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Calls & Puts
What is a Call Option?
A Call option is a legally binding contract between two parties that gives the buyer the RIGHT, but not the OBLIGATION, to BUY 100 shares of stock at the purchased strike price on or before the expiration month.
What is a Put Option?
A put option is a contact between two parties that gives the buyer the RIGHT but not the OBLIGATION to SELL 100 shares of stock at the purchased strike price on or before the expiration month.
How Options Work
Options, Calls and Puts are traded over a regulated trading exchange such as the CBOE (Chicago Board Options Exchange).
A “Market Maker” is the term used to identify a professional floor trader or trading firm that facilitates and takes the other side of your trade, if there is no preexisting buyer or seller in the marketplace.
Stocks vs. Options
It is not uncommon for people to talk negatively about options. This is because so many option trading “newbies” get involved without the proper education and end up losing their shirt to the more seasoned options traders. This happens because 80% of all options expire worthless!
Advanced Options
Most option strategies are spread trade variations of different options, strike prices, and expiration months that are bought and sold as a “packaged investment.”
When trading advanced option strategies, it is absolutely critical to understand your risk and how you will profit in the trade.
Understanding Technical Analysis
One important point about technical analysis is that is it very subjective. Some traders may find exponential moving averages more useful than simple moving averages. There is no right or wrong with technical analysis, because every trader is different.
Charting Basics
In order to maximize profits, decrease capital risk, and put on trades with more confidence – it is very important to understand how to read, interpret, and analyze the price chart on the underlying security.
Support & Resistance
Support and Resistance are the basis of most technical analysis chart patterns – whether you trade forex, commodity futures, options, stocks, or anything else in the trading world!
Volume
Volume is the shares, contracts, or bonds traded during a certain period of time. Without Volume you can’t get a clear read on where the supply and demand curves may be intersecting and where prices may be heading. Without volume there is no liquidity in the market, and makes for difficult and ineffective trading.
Bullish Strategies
Making money in Bull Markets is the most conventional approach for generating profits in the Stock Market. When you learn how to trade options, you will be more adept at making larger percentage returns on your capital in both bull and bear markets.
Bearish Strategies
Some of the most incredible trading profits can be made when prices fall – because it is widely known that stock prices fall much faster than they rise! If you remember back in the 2008 credit crisis: the market wiped out 5 years of market gains in a matter of weeks.
Sideways Strategies
The Stock Market will trend 50% of the time, and will move sideways in a choppy fashion the other 50% of the time.
Index Options
You are, in fact, able to use the leverage of options to make money on the indexes that have options available. It should be noted that index options are generally geared for professional traders, due to the higher contract prices and more volatile moves in contract price.
Trading ETF’s
ETF’s = Exchange Traded Funds. ETF’s are a prominent and effective way to trade different indexes and sectors in the Stock Market. They trade exactly like stocks, but just offer more diversity and cushion as apposed to an individual stock.
Trading Psychology
The Stock Market can be a very emotional environment. Therefore, your mind MUST be focused and clear, otherwise, you will get taken advantage of time after time.
The Stock Market is driven between two powerful forces: GREED and FEAR.
Determining Your Trading Style
There are many different prevalent trading styles in the trading world that all offer their own special benefits and differences. Each appeals to a different trading personality and risk profile. This is a main attraction the the marketplace as a whole, because you as an independent trader are able to pick and choose the specific method and style of trading that suits your personality in the best way possible
4 Basic Principles of Stocks
These 4 simple rules are what every trader must live by to have success trading stocks, options or any financial instrument.
- Trade With The Trend
- Cut Losses Short
- Let Profits Run
- Manage Your Risk
Creating a Stock Watch-List
Create Your Basket of Stocks To Trade! Having a “basket of stocks” to follow on a weekly basis is ideal for successful LEAPS and spread trading.
