Call Option Trading Secrets » Puts http://calloptiontrading.net Making money with call options Wed, 03 Mar 2010 05:37:21 +0000 http://wordpress.org/?v=2.8.4 en hourly 1 Maximizing Option Trading Profits With Fast Puts And Calls http://calloptiontrading.net/maximizing-option-trading-profits-with-fast-puts-and-calls http://calloptiontrading.net/maximizing-option-trading-profits-with-fast-puts-and-calls#comments Sat, 23 Jan 2010 17:46:13 +0000 admin http://calloptiontrading.net/maximizing-option-trading-profits-with-fast-puts-and-calls In today’s chaotic stock market, the ability to make a profit trading long Option positions (Puts and Calls) depends on being able to capitalize on short-term moves in the price of a stock or index. Stocks are up one day, and down the next – and it’s anybody’s guess as to what the long-term outlook is. With the price action occurring on a daily basis being more or less a guessing game, the ability to make profits with long option positions depends on being able to buy options that can gain value quickly with a minimum amount of price movement in the underlying security.
In the past, figuring out which option might move the most quickly has been a guessing game. For every equity with options there are several options for each expiration month. In the case of options on Indices, such as SPY or DIA, there are literally dozens of option choices for each month. Clearly, figuring our which of those options will reach a particular target gain on your initial investment, just by looking at the list of choices, is basically a guessing game
The key to a winning Option Trading Strategy it to be able to sort out the relative behavior of all of those options, and find the ones that can make your target investment gain (50%, 100%, etc.) with the least amount of price movement in the stock. The availability of a new Spreadsheet that can analyze and display the behavior of the various option choices, and show clearly which options can provide the desired gains with the least amount of price movement in the stock, eliminates the guesswork.
This analytical spreadsheet provides a number of useful Metrics for characterizing the behavior and future value of options, but the most important are the price gain data in the Matrix displays, which give a visual impression of the rate at which the different options will gain value as the price of the stock or Index changes. This provides the tool for finding the options which gain value at the fastest rate.
The spreadsheet provides two Matrix displays: The first shows the behavior of the options based entirely on the effects of Delta and Gamma, which determine how the price of the options change as the Stock price changes. This set of calculations is most relevant when you expect a very quick move in the stock price – a situation in which time decay (Theta) does not play a significant role. The second Matrix adds to the Delta and Gamma effects calculations of the influence of both Time Decay, and Volatility (Vega). These two variables can be changed independently of each other.
The results of these calculations are illustrated below in two tables. The data in the tables are for Dollar Tree Calls. The first set of values shows the amount that each call will gain based on the increase in the value of DLTR stock shown in the top line of the table (DLTR Price Gain). To make the relative behavior of the different Options clear, each line of the Table shows only the two price gains which bracket the increase in the option Bid price that will allow each option to be sold for double the original price paid, (the Ask price). (The target value can be set to any desired multiple of the initial cost, not just 2x, as in this example):
DLTR @ $35.42, Price changes needed to Double the value of a Call:
Matrix 1 – Delta & Gamma only price gains:
DLTR Price Gain:___ $2.00__$3.00__$4.00__$5.00__$6.00__$7.00__$8.00
DQO CU_______________$1.48___$2.09
DQO CH_______________$1.09___$1.56
DQO CV_________$0.47__$0.76
DQO CI_________$0.31__$0.51
- – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – -
DQO EH_______________________$1.89___$2.45
DQO EV_______________________$1.56___$2.04
DQO EI________________$0.91___$1.28
DQO EW_______________$0.73___$1.03
(These tables are greatly abridged for publication, and many data columns are not shown.)
The second Matrix shows how these same options will behave at some time in the future and, optionally, with a change from the present value of Volatility (Vega). The number of days into the future, and the change in Volatility, are determined by user input, which allows the exploration of many different “what if?” scenarios:
Matrix 2 – Price Gains after 35 Days and with Volatility at 85% of current value:
DLTR Price Gain:____$2.00__$3.00__$4.00___$5.00___$6.00___$7.00__$8.00
DQO CU__________________* * *___* * *__$1.65___$2.53
DQO CH__________________* * *___* * *__$0.52___$1.28
DQO CV__________* * *____* * *__________________$0.43__$0.76
DQO C___________* * *____* * *__________________$0.18__$0.37
- – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – -
DQO EH_________________________* * *____ * * *___$1.58___$2.30
DQO EV_________________________* * *____* * *__________$1.50___$2.15
DQO EI___________________* * *___* * *__________$0.66___$1.06
DQO EW_________________ * * * ___* * *__________________$0.72___$1.06
In this second Matrix, the positions occupied by price gain data appearing in Matrix One are represented with asterisks (if they differ from the new positions), providing a clear visualization of the way in which the Options’ gains in value have been changed by the effects of Time and Volatility.
The Tables above show how an analysis of multiple options can be used to make choosing the fastest option to purchase for a trade a more systematic process. If we anticipate that DLTR is going to make a quick move upward in price over the next couple of days (perhaps because of an earnings announcement), then using the data from the top table we would buy either the DQO CV Calls, or the DQO CI Calls. In cases like this, where there are two choices for an option based on the fastest rate of price gain, there are other metrics, such as price gain to achieve break-even, which can be used to narrow the choice further.
Based on the results of the analysis, these two Calls should double in value if the price of DLTR stock rises by $2.00 – $3.00 over the next few days, as of the time this data was current (early February 2009). The DQO CU and DQO CH options, by contrast, won’t double unless the price of DLTR rises by $3.00 – $4.00. If we were expecting the stock to drop, then we would perform a similar analysis using the Puts for DLTR. This example illustrates the power of this strategy: Buying one of the two fastest options cold result in a 100% profit, after the price of the stock has risen by less than 9%!
On the other hand, if we expect that DLTR will rise gradually over the next several weeks, then we would use the calculations in the second Matrix. Setting the number of days to the expected interval for the trade (in this case, 35 days) and allowing for the likelihood of a 15% decrease in volatility for these options, the best choices for Call options to buy would then be either the DQO CU, or the DQO CH Calls. Note that these March calls will still provide a faster return than the longer expiration options (the the May calls), even though the elapsed time is 35 days. This is not always the case, however.
One of the advantages of the way this data is presented is that anomalies in Option pricing “jump out” at the user very clearly. In the second Matrix, notice that the price gain data for the DQO EI Calls are displaced one position to the left, relative to the DQO EW and DQO EV Calls. This indicates that the DQO EI calls have an advantage over the others under these conditions, and will produce a faster return.
The use of a trading strategy that takes advantage of analytical tools (like the price gain velocity analysis shown here) provides an opportunity to make trading decisions that are based on analytical data, rather than “gut instincts”. This provides Option Traders with a more systematic way to make choices when devising an Option trading strategy, and taking an Option position.

