Call Option Trading Secrets » Option Trading

Option Trading Tip – Are You A Jack Of All Trades & A Master Of None?

admin — Mon, 25 Jan 2010 06:11:38 +0000

I make a living out of trading options…and a pretty good one at that!

For a long time I couldn’t say those words as I struggled just to hold on to my capital, let alone make it grow.

Though there were several reasons why I struggled (including being grossly undercapitalized and at the same time placing too much of my trading bank on individual trades) the main reason for my struggle I believe was a lack of focus.

By ‘lack of focus’ I mean that I was constantly jumping around trying to implement too many different option trading strategies from basic call and put buying, to putting on multi leg spread tades, believing that the more complex the strategy, the greater my chance of success.

I had become a ‘Jack Of All Trades & A Master Of None’ and the only people that were making money from my option trading were my brokers.

One day a friend of mine (a very successful futures trader) said to me, “You don’t need to know everything about trading the markets to make money and be a success. You just need to ‘focus’ and become an expert in one or at most a few different trading strategies and know exactly when and how to use them. The rest is just practice!”

Those words rang loudly in my ears and from that point onwards I narrowed my focus.

I decided that I would go back to the very basics of option trading and only buy calls and puts with the intention of becoming very good at picking the short-term direction of stocks.

Today, almost 2 years later and after going through a steep and often expensive learning curve, buying calls and/or puts is what brings in the largest portion of my current monthly income.

I also use a couple different spread trading strategies when the market moves sideways, but my main ‘focus’ is on picking the short-term direction of a small number of stocks that I have gotten to know VERY well (through backtesting), and then buying the appropriate option based on risk vs reward and my short-term outlook.

The success I’m enjoying today (19 profitable months out of the last 24) is due to becoming proficient at reading stock charts and developing an option trading system that I am comfortable with and performs well and by applying my trading rules consistently.

Ultimately you only need to know a few different strategies to be able to trade any stock up, down, or sideways.

The options themselves are simply the ‘tools’ to make money from your ‘opinions’ and in my experience the tools that are the easiest to use, have also been the most profitable.

Backspreads (Reverse Ratio Spreads)

admin — Mon, 18 Jan 2010 17:27:21 +0000

Backspreads, also known as reverse ratio spreads, are an option strategy utilized when you believe there will be much volatility in the stock but are not 100% sure whether it will go up or down. If the stock moves a lot in the predicted direction, you will earn a tidy profit. If the stock moves a lot, but in the opposite direction, you will earn a small profit. However, if the stock doesn’t move much and is stuck in a trading range, you will experience a loss.The backspread position used when you are bullish on the stock is known as a Call Backspread, since call options are used to create this position. The call backspread is created by buying a certain number of Out-of-The-Money (OTM) call options (i.e. call options whose strike price is higher than the current stock price), and selling a lesser number of In-The-Money (ITM) call options (i.e. call options whose strike price is lower than the current stock price). You can create a call backspread by buying and selling any number of call options, but for the purposes of this article, we will talk about buying 2 OTM call options and selling 1 ITM call option.Because you are selling a call option that is ITM and buying 2 call options that are OTM, this position should be a credit position, that is you will earn a premium by opening a call backspread. However, because you are selling an option, you are not able to allow this position to expire. You will need to buy back the option before expiration date, which brings us to the risks involved with this position.If the stock price goes below the strike price of the call option that was sold (the ITM price), you can allow the position to expire since the calls at both strike prices are now worthless. Your profit in this case would be the initial premium made when the position was opened. If the stock moves above that ITM strike price but is still below the strike of the 2 calls that you bought (the OTM price), you will be in trouble. The 2 calls with the OTM strike price would still be worthless, but the call you sold at the ITM strike price would be worth something and will need to be bought back before expiration. Once the stock moves above the OTM strike price, your profits are limitless. The ITM call will still increase in value (and must still be bought back), but that cost is negated by the fact that you now have the 2 calls (bought at the OTM strike price) gaining value just as quickly and can be sold for profit.A Put Backspread functions in the same way but in the opposite direction, and is a bearish position. You would use this position on a stock that you expect to move a lot, with a high likelihood that it will go down in price. The reason it is known as a put backspread is because it is created by buying and selling put options.The put backspread is opened by buying any number of out-of-the-money (OTM) put options (i.e. put options whose strike price is below the current stock price, and selling a smaller number of in-the-money (ITM) put options (i.e. put options whose strike price is above the current stock price). Doing this should give you a net credit premium. Similar to the call backspread, a put backspread can be created by buying and selling any number of put options, but for this article we will talk about the simplest case, which is selling 1 ITM put option and buying 2 OTM put options.If the stock moves above the strike price of the ITM put option you sold, you can allow the position to expire and keep your original credit premium, since all 3 put options will be worthless. If the stock price ends up between that ITM strike price and the strike price of the 2 OTM put options you bought, then you will incur a loss, since you will need to buy back the ITM put option which is now worth something, but the 2 OTM put options are still worthless. Once the stock price drops below the strike price of the OTM put options, you will start to see unlimited profit since the cost of buying back the ITM put option is more than offset by the profits from selling the 2 OTM put options.Do bear in mind that you cannot allow a backspread position to expire, since you have sold options that need to be bought back to prevent them being exercised. As such, you will need to make sure you have enough funds to buy back those options in case the stock price doesn’t move.For a more detail and illustrations on backspreads, please visit: http://www.option-trading-guide.com/backspreads.html

