Options 02 (Oct 09 - Dec 24)

[winston]

My Rule of Thumb:-

Unless someone has spent at least 10 years on a particular subject, he does not have the expertise to comment on that subject...

This TKL got spend 10 years on Options or not ?

[sidney]

10 years of experience in avoiding derviatives? lol.

Anyway, i also inexperience in options... and many instruments

[kennynah]

Same here

I not interesting in tkl

[winston]

From TKL's Blog:

For example, if the option pays out a large sum of money when the underlying share hits a certain price, the option issuer will buy or sell the underlying share to avoid hitting the strike price.

The cost of buying the manipulating the price of the underlying share will be lower than the payout on the option strike

If one has a bit of experience trading options, one would know what's "time decay".

And because of "time decay", one would normally not hold that option till expiry.

The experienced options traders, normally trade the most liquid options and they normally get out, before the steep time decay kicks in, normally about 1-2 months before expiry.

[winston]

How to Reduce Your Risk in the Market By Jeff Clark

Most people say option trading is risky.

Novice traders often don't take the time to learn the right way to use options. They jump right in – thinking, "I got this." They gamble, blow up their accounts, and then walk away penniless and swearing off options forever.

Even experienced traders sometimes get caught up in the allure of fast gains. They over-leverage their positions – take a bigger position size than they should – and then take a hit. All the option traders I know, including myself, have blown up their accounts at least once.

But it's not the option that's risky. It's the strategy. And when used the right way, options are far less risky than trading stocks.

Let me explain…

Most people use options the wrong way. Most people use options to increase leverage… to get more "bang for their buck." In other words, most people use options to increase risk.

That's wrong. That's the exact opposite of what options were designed for.

The options market was created so investors could reduce risk. Options allow investors to hedge their positions… and to risk much less money than they would buying a stock outright.

Let me explain…

Let's say you want to buy stock in Company X. It trades for $10 a share. You could put up $1,000 to buy 100 shares… But you can control the same amount of stock with one option contract. You can buy a contract for, let's say, $50… and leave the other $950 in your account.

If Company X's stock goes up, you'll make money. If the stock goes down, the most you'll ever lose is that $50. That's a 100% loss… but it's a lot less than potentially losing 20% or more of the $1,000 you risked buying the stock.

This is a simple example. And it's the simplicity that proves my point. Options allow you to risk much less and profit just as much as buying stocks.

But that benefit disappears if you over-leverage the trade and take on a larger position with options than you would otherwise take with the stock.

That's the biggest mistake most novice option traders make. Instead of replacing a 100-share purchase with one call option, they take the entire amount they would have allocated to the stock and buy a much larger position with the options.

Rather than buying one call option for $50 and leaving the remaining $950 in the bank, novice traders take the entire $1,000 and put it into buying more call options.

They end up buying 20 call options to try to get more bang for their buck. What would have been a 100-share purchase has turned into control of 2,000 shares. Instead of using options to reduce risk, they've increased their risk 20 times.

Losing 100% on an over-leveraged trade would be a disaster. And it's why most folks think options trading is dangerous. But it's not dangerous if you trade options the way they were originally intended… as a way to reduce risk.

Limit your option exposure to control just the number of shares you would normally purchase. Leave the rest of the money in the bank. Then it won't be so bad to lose 100% on an option trade. It will almost always turn out better than what you could have lost on the stock.


Source: Growth Stock Wire

[winston]

These income investors could be wiped out

by Amber Lee Mason

Source: DailyWealth Trader

http://thecrux.com/this-is-the-biggest- ... 37gMXBU%3D

[winston]

3 Foolproof Solutions for Options Mistakes

By Kevin Matras

Source: Zacks Investment Research

http://www.thetradingreport.com/2015/06 ... -mistakes/

[winston]

Puts and Calls: Market Hedges for Volatile Times

Options can come in awfully darn handy in market turmoil

By Lawrence Meyers

Source: Investor Place

http://investorplace.com/2015/09/puts-a ... eYnz9IirIU

[winston]

Watch this “Telepathic Table” to See the Future of Any Trade Right Now

by TOM GENTILE

Source: Power Profit Trades

http://powerprofittrades.com/2016/05/wa ... w#deeplink

[winston]

The 11th-commandment of trading

Source: Daily Crux

http://thecrux.com/top-trader-the-11th- ... f-trading/