Options Trading: Complete Handbook

November 1, 2010 · Posted in forex trading · Comment 

Product Description
An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date. An option, just like a stock or bond, is a security. It is also a binding contract with strictly defined terms and properties. In this book, Sam Anwar clearly outlines every option strategy in easy-to-understand language and includes detailed examples that show exactly how they work. You?ll find out how e… More >>

Options Trading: Complete Handbook

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Combining Options Trading in Technical Analysis for Higher Profits

July 29, 2010 · Posted in options trading · Comment 

Combining technical analysis with options trading is not a typical course of study when learning how to trade options. Option traders who want to maximize the return need to understand how to combine their options analysis with certain market conditions. In this article, I will wade through the reasons why a trader would prefer to incorporate this genre of analysis into their option trading.

Certain elements of risk can be derived through an options pricing model which helps the advanced trader. But, the risks associated with options trading are sometimes mitigated by correctly determining the market?s direction. If the trader decides to use calls and his spread, the delta of the call could increase if the security makes a bullish move. So, a good understanding of technical analysis can help the trader better position himself for the current market conditions.

The type of technical analysis that a trader needs to perform when trading options usually falls under the category of chart patterns. This can sometimes include topics like wedge patterns, flags, pennants or head and shoulders patterns. Patterns like the Gartley 222 and Elliott Wave can also fall under this heading. This can genuinely grant a benefit to those involved in option trading. Because these patterns can assist the trader determined the current mode of the market they can be quite helpful.

Understanding the direction that a market may take can help the options trader in determining which strategy will be most profitable. Therefore, a bearish option strategy can be more profitable if the trader is observing a chart that has a bearish bias. But, time decay could cause the options trader to experience losses if the spread is placed for a net debit and the market does not move in his anticipated direction.

The usefulness of this type of chart formation can be derived by the fact that it helps a trader visually identify areas of support and resistance. If the trader has a spread with a break even that corresponds to an area of support or resistance, it can help the trader as he compares this spread against other candidates that might have lower or higher break even values.

When learning how to trade options effectively, traders may wish to also understand how they can effectively combine their new knowledge with technical analysis. While new traders may find this type of technical analysis to be very complex while learning to trade options, the long-term benefits of going to this exercise could help them understand why some trades are more successful than others. Trading in this way the trader may find that he is able to trade with more consistency was he is derived this level understanding about his results. In the end, the trader has a more holistic landscape which permits him to associate option stratagies with intricate aid for his option trading.

Sam Perdue has been actively trading the markets for over 13 years. He has written a computer program that helps traders analyze the stock, Forex, commodities and options markets using Fibonacci ratios, Elliott Wave, option pricing and nonlinear programming algorithms. For more information, please see our option trading software.

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Three Winning Bear Market Option Trading Strategies Revealed

May 14, 2010 · Posted in options trading · Comment 

Most people lose money in a bear market. Do you remember the tech bubble and recession in 2000-2002? This article will discuss three option trading strategies that can make you big profits in a bear market or recession.

Option Strategy No. 1 – Buying Put Options

It is fairly easy to purchase put options. This option trading strategy can even be used in an IRA account as long as you have been authorized by your broker. You desire to select a stock, which you feel has a good chance of going down in price. Your risk will be limited to the cost of the put option. For example, stock XYZ is currently trading at $50 per share and you buy a put option on XYZ with an expiration date of two month later with a strike price of $50. If the stock drops from $50 to $40, your put option would be worth $10 per share.

Option Trading Strategy No. 2 – Buying Bear Put Spread

Buying a put spread is a little more complicated than just buying a put option but gives you the benefit of reducing your cost but caps your profit. A put spread is characterized by the trading of two same month expiration put options, buying one at a given strike price and selling the other put option at a strike price lower than the purchased put option. You want to pick a stock that you believe will be falling in value. Your risk will be limited to the cost of the put spread. As an example, if we purchase the put option as listed above but also sold a put option with a strike price of $45. In this example, should the stock plunge to $40, you would profit $5 per share ($50 strike price – $45 strike price). And while you are making less per share, your savings comes in the fact that the cost of buying the put option outright would be much higher than the initial cost for the bear put spread.

Option Trading Strategy No. 3 – Married Put

Risk can be minimized by utilizing a married put, which is a hedging strategy. This strategy consists of purchasing a stock that you believe will appreciate in value and buying a put option at the same time to minimize any losses due to adverse market movement. You might have heard the saying that there is always a bull market going on somewhere. In order to benefit from this strategy find out what business sectors and securities go against the grain and appreciate in a bear market. Next you buy the stocks you chose and protect your investment by buying a put option to limit your losses if the stock goes south.

In conclusion, you can still make big profits in bear markets by looking for stocks that you think are going to fall in price and buying a put option or a bear put spread. Alternatively, you could buy a married put on a stock in a sector you believe is going to appreciate, thus minimizing your risk. In addition to buying options on stocks, you can also buy put options on exchange traded funds or index options. Exchange traded funds let you invest in global markets, commodities and even currencies. It is possible to receive a large profit in a bear market. However, it is vital to comprehend the details of the option strategies, choose the correct stock, exchange traded fund or index option, and make use of a proven tactic and begin.