Options Trading and Technical Analysis

admin — Mon, 18 Jan 2010 17:27:19 +0000

Recently, almost no options trading seminar is without some mention or introduction to technical analysis. In fact, almost all of the options trading blogs out there in the internet use technical analysis as their main basis of decision making. Why is that so? Why is options trading so closely related to technical analysis now?
In order to understand the important relationship between technical analysis and options trading, we need to first understand what technical analysis does in the first place.
There are two main methods of analysis; Fundamental Analysis and Technical Analysis.
Fundamental analysis is the reading of fundamental data of a company or economy in order to predict and invest in the future performance of the company or market. Such fundamental data includes profit and loss statements, earnings growth and earnings guidance. The problem with fundamental analysis is that great companies do not always make great stocks. Stocks of great companies also experience periods of downturn, often for extended periods of time. As such fundamental analysis helps an investor mostly in deciding what stocks to buy for the long term (5 to 10 years out), if nothing unpredictable happens to the company in the years down the road. In fact, fundamental analysis is a tool favorable by investors who buy stocks for their dividends and dividend growth.
Technical analysis is the studying of market data of a stock. Yes, while Fundamental Analysis is the study of a company, technical analysis studies its stock exclusively. Such market data includes the price across different time periods and volume transacted. From price and volume, options traders see how the price of a stock is doing no matter what the company data is doing. This helps traders and investors avoid those extended periods of downturn even though a company’s fundamental data looks great. Indeed, while fundamental analysis tells an investor which company is doing well, technical analysis tells an investor when it is time to buy or sell its stocks. Indeed, the strength of technical analysis is in its ability to guide the buying and selling decisions of investors across short time periods through price patterns and price trends.
So, why is technical analysis such a favorite in options trading?
Lets recall that fundamental analysis is favorable for long term investing and technical analysis is favorable for use even in short time periods. Stock traders can hold stocks forever but options expire after a fixed time! Yes, options typically last no more than a year and options traders frequently use options trading strategies that require extremely short outlooks in terms of months or weeks. This is exactly why technical analysis is so closely associated with options trading. Options traders simply do not have the luxury to hold a position for years like stock traders do. On top of that, options traders do not receive dividends like stock investors do. The only way to make money in options trading is for the expected outlook to play out within the expiration period of the options. This makes the fundamental strength of the company it is based on relatively unimportant. On top of that, options traders are able to profit when stocks drop as well. This also makes identifying good companies through fundamental analysis relatively unimportant.
Indeed, reading price trends and price patterns that might show the direction a stock is moving the next week or month has more value to options trading than reading a company profit and loss statement that does not tell you where its stock may be going for the short term at all.
I hope my short article explains why technical analysis and options trading are so closely related and that it will help you better understand the big lack of fundamental analysis whenever the subject of options trading is raised.
Visit http://www.optiontradingpedia.com to learn more about options trading for free.

