Options Trading Tutorial

Option Profits Mike Parnos

If you don’t necessarily want to buy any stock, but you do want to control, by outlaying a little money. Does this sound like something you could get excited about?

Well, if so, welcome to trading options for quick returns or quick losses! Option Profits Mike Parnos

The amount you outlay is only a small part of the purchase price, but you could control a large pile of stock.
When the asset rises or falls your option will also rise and fall in value. Generally you can expect that options will show greater volatility and it’s by trading these ups and downs that you can make superior returns, which make stock investing look foolish.

Some Key Points About Options

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Option traders use this volatility to make superior profits.
You see you can make money when the value falls by purchasing a “PUT OPTION” and you can capture price rises when you buy a “CALL OPTION”.

Now there are many option strategies, but I believe in keeping it simple – that way I understand what I’m doing and you should too!
People who buy stocks, also protect their holdings by using options.

You see the idea of using leverage to buy is a very old one. Let’s face it we may not want to spend the money, but we want to control and options give us the opportunity to do so.

Options can do 2 simple things:

*they give you “the right to buy” and

*they give you “the right to sell” at a future time and at a future price.

You are not obligated to buy or sell, but the life of your option
is diminishing from the moment you enter the contract. Soon the
option will expire worthless. So you must trade it!

When we are ready, we either exercise our option, we sell the option and make trading profits – or we cancel our obligation, if we are option writers.

We can also cancel our obligation if we have written a “PUT” by buying it back. Likewise if we write a “CALL” we can buy it back and cancel our obligation to sell stock.

I’ve discovered a home study course you should take a look at if you are interested in using the power of leverage. Just click to http://www.AllTradingSecrets.com and find our special link to options trading video in front page.

Okay, so if I haven’t scared you so far, talking about using leverage via options – let’s carry on.

When you watch the video you will see % figures, that like the following example demonstrate the difference in movement of stock prices versus option prices. Option Profits Mike Parnos

Now let’s move on.
If you buy the stock XYZ at $37 and the price increases 12% to $41.50 you are using lots more of your precious money to capture the move than if you purchased say a $35(strike priced) option for $3.50 per option.

Now each contract in the U.S. represents 100 shares. So your total cost is $350 per contract. In Australia one contract represents 1000 shares.

If your stock goes up it will influence the option price. Options can be extremely volatile – so you need to monitor prices very closely.

So let’s say your stock goes up to $41.50 and now the $35 option series is selling for $6.50. This represents an 86% price increase.

So what has happened:

stock up 12%

option up 86%

Which trading situation do you think will make you the biggest trading profits?

Would you rather hold the option or the stock?

If you answered “the stock”, I’d be very worried about you!

Drawbacks of Options:

1. Volatility – needs close monitoring.

2. You can lose your option money if you don’t sell it before it expires.

3. Short life of options – usually months.

4. You need education in option trading.

Advantages of Options:

1. Leverage.

2. Volatility – can make more money per trade.

3. Less money needed than owning stocks.

4. Play the market UP or DOWN – flexibility.

If you increase your understanding you could do what every other trader is doing – making money from time to time!!

You see losses are part of the game – not all your trades will succeed.

Playing the game with this fact in mind will help you to trade better and to have a healthy respect for the market and controlling RISK.
We control risk firstly by being educated! I’ve chosen this link because I think it will help you understand and trade options so much better. Option Profits Mike Parnos

Is Options Trading Risky

Options trading can be quite profitable. It’s not unheard of for an option to double in value in a single day. This doesn’t happen every single day, of course, but it’s enough to give you an idea of what can be done in this market.

Of course, things aren’t that rosy all of the time. Where there’s earning potential such as this there is also risk, and indeed Options trading is considered very risky by many people and in the general public. Is this really the case? Should you avoid trading options entirely? Is options trading really risky? Is Options Trading Risky

The truth is that options trading is just as risky as the person doing the trading: if the trader doesn’t know how to trade options, the risk can be enormous. But if you attain a proper options trading training, learn the ropes, and become familiar with the way this market works, you can and should eliminate most of the risk and be able to earn a very large sum of money.