]]> http://calloptiontrading.net/maximizing-option-trading-profits-with-fast-puts-and-calls/feed 0 What is a Vertical Spread? http://calloptiontrading.net/what-is-a-vertical-spread http://calloptiontrading.net/what-is-a-vertical-spread#comments Thu, 21 Jan 2010 17:43:43 +0000 admin http://calloptiontrading.net/what-is-a-vertical-spread http://calloptiontrading.net/what-is-a-vertical-spread/feed 0 Options Trading Is a Opportunity For The Small Investor Too http://calloptiontrading.net/options-trading-is-a-opportunity-for-the-small-investor-too http://calloptiontrading.net/options-trading-is-a-opportunity-for-the-small-investor-too#comments Mon, 18 Jan 2010 05:42:30 +0000 admin http://calloptiontrading.net/options-trading-is-a-opportunity-for-the-small-investor-too The stock market appeals to people for many reasons. Some see it as a quick way to make a nice nest egg to tuck away for their eventual retirement. Some see it as a way to live out their fantasies of being a powerful, corporate type. And some are actually more logical about it, seeing the stock market as a potential way to make money, if they play their cards right. They know that there are no sure things in life and nowhere is that more clear than in the stock market. But options trading is a opportunity for the small investor too.Options trading has grown in popularity, especially with the smaller investors over the course of the past ten years. Unlike other forms of trading that can require large amounts of venture capital, options trading can be accomplished with often a very small initial outlay. Of course, because they can be easily started, it can allow the uninitiated or poorly informed to get in well over their heads in a matter of a very short time. Not allowing yourself to understand the market before you make the first trade is financially foolhardy and personally dangerous. First of all, as the name implies, option trading is not buying actual stocks, but rather busying the right to own or sell them. The options trader can make the same profit with stock options that he would make as if the owned the outright stocks, but that also means that he would face the same risks if that stock did not do well on the market. As with other forms of trading, options trading will require that you learn some facts and make some decisions before hand. Know everything you possibly can about options trading, as well as trading in general. Know how to track stocks for movement and know how to watch for trends. Know what the basic types of options trading is- and understand how each works. And, as with any other type of trading, make sure you know and adhere to your personal limits, including your absolute loss cap. Do not overextend yourself, even if you just got a tip on a great stock. Options trading can focus on stocks that are heading in one of two directions, up or down. Call options will focus on rising stocks, while Put options focus on those on the decline. Both allow you the right to buy the option on a stock at a fixed price, but do not force you to do so. Knowing how to work this system to your best advantage is key.Invest in yourself, learn the basics and expand on that to become profitable in options trading.  

