Tuesday, November 12th, 2019

Best Option Trading Strategy

Option trading strategies can be simple and they can be complex. The best route for beginners is to stick with the basics. Here is what Futures Magazine had to say about options strategies for beginners.
In a covered call (also called a buy-write), you hold a long position in an underlying asset [...]

Trading Options

Trading options can represent the best as well as the worst of trading. Trading options can allow the investor to make great profits. It can also lead to disastrous results if he or she doesn’t stay with a proven trading plan. No matter what you know, it is always good to have [...]

Fifty-Two Week Moving Average in Options Trading

Options traders can use the fifty-two week moving average to decide whether puts or calls are a better approach to trading a given stock. The fifty-two week moving average helps spot both support and resistance levels. The fifty-two week moving average or moving averages for longer terms also help you see [...]

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.

Timing Options Sales

As we note in our article about timing options purchases, timing options sales can be as important as good fundamental and technical analysis. In fact, the point of analysis is to determine how low or how high and equity will go and when it will do so. The most effective use of [...]

Trading Options on Starbucks

As the 40 year old company continues to beat earnings estimates trading options on Starbucks – SBUX – can offer traders a degree of assurance. With options, traders can position themselves so that they will not miss out on continuing stock gains and not be stung by an often predicted but not yet seen slump. [...]

Trading Weekly Options

Trading weekly options offers the trader a variety of short term stock and index opportunities. As of September 21, 2011 the Chicago Board Options Exchange (CBOE) lists 81 stocks and funds available for trading weekly options. These include thirty different classes of options including indexes. Weekly options are listed on Thursdays and expire on Friday [...]

Puts on Oil

Puts on oil outnumbered calls recently as options traders anticipated a fall in oil prices. As those engaged in Euro options trading are aware, industrial production in Europe, China and North America, is down. As industrial production falls so does oil consumption. Options traders use puts on oil in order to leverage their investments [...]

Commodity Options

Commodity traders use commodity options to reduce investment risk and secure the opportunity to buy or sell a commodity at the current price, no matter which direction the commodities market moves. When trading commodity futures one can buy options on agricultural products, forest products, precious metals, financial instruments, or environmental credits. In doing so the [...]

Successful Options Trading Strategy

Successful options trading requires a strategy. What are the components of a successful options trading strategy? The Yen appears to be in trouble after the Bank of Japan Governor, Masaaki Shirakawa, spoke in a Wall Street Journal interview about disruptions in Japanese industrial production. Developing a successful options trading strategy for the Yen will require [...]

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