Wish to make huge money? Go for option trading

admin — Sun, 17 Jan 2010 17:25:04 +0000

Options trading are a well known word to the people who have knowledge about the stock trading and have made huge profits by trying their luck here. It is always very essential that you understand and recognize that there is a difference between stock trading and option trading. The option trading involves the transaction of stock market of the future. It offers the basic right to sell off or buy anything before a particular date in future. An option trading is among the most excellent ways if you wish to make enormous profits and mint on money. It can also be considered or referred to be paying the cash by forecasting the profits of the future. In options trading, you get assets in the end. Under this, you may buy or sell according to your choice. If you have the option of call, then you may buy the assets and if you have the option of put, then you may sell your acquired assets. The merits that come along with the option trading is that you may control on your likeliness of the risks and the results which are associated with it. Options trading do not involve any risk and if the market goes down, you do not have to incur any loss. If you have a complete knowledge about option trading, then you can surely make a lot of money in a very short span of time. “Camelot Derivatives” is one of the reputed companies associated with options trading. It is a company which deals in derivatives. It has been licensed by the Australian Securities and Investment Commission in the year of 2004. This company was set up to serve as a corporate trading platform, for Neil King, who is in the option trading business for more than 18 years.

Long and Short Butterfly Trading

admin — Sat, 16 Jan 2010 17:26:56 +0000

The Butterfly is an option position that is composed of 2 vertical spreads that have a common strike price. In other words, butterfly trading involves an opening position where options (either calls or puts) are bought (or sold) at 3 different strike prices. The way in which these options are created makes the butterfly a position that has both limited losses and limited profits.The Long Butterfly can be created using either all call options or all put options. Due to put-call parity, a long butterfly created using call options will behave like a long butterfly created using put options. In other words, it doesn’t really matter whether you use calls or puts to create your long butterfly. Our example here will focus on the version using call options.The long butterfly can be created by buying an In-the-Money (ITM) call option, selling 2 At-the-Money (ATM) call options and buying another Out-of-the-Money (OTM) call option. This is actually a combination of 2 opposing vertical spread options, hence why the butterfly is also known as the butterfly spread.Combining the profit profile of these 4 call options, you will find that if the stock price falls, you will face limited losses (which is the initial premium you paid for the entire butterfly trade). Similarly, if the stock price climbs too high, you will also face limited losses. However, if the stock price stays around the vicinity of the ATM option strike price, you will receive limited profit.This makes the long butterfly a good neutral option strategy for low volatility, since you are betting on the stock price not moving much in order to collect maximum profits. It is also a low-risk strategy, since your losses are limited if the stock crashes or climbs unexpectedly. Unfortunately, this is accompanied by limited profits as well. As has been mentioned above, the long butterfly can also be created using all put options instead of all call options.A Short Butterfly is the exact opposite of the long butterfly. Instead of buying an ITM call, selling 2 ATM calls and buying an OTM call, a short butterfly is constructed by selling an ITM call, buying 2 ATM calls and selling an OTM call. As before, the short butterfly can be created using all put options instead of all call options.The short butterfly’s profit profile is the opposite of the long butterfly’s. If the stock price falls, you will receive your maximum limited profits (which is the initial credit premium you received when opening the short butterfly position). Similarly, when the stock price climbs, you will also receive limited profit. However, if the stock price doesn’t change much, you will face a loss, though that loss is limited as well.As can be seen from the above description, the short butterfly is meant to be a strategy that is high in volatility but neutral in direction (ie. you expect the stock to move a lot, but do not know in which direction). As a side note, this might not be the best strategy for you if you are indeed expecting high volatility and are uncertain in stock price direction. Both the Straddle and the Strangle strategies also have the same lean towards high volatility and neutral direction, but with the extra benefit that they have the potential for unlimited profit. However, the benefit of the short butterfly is that it is a credit position where you pocket the initial premium when creating it.One warning about both long and short butterfly trading: these positions involve buying and selling options at 3 strike prices. For most option brokers, this means you will be paying 3 commissions to open the position, and another 3 commissions to close it. You will need to consider these extra commissions (which differ from broker to broker) when trying to determine if the butterfly will be profitable for your circumstances.For a more detail and illustrations on butterfly trading, please visit: http://www.option-trading-guide.com/butterfly-trading.html

