Monday, October 14th, 2019

Effective Options Trading Strategies

There are two reasons to trade stocks options. One is to protect a position against loss. The other is to make money from stock price changes in the market. There are effective options trading strategies to accomplish these goals.
Effective Options Trading Strategies
Covered Puts
Covered Calls
Long Straddle
Effective Options Trading Strategies: Covered [...]

Options in a Stock Split

What happens when you have purchased calls on XYZ Company and their stock splits? Options in a stock split also split, so to speak. Many traders believe that the resulting bump in stock price that occurs with a split is beneficial to those who have purchased call options or sold put options. [...]

Picking Options

Picking options is like picking stocks in the stock market but more involved. In the stock market you can buy a stock or short a stock. In occasional options trading or if you are making a living trading options there is more to do in picking options. The first choice in picking options is to [...]

Trading Options on a Government Shutdown

Times when the stock market is volatile are commonly good times for stock options trading. Now as political infighting in Washington drives us closer to a government shutdown the markets are volatile. Buying puts or calls on stocks may be quite profitable. The rationale for trading options on a government [...]

Trading Agricultural Futures Options

Producing and buying agricultural products can be risky. Prices can rise rapidly if there is a threat to supply and fall equally fast if there is an overabundance. People need to eat so there is a fairly constant demand. A constant concern for production is the weather. The threat of drought in the American Great Plains, the Ukraine, Brazil, or Argentina can drive up soybean, corn, wheat, and cattle prices. Excellent weather across North America is predictive of abundant harvests of wheat from Texas to Alberta and a fall in wheat prices. Trading agricultural futures options is a common way to hedge risk for both producers and buyers of agricultural products. A farm co-operative may buy calls on corn futures whereas a meat processor may buy calls on pork bellies. They both buy options to hedge risk .

Understanding Underlying Equities

July 5, 2013 by Jim Walker  
Filed under Options Trading Tips

When trading options, trading futures, buying convertible bonds, engaging in equity swaps, or trading exchange traded derivatives, understanding underlying equities is basic to success. The market in the overlying option, future, etc. is dependent upon the market in underlying equity. For example, when there is a stock split, a company merges with another company, or a company makes an unusually large one time cash distribution these events fundamentally change the value of the over lying option. Understanding underlying equities is essential to understanding options trading. Asking what is an option worth is basically asking the value and promise of the underlying equity.

The underlying security of an option is usually common stock but it can be American Depository Receipts (ADR’s), preferred stock, or other instruments. In the event of a merger or acquisition the underlying equity may change from common stock to another instrument. Different kinds of options trading will be affected differently in the event of a merger. For example, in a merger some shareholders may elect to receive cash and others may elect to receive shares of the surviving company. If a trader has engaged in a long straddle options strategy in the company that is being merged into the other he has the option and right to exercise the call option that is half of his strategy. This will allow him to buy the stock if he exercises prior to the date at which shareholders must choose cash or the surviving stock. Understanding the underlying equities in this situation will allow the trader to profit if having stock in the merged company is profitable. It will also allow the trader to let the call option expire unexercised if exercising would be a losing proposition.

Leasing Cell Tower Sites

A profitable business opportunity is leasing cell tower sites. Owners of property such as tall buildings or high altitude terrain may be approached by cell phone companies. Phone companies need to place their signal relay stations in high locations. Because of the large number of sites required for a cell phone [...]

Buy Cell Tower Leases

A potentially very profitable business venture is to buy cell tower leases. Cell phones are part and parcel of everyday life. The relay points in the cell phone network, the base receiver stations, are essential to smooth functioning of the mobile phone network. These base receiver stations are located at strategically [...]

Vanilla or Exotic Options

Which are better to trade, vanilla or exotic options? We define an exotic options contract as one that includes complicated business arrangements or structures as part of the bargain. Vanilla options contracts are all of the rest. In looking at vanilla or exotic options we are not differentiating European style [...]

Trading Compound Options

An options trading style similar to the Russian dolls that nest inside one another is trading compound options. Trading compound options is trading an option on an option. In trading compound options there are two exercise dates. As with trading European style stock options the first contract is only exercised [...]

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