Here it is. The most important piece of advice I have for anyone thinking about options trading.
Don't let the red tape hold you back.
A lot of experienced and sophisticated investors shy away from anything that involves paperwork.
They think they're not qualified or ready, or simply that it's not worth the trouble.
Don't be one of them.
Yes, you will have to fill out an options application with your broker, but it's easy.
In fact, you had to file a similar form just to open your trading account in the first place. Now, if you want to upgrade your account to be "options approved," it's just another small step away.
Admittedly, the application may look intimidating at first glance. It is full of disclosures, legal qualifications and the kind of small print that is worrisome.
Yet the purpose of the application is simple enough.
Your broker just wants you to state that you know enough about options to make your own trading decisions.
And not to worry... It's not a quiz.
The disclosures are designed to gauge your level of experience. But their real goal is to let the brokerage firm off the hook in case things go terribly wrong. Of course, that's not going to happen to you.
But if a broker lets anyone trade without at least appearing to check them out first, they could be liable for your losses. And no one wants that.
Because options are by definition speculative, the New York Stock Exchange (NYSE), Financial Industry Regulatory Authority (FINRA), and National Association of Securities Dealers (NASD) all have rules and policies about "suitability."
That's the real reason you have to go through this (very small) hoop.
So you'll fill out the application. They file it away into the "just in case" drawer and you're ready to trade.
What's on the Options Trading Application?
The options application will ask some questions you would expect: Name, address, employment and employer name, annual income and all sources of income. They also want to know your net worth and liquid net worth, marital status and number of dependents.
Then there are a few questions you might not expect.
what is futures and options trading
Article Index
Options Trading: The Most Important Piece of Advice for Beginners
To continue reading, please click here...
Options Trading Strategies: Slash Your Risk and Make Money
If you feel like Alice in Wonderland when you start to look into options trading strategies, you're not alone.
Even so-called "experts" struggle with options. It gets even uglier when they attempt to bring it down to earth for their readers.
Yet, if anyone can do it, I can.
I've written six books about options, and have been trading options myself for more than 35 years.
It means that I have already made every mistake in the book so you don't have to.
So why should you learn about and invest in options?
Done right, you can use options to create a virtual cash cow - often quickly, and often with very little risk.
Say you felt pretty confident GLD was going to go up in the next 12 months. You could have gone "long" GLD by buying 100 shares.
Of course, you'd have to be ready to plunk down about $13,000 for them. But if you had that kind of cash you would have done pretty well.
A year later, GLD was trading at $160, and your 100 GLD shares were worth $16,000. That's a nice 23.7% gain.
But you would have done even better if you had used options.
Let's say, instead, you bought one $135 call. (A "call" is just a bet on the price of GLD going up from $130; the same thing you're betting on when you buy the stock.)
A year ago, GLD calls were trading at $9.00. So you would have spent about $900 to initiate the trade. Yet by the expiration month, the price of the calls had risen to $28.00.
That means the price of the option "contract" you bought was now worth $2,800-giving you a 300% gain on the very same price move in GLD.
Now where I come from, 300% is much better that 23.7%. That's the power of options.
And there's more...
Even so-called "experts" struggle with options. It gets even uglier when they attempt to bring it down to earth for their readers.
Yet, if anyone can do it, I can.
I've written six books about options, and have been trading options myself for more than 35 years.
It means that I have already made every mistake in the book so you don't have to.
So why should you learn about and invest in options?
Done right, you can use options to create a virtual cash cow - often quickly, and often with very little risk.
Options Trading in Action
Consider the case of the SPDR Gold Trust (NYSEArca: GLD). A year ago, GLD shares were trading for about $130.Say you felt pretty confident GLD was going to go up in the next 12 months. You could have gone "long" GLD by buying 100 shares.
Of course, you'd have to be ready to plunk down about $13,000 for them. But if you had that kind of cash you would have done pretty well.
A year later, GLD was trading at $160, and your 100 GLD shares were worth $16,000. That's a nice 23.7% gain.
But you would have done even better if you had used options.
Let's say, instead, you bought one $135 call. (A "call" is just a bet on the price of GLD going up from $130; the same thing you're betting on when you buy the stock.)
A year ago, GLD calls were trading at $9.00. So you would have spent about $900 to initiate the trade. Yet by the expiration month, the price of the calls had risen to $28.00.
That means the price of the option "contract" you bought was now worth $2,800-giving you a 300% gain on the very same price move in GLD.
Now where I come from, 300% is much better that 23.7%. That's the power of options.
And there's more...
To continue reading, please click here...
Options Trading: Three Ways to Win Big with a Bearish Calendar Spread
Think some of Wall Street's higher flyers look vulnerable to a broad market pullback?