Option Repair Techniques

admin — Fri, 15 Jan 2010 17:47:02 +0000

With Option Trading, you usually place a deal based on smart judgment. There are basic steps and useful techniques for option repair.
You cannot maintain the right position in an option trade all the time. You need to place a trade based on an intelligent judgment. It is somewhat likely to happen in the near future. You cannot control events that can hamper your forecast. There are unexpected things which can happen like:
- profit warnings
- lawsuits or
- “negative industry” news
It can cause stocks to drop unexpectedly in just one day. Rolling is one very common option of the repair technique is best suitable for it.
Here are some Steps on Option Repair Techniques
Accept when to take a loss
Take the time to consider whether a trade is worth repairing or not. Sometimes the goal of entering a certain business may vanish. This may be due to the fact that it does not meet the desired earning potential. It may also be due to some new product that does not meet the sales expectations. Rolling is a good strategy if you want to stay on a position.
Rolling an option – is the process of closing a support of an existing position. It is opening another support with the use of an option of the same type. It is in a different strike price and / or expiration date.
Rolling down – is replacing an out-of-the money option with a choice closer to the current price.
Rolling out – it means changing an option with one, having a farther out expiration month.
Rolling only helps if the stock stops going the wrong way and reverses.
Here is an example of the process to follow when deciding to repair a position or not.
On the morning of August 20, 2002 Amgen was trading at $46. The analysis says the stock has great potential. It could hit $60 by year-end. We did not want to waste $46,000 for 10,000 shares of stock. Instead, we purchased. Hence, the Jan 10, 2003 calls were for $2.00 for 10,000 shares of stocks. That’s a total of $2,000. It gives a breakeven point of $57 by January. Then, we waited to make the stocks move.
A month later, the stock price dropped to 8% on September 19th. It dropped 8% to $42. This is after Wyeth announced that they may sell a part of their stake in Amgen. Moreover, the January 10, 2003 calls were now worth $8.50 only. It went down by more than 50%. Thus, we could still do one of these three things before the four months left expires:
We can hold the option until the expiration. We will do nothing until the stock bounces back. We may be able to get all the money back.
Close the position. This is done in case the reasons why we entered the trade have disappeared. This would result in $1,150 loss. It is still less than the $4,000 loss if we had bought 10,000 shares of stocks.
Using rolling, we can try to repair the trade. The first thing to do is to sell the January 2003 calls. Using the profits of the sale, we could roll down and buy 5 of the January 2003 50 calls. We can also roll out and buy 5 of the April 2003 55 calls. Any of these 2 choices would require a little additional capital only.
It is apparent here that the best expected return is rolling out in time.
When the stock price goes past $59.50, this means that the original position outperformed the repaired position. This means that an increase of almost 50% over the next 4 months. The adjusted position gets the breakeven point down to $52.50 from $57.
The best choice depends on our future expectations for the company. It’s not important to hold the January 2003 55 calls if the original price and date is doubtful. You may lose most, if not all of your money.
The next thing to do is to look for possible option repair strategies. For instance, we still expect that Amgen will pick up again; the option is to buy more time. You may even lower your so-called breakeven point via rolling out towards the April 2003 55 calls.
If the business moves against you, it is best to take your loss. This is also applicable to repair strategies. You can roll an option once or twice. Thus, if you continue losing, it’s time to move on to something new. When the business moves against you, sometimes you don’t know what will be the next step. When you know all the possible option repair strategies, you can salvage unprofitable business.

