Online Stock Option Trading Made Easy

November 6, 2009 by admin
Filed under Day Trading

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For a small amount of money online traders can get high leverage using a good stock option trading system. The system provides technically analyzed trading opportunities to stock options traders. E mail instructions are provided for installation of the software to traders. After an account is opened the software takes instructions from the trader and does the entire trading process. Some systems have online forums where traders can trade in formation with other members. Some come with tutorials to teach the trader how to trade stock options and prepare trading strategies.

Before purchasing a system, it makes sense to look at the different tools offered by the system. Signing up for a demo version of the system will help understand the user friendliness of the system and if the system works for the individual trader. The advice of experts is that traders must make small trades when trying out the demo version of a trading system. If the system has the tools to assist making bigger profits than losses, the trader should consider purchasing the system. The software should have inbuilt mechanical and discretional tools to help better options trading.

The system should be programmed to predict trade trends, trade pivot points and trade swings. The trader should be able to program to software easily to use a profit making strategy evolved by the trader. If minor changes should be made to the strategy or if the software needs to be programmed to use a different strategy, the method of programming should be user friendly. The software should be preprogrammed to use different approaches in stock options trading like approaches based on price movements or approaches during trade swings.

Choosing a good stock option trading system requires research and effort. There are many software reviews over the internet which will give an insight into the many tools that the software has, the type of trading that will be facilitated by the software, the customer service efficiency and any other useful information. The system should have a high success rate on websites that rate stock option trading systems. The system should conduct automated trade and simplify the trading process for the trader. Automation will ensure consistent profits and eliminate human error.

A stock option trading system is artificial intelligence. It can never be a substitute for real intelligence. The strategy and research cannot be left totally to the system. The trader should program the system according to individual needs. The many tools offered by the system are minor considerations in using a system. The main considerations are that the system is easy to use, easy to understand and easy to program. The manufacturer of the system should have an efficient helpdesk with up to date information for easy reference by the trader.

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More Stock Market Trading System Tips:

Trading Pro System is a complete video training course and teaches the traders to trade with confidence. The comprehensive 24 hours video training provides a bunch of strategies and tactics and a lot of content about trading in the stocks and options market. The system uses simple language and is created by businessmen which imply that the secrets of winning are at your fingertips.

Stock Market Index Secret is by Karl Dittman, a 30 year veteran of stock market trading. Karl maps out a really simple ’secret’ formula that can point you at a method of targeting a stock or an index on any day and make a profit. If you follow his patterns, you can can see opportunities to take good profits.

The Secrets of Sucessful Traders Guide was preferred amongst our team of researchers. It offers the most practical stock trading advice for beginners looking to find success in the stock market without losing their house. It is a step by step instructional guide which clearly explains everything you need to know about the industry and is patiently explained in detail to ensure that you are fully aware of how the stock market works before making your first investment.

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Tags: how to trade stock options, option trading system, stock option trading, stock option trading system, stock options trading

Steps to Successful Trade Stock Options

October 25, 2009 by admin
Filed under Day Trading

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Among these are:

1. The stock’s past history and movement.

2. Expected earnings reports of the stock’s parent company.

3. Volatility and volume of shares traded daily.

4. Any current news concerning the company’s growth or profitability.

5. The price of the option with respect to how you think the stock will
perform. If you do not feel the stock’s movement will handily offset the
cost of the option, plus the trading fees, then buying or selling the option
would be fruitless.

6. Supply and demand of the underlying stock. (Industry group market
action.)

Once you have decided upon which stock to pick, you next need to decide
whether you believe the stock’s price is likely to rise or fall. (With
stock options you can make money in either direction.)

By purchasing a Call option:

1. You expect the price of the underlying stock to rise, so you can
then purchase it at the lower strike price, making a profit in the transaction.

2. You have the right to control 100 shares of stock for a fraction of
the cost of purchasing the stock outright.

3. You are managing your risk by limiting the downside to the premium
paid for the option. The major downside to buying any option is time decay.
Your option expires within a finite period of time. If the underlying stock
price behaves as expected, you will not need to be concerned about
execution.

Having shown you the benefits of buying Calls over the risks of
purchasing the stocks outright, we must emphasize the fact that buying
short-term Calls has its associated risks as well. A Call buyer, especially
a short-term Call buyer, is severely limited by the time-decay factor. The
nearer to the expiration of an option, the less the option is worth, and the
less time is remaining for the option to become profitable. Within the
leverage used by gambling casinos (the house), the concept of short-term
Call buying is completely understood, as well as exploited, as gamblers are
considered short-term Call buyers.

Example: Consider your long-term Put, or Call, as a 6 to 8 month license to operate a
casino. It allows you to capture short-term premiums; money that gamblers
continuously give to you in attempting to beat the odds by speculating they
will make profits on very risky bets. They feverishly feed the slot
machines, ante up at poker, double-down on blackjack, or spin the roulette
wheel. The odds are overwhelmingly against these short-term buyers. You, as
the casino owner, continuously capture these short-term premiums, easily
offsetting the expense of the license to operate the casino, then earning
substantial, clear profits in the following months. They know the odds are
with the casino owner, but they still take the enormous gamble on the slim
chance they will hit a jackpot. The lottery works in the same manner.