Disclaimer: This article should not be used as financial advice; it is only for informational purposes. Be sure to contact your financial advisor prior to making any decisions on investing.

Author Biography – John Hart is an accomplished option trader, focusing on developing innovative and unique option trading strategies, approaches and methodologies. For a limited time, you can sign up to his newsletter absolutely free by clicking on this link ? option strategies newsletter.

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How to earn 70% return on investment by trading in Nifty Future and options?

December 11, 2009 · Posted in options trading strategies · Comment 

Most F&O traders used to neglect the power of volatility and its implication in Future trade. Hope you have the idea of the covered call with put hedge strategy. I have found it to be the most successful and powerful strategy in Indian market but slight alteration is required for this. Any one can initiate this strategy with blind eye. As I said many times before, we the traders either lack the knowledge or we have the problem of plenty which always yield negative return for us.  It is often seen that we learn the techniques but never allow yielding the positive result for us.

 To day I have experienced one of the most successful and thrilling experience from one of my client. Being blind folded in the skill of technical, fundamental from past couple of years he is playing only on covered call with put option strategy. This strategy I have already discussed in my book on Master Key to Futures & options. A also many such interesting strategies in the DVD course. I’ve also developed a calculator to find the actual volatility in option premium which is being given with the course to help you in making the right decision at right time.

I am going to describe how these things happen in real trade practice?   

The strategy is  “Buy current or next month future  , sell the Next month Call option having higher time value and greater volatility and buy the put option of the current month having strike greater than or equal to (future strike – call premium received.) ” 

1. On November 3rd I have bought Nifty future December at 4560, sold the 4600ce December at 188, bought 4400 pe November at 80.

On 9th November 2009 I close the strategy future at 4900, 4600 ce at 390 and 4400 pe at 12.50. Profit Rs340/- in future, loss Rs202 in 4600ce short and loss Rs67.50 in 4400 pe short. Net profit realized was Rs3525 in the strategy.

2. On 10th November bought Nifty future at 4880, sold 5000 ce December at Rs145 and bought 4800 pe at Rs75.  On 17th November 2009 I close the strategy future at 5070, 5000ce at 200 and 4800 pe at 11. Profit Rs 190 in future, loss 55 in 5000ce short and loss Rs65 in 4800 pe short . Net profit realized was Rs3500 in the strategy.

3. On 18th November 2009  bought nifty future December at 5055 , sold 5100 ce at 209 , bought 4900 pe December at 102.On 27 th November 2009 I close the strategy future at 4965, 5100ce at 145 and 4900 pe at 135. Loss Rs 90 in future, profit 55 in 5100ce short and profit Rs33 in 4900 pe long. Net loss incurred Rs250 in the strategy.

Hence the total gain in this rise and fall tide I have made Rs7025-Rs250=Rs6775 profit.

 

Must read this very carefully .The trick is too simple. I have 3 months contract (current, near and far) open at a time.  For 1st 2 week of the current settlement cycle I will initiate the strategy as follows

  1. current or near month  future long(i.e. 1st or 2nd month future long )
  2. Near month option strike having higher volatility or time value sell (i.e.2nd month option)
  3. Current month option having strike greater then equal to (future strike – option premium received) buy.

 For the last 2 weeks of the settlement month I will initiate this same strategy with near and far month contact. This is because to avoid the unnecessary time value decay in the long options.

 This position also has one more benefit. Since this is a spread position it attract less margin and you can have a better bargain with your broker regarding the margin and brokerage issue.

 The positions discussed by me in the above section may required Rs60000 investment if you consider 12% margin on the nifty future long and options short. Out of which you will be getting 10% (i.e. Rs6000) capital in the way of net credit by selling the option and buying the option.  Three to five speculations   in a month with average positive return of Rs2000 will make you to earn Rs6000 to Rs10000 per month.  This approximate estimate may yield Rs72000 in a year. Provide 30% of estimated gain for exceptional losses, brokerage, and tax. Now Your tradable capital of Rs60000/- can generate Rs40, 000 to Rs50000 by following this strategy.  This is a rough estimation based on the performance seen by us in the month of November 2009 by following this strategy. However the actual figure may vary based on your implementation and market condition.

If you are a good speculator then each 100 point move in nifty you can close the profitable position and reenter again with 20 to 30 point fall. Provided your brokerage must be low enough. You too can form 3 such strategies with covered call with put long and 1 covered put with call long. This will increase your profit realization by 50% and reduce the loss risk by 80%.

 Why I focused on Nifty for this strategy?  This strategy also works in stock options and futures. However the stock options have the risk of exercise in case of a wild move and it has the greater possibility to become illiquid too. This problem will not be encountered if this strategy is playing the Nifty future and option alone. 

 Conclusion:  if you are new to the Future and option trading then down load the Free E-book “Essential of Stock Trading” from our site and read the basic so option trading. After which you will get the grip to understand this strategy and apply it in more efficient manner.  Some basic home work of finding the option volatility will prove to be highly beneficial while initiating this strategy.

my education :
1.graduate in Mathematics
2.Post Graduate in Computer Aplication(MCA)
2.NCFM,AMFI
My recent Pubilications
1.Gann’s Method
2.Fibonacci Technique
3.Master’s Key to Future and Options
4.Technical Analysis three voluemes

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