Stock Trading for Bold Brave Investors

admin — Tue, 12 Jan 2010 17:34:53 +0000

Stock trading is one of the last true meritocracies. All that matters for your investment success are your own decisions. Stock trading is a precision-based activity and one tiny mistake in judgment could send you plummeting right to the bottom and result in a huge loss.
Likewise, the opposite could happen. You may make a great buying decision that will put you on the path to riches. Traditional stock trading is done at stock exchanges, which are places where buyers and sellers meet and decide on a price, although electronic trading is gaining in popularity. Stock trading is affected by how well the economy is doing and by basic supply and demand considerations.
Stock Trading is a get rich slow process. Money can be made, but it takes time. Stock trading is something that interests many people because it offers them a chance to make money without breaking into a sweat. In addition, it has a lot of excitement attached to it especially when using short term strategies that help pit traders against the stock market.
Stock Trading is trading stocks and shares of different types of companies and organization at the stock exchange. In every country, there is a stock exchange where various companies get their shares listed, when they arrange to raise required funds by means of issuing shares.
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. The real “secret” of the stock market game is enclosed within the trading set ups and market signals you rely on to decide when to buy or when to sell shares. Stock trading is a business (because it is done for making money).
So as in a business, in stock trading, one needs to complete solid planning before making any buy/sell/trade. Stock trading is viewed by some people as a very complicated matter. This is regarded by many as an arena better reserved for those who have extensive exposure and experience in stock trading.
Stock trading is a game in which you cannot afford to be average. Thousands of new and inexperienced traders are being charged hundreds, even thousands of dollars by scam artists and self proclaimed experts for dubious stock picking services and mechanical buy and sell signal generators.
Stock trading is a relatively simple activity compared with other professions, particularly with the tools available in today’s Internet world. It is certainly within your abilities, and as you educate yourself on and build your skills, you’ll find that your fears subside as your confidence grows.
Researching a stock and then buying online it is one part of the story. The other part being how to plan a trade with an exit strategy? You must research the risks attached to online trading to make sure you are prepared for the worst. Be determined and goal orientated.
Exchange traded funds are good to use for trading and investing. By keeping trading simple, there is less stress and more opportunity to profit. Exchange Traded Funds, also known as ETFs, are index funds traded on the major stock exchanges just like stocks. An index fund involves a collection of securities, much like mutual funds, except that ETFs differ from mutual funds in some distinctive ways.
Options are bets about the future price movement of exchange traded securities. The prospect of unusually high returns always signals unusually high risk so be careful about trading options. Timing is everything.
Options are a great way to both earn and lose a lot of money. If you’re interested in involving yourself in the more unpredictable, risky, and spontaneous part of the stock market then trading options is something you should investigate. Option strategy is about selection of the best stock opportunities and following your signals. Here, you can achieve success if you are acquainted with the correct option trading strategy .
There are online resources available that will provide you with free simulated stock and option trading. You will easily find enough information to start your trading venture. You can practice trading stocks, options, spreads, futures, short sells, and so forth. Just run a search for “demo stock trading accounts” and you will find a good list to research.
Stock and option trading is a big game in many ways. But as it is a game involving the exchange of money if you play you need to take the game seriously.