On one side of the position, the transaction is definitely gambling, while
on the other, the casino is simply engaging in business. Would you rather
bet on the remote chance of a gambler’s rare, limited success, or rake in
the steady, routine premiums captured from operating a successful business?
Yes, occasionally a gambler does beat the odds to enjoy a limited, windfall
return on his bet. For the casino owner, that is simply part of the cost of
doing business. But we all know where the true, long-term profits lie. 30%,
40%, 50% and more, are common, and in short periods of time. The odds are
with the short-term option seller, not the buyer.

When you choose a stock for short-term Call buying, you not only must
carefully consider the proper stock for the type of option you are
purchasing, you must also decide which direction the stock will move, then,
that movement must occur within a specified, very limited period of time.
Many investors have gone broke by attempting to make those same decisions.
In short, time is not on the side of the short-term option buyer. It is on
the side of the option seller.

Summary:
1. Buying stocks is risky.

2. Buying short-term options is less risky, but still risky.

3. Selling short-term options is the least risky, especially with a hedge, or insurance.

By selling a Call option:

1. You expect the underlying stock price to fall, so the option will not be
exercised, but expire, worthless.

2. You can capture the entire premium that was paid to you, as profit. If the
underlying stock price rises, you are obligated to sell 100 shares of stock
at the lower strike price. If you do not already own those shares, you would then
have to buy them at a higher market value, then sell them at the strike price, in order
to meet your obligation. This situation is called a “Naked,” or “Uncovered” position, and
is extremely dangerous. Anytime you sell a Call option you should consider
buying the same option with a slightly lower strike price, and longer
expiration date. This will reduce your profit potential, but will also
reduce your risk considerably. (Remember the parallel twins, Risk and Reward

- If you want to reduce risk, you must also give up some degree of potential
rewards. You may wish to lower your cost basis in the stock, to the extent
of the premium received.

By purchasing a Put option:

1. You expect the price of the underlying stock to fall, allowing you
to sell stock at the higher strike price, and thereby earning a profit.

2. This option is also used in a combination strategy as a hedge
against selling Puts. We will explore that strategy later, in detail.

3. Buying Put options could also be used as a hedge, or insurance,
against the possibility of a price drop in stock you already own. Consider
the following:

You own 100 shares of ABC stock, and are concerned that the stock price
could suddenly fall. You purchase a Put option on the same stock, with a
strike price at current market value. If your stock falls in price, you
would have the right to exercise your option and sell 100 shares of ABC
stock at the higher strike price. The premium you paid for the option could
be far less than the loss you would have incurred without that insurance. In
this instance buying Puts acted as a hedge against the possibility of a
price decrease in the stocks you already own. If the price of the underlying
stock increases, your loss is limited to the premium you paid for the
option. The option acts as an insurance policy against possible loss.

Selling a Put option without an opposing hedge -”Naked”
You expect the price of the underlying stock to increase, causing the
Put option you sold to expire worthless. You can then capture the entire
premium paid to you, as profit. If the underlying stock price were to fall
below the strike price, then you would be obligated to purchase the stock at
the strike price, or pay the difference between the strike price and the
stock price, if you do not want to own the stock. Your upside is limited to
the premium received for selling the option. Your downside is potentially
unlimited to the base value of whatever you could sell the stock for on the
open market, or to the difference between the strike price and the stock
price. This is a “Naked,” or “Uncovered” position, and should never be
allowed to occur, unintentionally. Without the implementation of combination
strategies, the main objective of the Put seller is to hope the option
expires, allowing him to capture the entire option premium as profit.
Nearing expiration, if the stock price moves below the strike price,
changing the option’s value to ITM, and highly vulnerable to exercise, then
the option seller must move quickly to buy back the option, perhaps
lessening his profit potential, while also managing his risk. Even so, a
small loss would be better than having to buy 100 shares of stock at
inflated prices. Also, the loss can be immediately compensated for by
simultaneously selling another Put expiring in the following month. We use
OPM (Other People’s Money) to buffer downside risks, while buying more time
for the stock price to rise.

Stock Option Trading, when done properly, can drastically reduce, or even
eliminate, these two stumbling blocks to stock market success. In the first
place, A trader of stock options never is not required to own the underlying
stock in which an option is based. He or she can design a trade in such a
way that downside risk is limited to the cost of the option, which in itself
is a fraction of the cost of the stock. We capitalize on traders and
speculators greed to get rich who purchase overvalued short term options bid
up to inflated levels by an excess of demand over supply, by being the house
or casino owner and capturing the inflated premium from the players or
buyers. We buy reinsurance at a low cost by purchasing a longer term ( 5 to
6 months) out of the money option to sell the stock at a fixed price no
matter how low it may drop. We buy this reinsurance ( puts ) to create a
profitable hedge and sell overvalued puts repeatedly, month by month to
bring the cost of our hedge down to zero and a credit so that we can enjoy a
free ride capturing this inflated premium income. This strategy is known as
diagonal put spreads and you do not need to pick a winner to profit.