| |
| |
|
Stocks & Mutual Funds Information |
|
|
|
Stock Options Trading Strategies - Lean
Professional stock options traders use the term lean to refer to one's perception about the directional strength of the stock. When you own a stock option and intend to hold it for a period of time, you are aware that you will probably be holding it while it goes up and while it goes down. This means that at any given moment in time, you might have a different opinion of the potential movement of that stock. Knowing this, there is a way to address your present level of confidence or "lean." You do this by your choice of which option you sell. While it is true that the at-the-money option has the most amount of extrinsic value, it might not always be the ideal option to sell in every situation. For instance, if you feel that the stock itself has a very high chance of producing capital appreciation above the potential amount of premium you could receive from selling an at-the-money call, then sell an out-of-the-money-call so you can allow yourself a little more room to the upside on the stock. For example, let's say the stock is trading at $27.00. Normally, you would sell the 27.5 calls at say $1.00. If the stock were to rise quickly and eclipse the $28.50 mark, then with the buy-write strategy, your position would have maxed out at $28.50, and you would have a $1.50 one month gain. Not bad, but if the stock went to $29.50 then you would have missed out on another $1.00 profit. However, if we had sold the 30 calls for $.30 then we would have another outcome. You bought the stock at $27.00 and sold the 30 calls for $.30 and the stock goes to $29.50. You would have made $2.50 in capital appreciation and $.30 in option premium for a total of a $2.80 return. So, if you feel the stock has a real good shot at taking a run up, you can lean your position long by selling an out-of-the-money call. If you have a more neutral view on your stock you would sell an at-the-money-call in order to receive a bigger premium which allows for greater downside protection if the stock trades down and higher potential profit if the stock becomes stagnant. This strategy also works on the downside. If, by chance, you feel that the stock may trade down a bit during the life of the option, then you can sell an in-the-money-call. The effect of this would be to provide you with a little extra premium to cover more downside risk. Remember when you sell an option you seek to capture extrinsic value. An in-the-money option not only has extrinsic value but also some intrinsic value. When you feel that you want to lean your covered call strategy (buy-write) a little short, choose to sell an in-the-money call so you can also have some intrinsic value to cover your downside. As an example, say your stock is trading at $29.00 and you feel that your stock may trade down a little but still remain in an uptrend cycle. You don't want to get rid of the stock but you also don't want to lose any money so you sell the 27.5 call at $2.00. The stock starts to trade down and finishes at $26.00. If you had owned the stock naked, then you would have lost three dollars since you owned the stock at $29.00 and it closed at $26.00 on expiration. However, because you sold the 27.5 calls at $2.00, you would only realize a $1.00 loss in the stock. The premium received will offset the loss due to the fact that you identified and adjusted for a likely move. As you can see, the buy-write strategy can be altered to fit any directional view you have on your selected stock. Finally, if you intend to use the buy-write strategy successfully, you generally need to sell the calls against your stock on a consistent, recurring interval, over a period of time. This means that you will have to be prepared to roll your calls out to the next month come expiration. Sometimes, all you'll need to do is to sell the next month out call. -=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=- Click Here --> http://www.options-university.org
MORE RESOURCES:
Stocks-Mutual-Funds - Google News |
|
|
|
RELATED ARTICLES
Stock Market Education; Day Trading for Beginnners; How to Pick Stocks The trading method you employ to approach the stock market can make a big difference in your results.Stock trading is a very competitive field and in order to succeed you need to FOCUS on a set of simple strategies that you can implement without hesitation. Trading For A Living - Part 1 There can't be many traders who haven't at least considered the idea of telling the boss what they think of him, throwing it all in and going off to trade the stock market for a living. It's a big risk financially, and that uncertainty is what stops most from jumping ship. Mutual Fund Expense Lies When purchasing mutual funds we are cautionedto read the prospectus, look at pastperformance, check out the fund manager's recordand see what their expense ratios have been.We are also told that we should not buy fundswith expenses exceeding 1% to 1. Trading Tips No 8: Picking the Best Stock Market Price Carefully thinking through your goal as a trader is of prime importance, when picking the best stock market price. It is very difficult if not impossible to meet a goal that is ill defined. Oil Stocks As A Long Term Investment The demand for world oil is increasing while world reserves are decreasing. This is a known fact. Nest Eggs and Omelets Do you have a nest egg? You know, a place you are stashing away money for the future - retirement, down payment on a house, the kids education. That kind of thing. Dont Lose All Your Money That sounds like good advice doesn't it? Don't lose all your money.After all what is an investor without funds in the brokerage account? Hint: BROKE!On the subject of investing, this means getting out of a trade when it goes against you. Stops Make Money During the day I watch CNBC-TV, the stock market channel. Fortunately, I keep the sound muted or I would be hollering at the dumb "experts" being interviewed. Good Stock Market Tip; Good Return! Forget making a profit; instead focus on the income provided from your stock portfolio. That's right! Forget making a profit. Selling Strategies - Setting a Stop Loss Sometimes the best way of lowering exposure to risk is not to invest at all! However, when we make the decision to jump into the muddy waters of the stock market, its always a good idea to have a life jacket ready, just in case.We all have stories of that "must have" "can't lose" stock that looking back, we didn't really need to buy, and it definitely lost. Successful Trading - Taking Profits - Part 2 Suppose your position has made a big move and you moved your stop to your purchase price as recommended. Then let's say your stock continues to make a big move and now we're asking again the questions we asked back in the first paragraph. Stock Market Insanity Let's first define insanity. It is doing the same thing over and over and expecting a different result. Invest In The Stock Market For The RIGHT Reason, Using The RIGHT Choices Invest in the stock market for the RIGHT reason, using the RIGHTchoices!Investing in the stock market is not purchasing a stock at 25 dollars a share, hoping it will go to 35 so you can sell it, then hoping it will drop back to 25 so you can buy it back, so that you can sell it again at 35, and so on and so forth.In my opinion, that is gambling. A Stock Market Investment Strategy I feel that an investment strategy in the stock market can instill in the individual investor not only an assured confidence in all future stock market investments, but also an almost Zen-like sense of peace and well being. A stock market investment strategy spelled out, proven, and instilling within the investor the power to succeed in the stock market with an assured confidence. Pension Plans If you have a pension plan at work you will want to read this and if you don't you will still want to because it affects your retirement account.There are two kinds of formal retirement plans that are set in place by employers. Stocks: Understand What You Buy! "There is nothing more frightful than ignorance in action!"Johann Wolfgang von Goethe (1749 - 1832)I don't really know how cars actually work. Not really! I know how to drive them, but if you asked me how they work, I would not really know how to definitely explain it. How To Buy And Hold One of the most believed bits of conventional wisdom from Wall Street is to Buy and Hold. Any stock or mutual fund should be put away for eternity and never sold. Stock Market Course .... Day Trader Online Seminar ... Can You Generate Profits Trading from Home? When it comes to stock market trading it PAYS to have more knowledge than the rest of the pack. Pure gold can be harvested in each profitable trade that you accomplish. The Secret Method to Selecting a Winning Trading System Every successful trader has a winning system. There are of course, as many systems out there, as there are traders. Stock Investment Advice Stock investment advice is easy to find. Do you get cold called by brokers with the latest investment tip? I have, as have countless others around the globe.
|
Sponsors: Chicago Paving Contractor | Remanufactured VTL | Religious Statues | Search Engine Specialist
