Archive : Options

The potentially grey and obscure world of complex financial instruments is often put aside for the purposes of maintaining both conversation and consciousness over dinner. The world of swaps was firmly placed in this category of protracted and almost irrelevant financial drudgery until one of the most influential speculators of all time labelled them as ‘financial weapons of mass destruction’. [...]

Options are often seen as the toys of those with deep enough pockets to afford them and strong enough nerve to know when to get out or ride through the potential for large account drawdown. This often puts them out of sight and mind of most retail traders who find the more manageable risk of spreadbetting, traditional investing and CFD trading far more attractive. The fact that options have almost [...]

With global markets trending lower, Friday morning saw US stocks struggling to find direction as investors bought up beaten-down sectors in the aftermath of yesterday’s massive sell-off. Investors continue to remain cautious however,  as the fear remains that we may be on the verge of a global economic slowdown. A rise in the US dollar also indicates investors desire for risk management and safety [...]

Coming into the summer months, most traders are aware of the fact that the market tends to become a little less directional and moves sideways or consolidates. Normally, this isn’t too much of an issue for stock traders, but as option traders, we are always looking for ways to balance the effects of time-decay on our positions. One of the ways I like to actually earn money on time-decay, while reducing [...]

Options are essentially derivative securities that are totally different from futures. While a future is an obligation on both the parties involved, options on the other hand, are simply an obligation on the seller’s part but the right of the buyer. The exact definition of options is an agreement to purchase a commodity on a future date at a price determined today mutually between the seller of the [...]

History and purpose of stock options: Stock Options have been around since the early 70s, and they were created as part of the broader derivatives markets, in an effort to make global financial trading more efficient and more stable. Ultimately the derivatives markets have resulted in smoother stock trading, but they have even stabilized the way commodities such as crude oil trade from day to day, [...]

As you may already know, Options have a unique, non dollar for dollar pricing structure, they offer the best risk / reward ratio for investing and short term trading alike. Stock Option trading is all about taking that unique pricing structure into account and planning an investment strategy with it. Stock Options offer high leverage, depending on the underlying stock and the implied volatility of [...]

Put Options are used extensively by investors as a way to hedge their stock portfolio, much like Call Options, Put Options are legally binding contracts, except that Put Options that grant the buyer the right to SELL 100 shares of a stock, at a predetermined (Strike) price, and they are used by investors who believe or fear that there might be a drop in the underlying stock price! Payout diagram of [...]

Trading stock Options can be extremely favourable from a risk – reward perspective, but it can also be extremely confusing where one ‘minor’ overlooked detail can ruin everything. When I first started trading Options I never looked at these factors, yet they were the reason why the market moved in my favour while my Options were gaining nothing in value. Options trading is quite obscure and tricky, [...]

The concept of Call Options: American style Call Options are legally binding contracts that grant the buyer the right to buy 100 shares of the underlying stock, at a fixed predetermined price. This right comes at a cost, known as the premium of the Option, and the buyer can exercise this right or sell it back to the market any time before expiration. The buyer of the Call Option expects the underlying [...]