What most people don’t know about options is that they were originally created as a way to reduce risk of other investments. Therefore, it is a bid odd that options now have such a bad reputation as being risky and a sure way to lose money. You can just as easily lose money in Forex, stocks, or bonds. It all depends on your ability to identify opportunities and seize them before they pass you by.

What I recommend that you do is invest in a proper options trading course. This will allow you to become an expert in this field and make a lot of money. Remember, this is only as risky as your level of knowledge. The more you know the less risky it will be and the greater your chance of earning big profits. Is Options Trading Risky

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Option On Stocks

The QQQ is an ETF (Exchange Traded Fund) which gives investors a chance to invest in the Nasdaq 100. The Nasdaq 100 are the top 100 stocks that trade on the Nasdaq Marketplace. The QQQ Exchange Traded Fund is basically a mutual fund that tracks the stocks in the Nasdaq 100. One major benefit of an Exchange Traded Fund (ETF) is that an ETF doesn’t have the management fees and all the other fees normally charged to mutual fund holders.

The QQQ is the most actively traded security in the United States. The symbol was recently changed to QQQQ so it would have 4 characters and trade on the Nasdaq instead of the New York Stock Exchange. Even though the symbol changed, it is still based on the same thing. In most circles it is still called the QQQ, it just trades under the ticker symbol QQQQ. Option On Stocks

Since the QQQ is treated the same way as a stock, you are now able to trade options on it as well. People are now making a living trading put and call options on the QQQ. This was previously unavailable since the only way you could trade the Nasdaq 100 was with futures contracts. Very few investors are familiar with the futures market, and therefore stayed away from it. Since you are now able to trade options on the QQQ, you can also use any of the option trading strategies that were normally only used on stocks. Some of the more popular option trading strategies are covered calls, ratio backspreads, bull put spreads, bear call spreads, iron condors, butterflies and any other strategies that involve combining stocks and options.

Covered Calls are probably the most popular option strategy to normal investors. It is a way to generate a monthly income from stocks that you own. Here is a very basic explanation of a covered call: You own 100 shares of the QQQ. Option contracts are only sold in 100 share increments. Since you own 100 shares you can sell a contract to sell the QQQ to somebody at a specified price in the future. You normally sell the contract at a higher price than the stock is trading. If the stock doesn’t continue to rise, the person won’t buy the stock from you, but you get to keep the money that you got when you sold the contract. Option On Stocks

What Is The Best Options Trading Book

If you are interested in learning how to trade options, and are looking for resources to help you get started, Get Rich with Options by Lee Lowell is a great place to start.

This book will give you a great foundational understanding of the various options trading strategies. It will help you sharpen your trading skills by learning from the successes and mistakes of one of the best professional traders.

Lee’s credentials as a trader speak for themselves. He has spent 15 years in the trenches as an options trader. He started working on the floor of the New York Mercantile Exchange (NYMEX). Then after learning how the Market Makers trade, he ventured out on his own and opened up his own investment firm.

He has broken the book in to three different parts.

In the first part, he gives a background on what options are. He goes in depth into topics such as: What Is The Best Options Trading Book

- The basic difference between a call and put
- How options are priced and why it matters
- Option Volatility and how understanding it can increase your profit margins.
- Why selling options is the key to long term success for any trader

In the second part, he explains a few different options selling strategies. These may be helpful for you, particularly if you have a stock portfolio you are looking to maximize. He even talks about his own personal favorite trading strategy (I’ll give a hint: it’s called Credit Spreads. Read about it on page 115).

Finally, in Part 3, Lee gives some specific tools that traders can go to expand their knowledge, expertise, and profit margins. He even dedicates an entire chapter to brokers and commissions and how to reduce how much you are paying.

Get Rich with Options is an excellent read for any options trader, whether you have been trading the market for years, or you are just beginning to learn. What Is The Best Options Trading Book

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