of less than 7% at best and so will not save your account if the stock takes a 40% tumble.
The better solution to providing down-side stock protection is the option strategy called the Married Put. As the name suggests the PUT that you buy is used to provide protection when the stock goes down because Put options will increase in value when the stock decreases in value. The term married is used because the option that is selected has to be a good fit with the stock, in other words a good match, if the strategy is to work.
The selection of the best Put option is not straight forward and involves several criteria which are listed below:
1. The strike price of the option
2. The current stock price
3. Choice of options, in/out of the money
4. Put expiration time
Even though the married Put protection only has a limited life span if offers much more protection than the covered call. It can provide as much as 95% loss recovery in the event of a significant drop in the stock price.
The downside of the good protection is that you have buy the Put which is a cash debit whereas the covered call is a credit. But there are ways of offsetting this expense and there is much more to this strategy when executed correctly. The Married Put can be made to pay for itself and used to generate very good gains if the market, or stock to be specific, moves a lot.
The basic idea of the Collar Trade is to combine the covered call and married Put strategy into one, this is what is called the Collar Trade. In effect you put a collar around the stock, sell a call and buy a PUT. If you do this correctly most of the cost of the Put can be offset by the credit from the covered call so you can protect your valuable stock at almost no cost. Yes this is a great strategy which the general public is unfortunately ignorant of, and most brokers don’t understand.
The strategy that I have outlined above is unknown to the average stock market trader but is one of the best trading systems you could have, along with momentum trading.
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Invite To Join Secret Forex Inner Circle
Jan0
Almost ten years after Y2K, the Forex market is bigger than ever. The volume of trading continues to soar. In fact, it’s exploded.
Trillions of dollars worth of currencies change hands every minute of every day on the Forex market, and it puts the stock market’s limited profit potential to shame.
But where there are huge profits, there can be scary losses. Until now, profits were for the experts and those devastating losses?
Well, those were for the rest of us…
James Marshall is about to blow that wide open. And he’s ready to share his deadly secrets with a few of YOU.
This video sneak preview will give you a taste of the amazing changes that James and his team are bringing to Forex trading in 2010…trust me, you’ll be ASTOUNDED:
==> Visit Official Forex Mercenary Site
The most amazing thing about Forex is the speed with which you can make mind-blowing profits.
But, this shattering speed is also the deadliest aspect of Forex trading. The market can turn in literally seconds, snapping up your money and leaving you for dust.
And let me tell you, it’s not a question of unfortunate traders losing their hard-earned cash. Believe me when I say that over 90% of Forex traders crawl away from the trades with their tails between their legs.
Instead of dropping amazing profits into their pockets, the speed of the trade has run them over like an out-of-control freight train.
Sounds painful, right?
The fact that the Forex market is so changeable leaves most traders hanging between two emotions: greed and fear. It’s amazing how few people realize that that’s a recipe for pure disaster.
They’re terrified of losing money. They’ve had some crushing losses in the past, or can sense the next big failure lurking around the corner like some financial Bogeyman.
Or, they’re greedy, plain and simple. Hey, it’s understandable – they’ve finally managed to make some profit on this incredible, complex market and they want to hold out to see how much they can make.
Only the profits don’t increase. The market turns and the profits melt away like ice in the sun.
It’s easy to see how people get paranoid. And a paranoid trader is never going to be a great success. You need to be cool, calm and collected.
We’re all slaves to our own emotions. Thinking that you’re superhuman and can beat the system is precisely the thing that’s going to lose you your savings and your self-respect.
Which is exactly why I’m so thrilled that James Marshall has come along. His new system is set to revolutionize Forex trading for the New Year. And you’re going to be GOBSMACKED…
James and his team of experts are about to shake up the Forex market, so take a look at this short video to learn what this means for you and your bank account…
==> Visit Official Forex Mercenary Site
I can’t tell you too much – they explain it way better than I ever could and besides, it’s still top secret. I can tell you one
thing, though…
If you thought that the big time profits were reserved for the top traders, you’re about to get the shock of your life. Forex is about to be cracked open so that ordinary guys like you and me can get a share of those amazing wins.
THIS IS THE MOST IMPORTANT LINE YOU’LL READ:
James and his team have spent the last few years developing a system so powerful, that it has produced staggering results of 1,058 TRADES WITHOUT A LOSS.
No, I’m not kidding. This is 100% real.
Don’t take my word for it – just settle down for a couple of minutes, watch this video and let them show you how it works:
==> Visit Official Forex Mercenary Site
Rob Trader – Forex Expert Article Source:http://www.articlesbase.com/day-trading-articles/invite-to-join-secret-forex-inner-circle-1682133.html
http://tradingtoollist.co.cc/
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Collar Strategy Can Protect Your Stocks
Aug0
Hoping and praying that the stocks that you just bought will go up is not the best strategy to use, however it is the one very often used by the average Joe stock trader who is stock trading internet. The only good point they have is that in bull markets most stocks will go up.
Statistics show that in a bull market approx 75% of the stocks will follow the general trend and go up, and in a bear market 75% will also go down. Trading with the trend is the best way to trade as 8 out of 12 stocks will follow the trend and give you the best chance of making gains on your stock purchases.
But what if you own some good stocks and don’t want to sell when the market is clearly going down, or about to go down?. There are a couple of tactics that you can consider, both of which involve the use of options, CALL options and PUT options. There is the widely known strategy called Covered Calls, and the much lesser known one called the Married Put.
If you are going to trade options it is essential that before you start trading you get the best option trading education that you can. You should also practice stock trading until you are comfortable with the process. This is a very important point that must be taken seriously, if you don’t understand the terminology and the theory then you should not be trading options. If Put option, Call option, Married Put and Covered Call are new to you then don’t trade until you have studied sufficiently.
Selling call options against your stock in 100 share increments is the basis of the covered call strategy and it can provide about a 2-7% buffer against the loss in stock price. However a bigger drop in the stock price will not be compensated for using the covered call strategy, in general.
Stocks in a bear market, and even in a bull market, can drop quickly on news or earnings releases, as much as 15 to 40% within a month. Using covered calls to protect your stocks will only provide limited protection of less than 7% at best and so will not save you if the stock takes a 40% tumble.
The better solution to providing downside stock protection is the option strategy called the Married Put. As the name suggests the PUT that you buy is used to provide protection when the stock goes down because Put options will increase in value when the stock decreases in value. The term married is used because the option that is selected has to be very compatible with the stock, in other words a good match, if the strategy is to work.
The selection of the best Put option is not straight forward and involves several criteria which are listed below:
1. The strike price of the option
2. The current stock price
3. Choice of options, in or out of the money
4. Put expiration time
Even though the married Put protection only has a limited life span if offers much more protection than the covered call. It can provide as much as 90-95% loss recovery in the event of a significant drop in the stock price.
The downside of the good protection is that you have buy the Put which is a debit whereas the covered call is a credit. But there are ways of offsetting this expense and there is much more to this strategy when executed correctly. The Married Put can be made to pay for itself and used to generate very good gains if the market, or stock to be specific, moves a lot.
The general idea of the Collar Trade is to combine the covered call and married Put strategy into one, this is what is called the Collar Trade. In effect you put a collar around the stock, sell a call and buy a PUT. If you do this correctly most of the cost of the Put can be offset by the credit from the covered call so you can protect your stock at almost no cost. Yes this is a great strategy which the general public is unfortunately ignorant of, and most brokers don’t understand.
The strategy that I have outlined above is unknown to the average stock market trader but is one of the best trading systems you could have.
A675438906
Mail this postPopularity: 8% [?]