Stock And Option Millionaire Psyche

admin — Tue, 12 Jan 2010 05:49:30 +0000

If you are like most of us, we have all lost our fair share of money in the stock markets using strategies written by so-called gurus and experts costing thousands of dollars.
Have you ever wondered, how does these stock and options trading experts develop these strategies, prove its worthiness all over the internet and in books, made money with them, but when you use these stock or option trading strategies, its magic fades away and you started losing money…
Going deep into the core of the problem revealed that there was nothing wrong with these stock or option trading strategies! I say again, nothing wrong with these strategies! What was wrong was that I found it difficult or if not impossible for many amateur traders to do many things EXACTLY the way these stock or option trading strategies demanded it! Have you ever held on longer then the stop loss policy allows? Have you ever let profits run when you are supposed to take profit? Haven’t these situations resulted in the loss of thousands of dollars and most importantly, a loss of trading confidence?
Why does that happen? Well, the Holy Grail of trading systems and trading strategies is in fact a complete system completed by the investor himself! The psyche of the investor makes or breaks the trading system! Your character determines what kind of trading strategy works for you! With a strategy that compliments your character, you can truly find your personal Holy Grail of stock and option trading strategies and be on your way to becoming the next stock market millionaire!
MASTER YOURSELF FIRST, THEN MASTER THE MARKET!
There are 3 dominant trading characters which you belong to. Short term aggressive trader, mixed class trader and long term stability trader. By using the respective trading strategy for your character class, you will be able to attain better trading profits with much much less effort than before.
I have developed a free online trader’s psychometric test to help you find out your dominant trading character. Please take the test now at http://psychometric.mastersoequity.com

Example of a Bull Call Spread

admin — Sat, 09 Jan 2010 18:39:31 +0000

Written on 15th February 2008 (see below for further updates)

I thought I’d provide an example of a Bull Call Spread (BCS) using the Commonwealth Bank as an example. There is a lot of volatility in the market at the moment. If you have studied my course then you will know that high volatility is a great advantage for the Option Seller – a decrease in implied volatility means a decrease in the Option premium – but let’s get back to this example!

Since making a high around $62.00 in November 2007 CBA has spent the last few months falling to its current price of $47.00. Can it go lower? Is this the bottom? I have no idea! Instead of buying the stock and watching it plummet even lower let’s look at a strategy where we know EXACTLY what our MAXIMUM risk and MAXIMIM profit is – a Bull Call Spread.

When you BUY a CALL Option your view is that the underlying Stock will rise. So with CBA closing last night (14th Feb) at $47.05 you might to decide to BUY a CALL Option with a Strike price of $48.00 that expires on the 27th March 2008. The quoted price for this option is $1.69. If you bought 2 contracts it would cost you 2,000 @ $1.69 = $3,380 (plus brokerage). In 10 days time if the stock price increased by 4% to $48.93 the Option price would be somewhere around $2.15. You could then Sell the CALL Option and profit $920 or around 27%.

To reduce the cost of Buying the CALL Option you can SELL a CALL Option at a higher strike price. Building on the above example you would SELL 2 March CALL Options at a strike price of $51.00 and receive a premium of $0.71 which means you receive 2,000 @ $0.71 = $1,420. So your total cost would be the price that you paid for the contracts that you bought ($3,380) less the money that you received for the Options you sold ($1,420). Total Cost $1,960.

The advantage is that you are reducing the cost of entering the trade. The disadvantage is that you are limiting your profit to the upside if CBA trades above $51.00. I like the Bull Call Spread trade because you know your maximum profit and maximum loss before you enter the trade. The best way to view this is via a picture (listed on the next page).

Please note that this trade is purely for educational purposes only. I’ll send an update of this trade in a week or two to see how it would be progressing. If you have any questions you are more than welcome to send me an email glenn@optiontrader.com.au.

Cheers

Glenn Dove

www.optiontrader.com.au

Update written on 22nd February 2008

It’s always worth reviewing your trades especially when you trade Options. One week ago I provided an example of a Bull Call Spread Option strategy on CBA shares. At the time of the Option trade CBA was trading @ $47.05 and we had entered a long position.

How would we be going on the 22nd February with the price of CBA trading at $42.40?

The trade has not gone in the direction that we wanted but there’s a lot we can learn from this type of strategy. The Bull Call Spread (BCS) that we entered entitled us to Buy 2,000 CBA shares @ 48.00 and to sell 2,000 CBA shares at a maximum price of $51.00 anytime before 27th March. The total cost of the BCS position was $1,960.

So what’s so good about that?

