FXEMPIRE
All
Ad
Advertisement
Advertisement
Chris Vermeulen
Add to Bookmarks

If you are becoming interested in trading Options, you need to learn the basics about Options and how to trade them before jumping in with both feet. Options are very different from stocks and there are more factors that go into the pricing.

Many view trading Options as a get-rich-quick scheme while others think of it as gambling. I am here to say it is neither. What I will say, is that you have to know the rules before you begin trading if you want to be successful.  Keep reading as I cover some little-known basic facts that, if you are new, will surely spark your interest.

Advertisement
Know where the Market is headed? Take advantage now with 

Trading Derivatives carries a high level of risk to your capital and you should only trade with money you can afford to lose. Trading Derivatives may not be suitable for all investors, so please ensure that you fully understand the risks involved, and seek independent advice if necessary. A Product Disclosure Statement (PDS) can be obtained either from this website or on request from our offices and should be considered before entering into a transaction with us. Raw Spread accounts offer spreads from 0.0 pips with a commission charge of USD $3.50 per 100k traded. Standard account offer spreads from 1 pips with no additional commission charges. Spreads on CFD indices start at 0.4 points. The information on this site is not directed at residents in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

There are Options on More Than Just Stock

Most people hear of options and think they only apply to stock.  In reality, you can trade options on futures, Forex, Bonds, and even the index themselves.  Most assets have options available.

Advertisement

Options Symbols

The OCC option symbol can consist of up to 4 parts:

  • Root symbol of the underlying stock or ETF, padded with spaces to 6 characters
  • Strike price, as the price x 1000, front padded with 0s to 8 digits
  • Expiration date, 6 digits in the format YY/MM/DD
  • Option type, either P or C, for put or call

Examples:

  • AAPL:  AAPL210723C145 – This symbol represents a call on Apple, expiring on 23 Jul 2021, with a strike price of $145.
  • AMZN:  AMZN210917P3700- This symbol represents a put on Amazon, expiring on 17 Sept 2021, with a strike price of $3,700.

Buying an Option

If you own an option, you are not obligated to buy the underlying instrument; when you buy a Call Option, you have the right to BUY stocks at your option’s strike price.  You can also sell the option itself before expiration.

Similarly, when you buy a Put Option, you have the right to SELL stocks at your Option’s strike price through exercising it but like Call Options you can sell the put contract as well before expiry.

Selling an Option

First, you can sell an option you don’t own stock in!  However, if you sell a Call Option, you are obligated to deliver the underlying asset at the strike price at which the Call Option was sold if the buyer exercises his or her right to take delivery. If they do not exercise then you keep the premium you sold the option for.  Put Options are the reverse, if you sell a Put Option, you are obligated to buy the underlying asset if exercised.

Selling Means Credit And Buying Means Debit

Options when BOUGHT are purchased at a DEBIT to the buyer and should be considered assets. So when you buy an option the money is debited from your brokerage account. It’s exactly like buying a stock.

As mentioned above you can also sell an Option, without owning the shares. Options when SOLD are sold at a CREDIT to the seller. When you sell an option it should be considered a liability and money is added to the brokerage account at the time of sale. Not many things are guaranteed in the market but this is.  However, you can’t withdraw this money until the trade has been closed, usually, this money is used to offset the margin required for selling the options.

Every day on  Options Trading Signals our resident specialist, Neil Szczepanski, does defined risk trades that protect us from black swan events 24/7.  Many may think that is what stop losses are for.  Well, remember the markets are only open about 1/3 of the hours in a day.  Therefore, a stop loss only protects you for 1/3 of each day.  Stocks can gap up or down.  With options, you are always protected because we do defined risk in a spread.  We cover with multiple legs which are always on once you own.

My team and I have been building and developing fully systematic algorithmic trading strategies for many years and can tell you that unless you have a solid foundation related to knowing when and where opportunities exist in market trends, you are likely churning your money in and out of failed trades. Though I have already completed the first live presentation, I will be hosting one more at the July Wealth365 Summit on July 16th at 12 pm. The Summit is free to attend and offers unparalleled opportunities for learning…plus a potential prize or two!

Have a great day!

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen
Founder & Chief Market Strategist
www.TheTechnicalTraders.com

 

Don't miss a thing!
Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Trade With A Regulated Broker