If so, they could be perfect candidates for a low-cost, low-risk options trading strategy that could pay off big time if we get another move like last Friday's 169-point Dow plunge.
The strategy is called a "calendar put spread," and it works like this:
It may sound complicated, but it's not once you understand how to employ this bearish options trading strategy.
If so, they could be perfect candidates for a low-cost, low-risk options trading strategy that could pay off big time if we get another move like last Friday's 169-point Dow plunge.
The strategy is called a "calendar put spread," and it works like this:
- You sell a slightly out-of-the-money put option with a strike price just below the current market price of the underlying stock - with a near-term expiration date.
- You then simultaneously buy a put option with the same strike price but with a more distant expiration date.
It may sound complicated, but it's not once you understand how to employ this bearish options trading strategy.
Options Trading Primer: A Potential 900% Gain in Six Weeks
Here's how a bearish calendar spread might work with Exxon Mobil Corp. (NYSE: XOM), which has held up better than many other oil stocks in recent weeks, closing last Friday at $84.57, barely $3.00 off its 52-week high:To continue reading, please click here...
An Options Strategy That Will Save You Some Money
Whether you credit a Santa Claus rally, an early January Effect, or some other driving market force, there's no disputing the strong finish posted by stocks in 2011 - or the healthy 2012 opening advance added in the first week of January.
To be specific, stocks - as measured by the Standard & Poor's 500 Index - rose from 1,204.00 at the close on Monday, Dec. 19, to 1,257.60 on Friday, Dec. 30, then jumped to 1,280.15 at midday yesterday (Monday), a gain of 6.32% in just three weeks. The Dow Jones Industrial Average did almost as well, climbing from 11,751.96 on Dec. 19 to 12,398.29 in Monday trading, a 21-day gain of 5.50%.
While those short-term moves are certainly impressive, they're hardly unique in today's volatile market environment. Three similar advances have occurred in the past five months alone - in late August, early October and late November - but each was followed by a sharp short-term pullback that wiped out much of the value gained in the rallies.
And, while few things in the market are certain, there's a strong probability this current market advance will also be followed by a sizeable retracement in the very near future.
So, how do you protect your most recent gains?
One answer is to turn to the options market.
As such, investors would typically look to the latter strategy - buying puts - for protection in the present market situation. However, there are times when unusual conditions can force investors to take an alternative approach to option strategies - and that has certainly been the case recently, thanks to the market's extreme short-term volatility.
To be specific, stocks - as measured by the Standard & Poor's 500 Index - rose from 1,204.00 at the close on Monday, Dec. 19, to 1,257.60 on Friday, Dec. 30, then jumped to 1,280.15 at midday yesterday (Monday), a gain of 6.32% in just three weeks. The Dow Jones Industrial Average did almost as well, climbing from 11,751.96 on Dec. 19 to 12,398.29 in Monday trading, a 21-day gain of 5.50%.
While those short-term moves are certainly impressive, they're hardly unique in today's volatile market environment. Three similar advances have occurred in the past five months alone - in late August, early October and late November - but each was followed by a sharp short-term pullback that wiped out much of the value gained in the rallies.
And, while few things in the market are certain, there's a strong probability this current market advance will also be followed by a sizeable retracement in the very near future.
So, how do you protect your most recent gains?
One answer is to turn to the options market.
A Defensive Options Play
As veteran Money Morning readers know, two of the most effective and often-used strategies involving options are writing covered calls to bring in added income and buying put options as "insurance" against possible price pullbacks.As such, investors would typically look to the latter strategy - buying puts - for protection in the present market situation. However, there are times when unusual conditions can force investors to take an alternative approach to option strategies - and that has certainly been the case recently, thanks to the market's extreme short-term volatility.
To continue reading, please click here...
Two Options Strategies That Can Turn Short-Term Price Gyrations Into Big-Time Profits
Everyone acknowledges that at its most basic level the stock market is driven by fear and greed. And, in the past, the immediate impact of fear has been far more dramatic than the short-term effect of greed.
In other words, stock prices have historically tended to fall faster - and further - when investors are running scared than they rise when investors get a pleasant surprise.
Lately, however, with Treasury yields still near all-time lows, commodity prices hovering near record highs, and little else offering significant potential, there's a lot of money out there in mutual funds, exchange-traded funds (ETFs), retirement accounts and other institutional portfolios that's looking for a place to go.
In other words, stock prices have historically tended to fall faster - and further - when investors are running scared than they rise when investors get a pleasant surprise.
Lately, however, with Treasury yields still near all-time lows, commodity prices hovering near record highs, and little else offering significant potential, there's a lot of money out there in mutual funds, exchange-traded funds (ETFs), retirement accounts and other institutional portfolios that's looking for a place to go.