• We are in control of $96,000 of CBA shares (2,000 @ $48.00) and it only cost us $1,960 to enter the trade. This works out to around 2% of the total trade value.

• We are limited to a maximum loss of the premium that we paid $1,960. If we had of bought 2,000 CBA shares at the market price (on 15/2) we would have paid $94,100. With the current price of CBA at $42.40 we would be sitting on a paper loss of $9,300.

So as you can see even though the trade has not gone in the direction that we wanted the BCS has provided great leverage while limiting our loss potential to only 2% of the trade value. Also remember that we still have until 27th March for this trade to work. You could also decide to close the position if you thought that the CBA had no chance of getting back above $49.00 by the 27th March which would leave you with a loss of $1,297.

It’s also worth mentioning some of the disadvantages even though I believe the advantages far outweigh the disadvantages:

• If there are any dividends payable during the Option period we are not entitled to them (as we don’t really own any shares)

• We have a limited time (until the Option expiry date) for the trade to become profitable. Once the contracts expire they become worthless.

• Our profit potential is limited due to the fact that we SOLD Option contracts to reduce the cost of the Options that we bought.

If you have any questions send me an email: glenn@optiontrader.com.au

Cheers

Glenn Dove

www.optiontrader.com.au

Options Trading… Small Risk, Big Payout For Small Investors

admin — Sat, 09 Jan 2010 18:39:30 +0000

Even though trading in the market is, in many circles considered gambling, it appeals to people for a wide variety of reasons. All of the reasons preferably lead to only one conclusion, making money. Whether you’re interested in just trading part time, you must treat it as your own business. You don’t need a lot of money to invest, however, you can lose a lot if you’re not completely dedicated. Those people who “play” the market for fun, had better have money to burn. For the rest of us let me go over your options. The popularity of option trading has grown over the past couple of decades, mostly due to everyone having easy access to the internet. Like most things having to do with the market, options began as way that commodities could be assured of a future price. No one knows who came up with the concept, but to hedge their bets options were created. Remember, an option is a contract between a buyer and a seller that gives the buyer the right, BUT NOT THE OBLIGATION to buy or to sell a particular asset (the underlying asset) at a later day at an agreed price. What began more than 150 years ago at the Chicago Board of Trade, Kansas City Board of Trade, the Minneapolis Grain Exchange, and the New York Cotton Exchange, has evolved into the fastest way to make or lose a fortune.Like penny stocks, options appeal to small investors because the initial cash outlay is smaller than actually having to purchase the assets. It is for this reason that many go swimming in the option pool without first learning how to swim. Before they know it, they are in the deep end, treading water and going under. Many of the online brokers have their new clients show proof of option trading experience before allowing them to trade in options. So why, you ask, should someone even consider toying with option trading? The answer is, you shouldn’t. Unless of course you already know a little something about day trading. The modern trader does not hold onto an option very long. In most cases the option gets sold the same day it was acquired. The secrets to finding the right asset to option are twofold. You must look for a stock or commodity that has a lot of movement, up or down doesn’t matter. Second, there must be higher than normal volume. If you are not properly trained or at least have some options market knowledge, you can lose your investment in an instant. I am of course referring to the American market where an option may be exercised on any trading day on or before expiration. A European option may only be exercised on expiration. There are several different styles of options available. This is just one of the many things you must know about to become a successful options trader. Types of options are Exchange traded options which are: 1. stock options, 2. commodity options, 3. bond options and other interest rate options 4. stock market index options or, simply, index options and 5. options on futures contracts And…Over-the-counter options: 1. interest rate options 2. currency cross rate options, and 3. options on swaps or swaptions.This is why you must be knowledgeable and confident before attempting to do even one option transaction. I don’t profess to being an expert, but I do know of some. I obviously don’t have the time to go into all the details now, but at my site Market Mentalist you will find all you need to know about investing online. There is access to some of the top trading systems available including software, books, newsletters, and Forums. Whether you are an inquisitive novice or a seasoned pro Market Mentalist offers the online investment resource you just might be seeking.