]]> http://calloptiontrading.net/options-trading-is-a-opportunity-for-the-small-investor-too/feed 0 Taxes, puts and calls;: How taxes make trading in stock options profitable at minimum risk (Unknown Binding) http://calloptiontrading.net/taxes-puts-and-calls-how-taxes-make-trading-in-stock-options-profitable-at-minimum-risk-unknown-binding http://calloptiontrading.net/taxes-puts-and-calls-how-taxes-make-trading-in-stock-options-profitable-at-minimum-risk-unknown-binding#comments Sun, 03 Jan 2010 14:41:24 +0000 admin http://calloptiontrading.net/taxes-puts-and-calls-how-taxes-make-trading-in-stock-options-profitable-at-minimum-risk-unknown-binding Taxes, puts and calls;: How taxes make trading in stock options profitable at minimum riskNo description for this product could be found, but have a look over at Amazon for reviews and other information.

]]> http://calloptiontrading.net/taxes-puts-and-calls-how-taxes-make-trading-in-stock-options-profitable-at-minimum-risk-unknown-binding/feed 0 Agricultural Options : Trading Puts and Calls in the New Grain and Livestock Fut (Hardcover) http://calloptiontrading.net/agricultural-options-trading-puts-and-calls-in-the-new-grain-and-livestock-fut-hardcover http://calloptiontrading.net/agricultural-options-trading-puts-and-calls-in-the-new-grain-and-livestock-fut-hardcover#comments Mon, 28 Dec 2009 14:42:31 +0000 admin http://calloptiontrading.net/agricultural-options-trading-puts-and-calls-in-the-new-grain-and-livestock-fut-hardcover Agricultural Options : Trading Puts and Calls in the New Grain and Livestock FutNo description for this product could be found, but have a look over at Amazon for reviews and other information.

]]> http://calloptiontrading.net/agricultural-options-trading-puts-and-calls-in-the-new-grain-and-livestock-fut-hardcover/feed 0 Agricultural Options: Trading Puts and Calls in the New Grain and Livestock Futures Markets (Hardcover) http://calloptiontrading.net/agricultural-options-trading-puts-and-calls-in-the-new-grain-and-livestock-futures-markets-hardcover http://calloptiontrading.net/agricultural-options-trading-puts-and-calls-in-the-new-grain-and-livestock-futures-markets-hardcover#comments Tue, 22 Dec 2009 15:14:17 +0000 admin http://calloptiontrading.net/agricultural-options-trading-puts-and-calls-in-the-new-grain-and-livestock-futures-markets-hardcover Agricultural Options: Trading Puts and Calls in the New Grain and Livestock Futures Markets

The recent introduction of agricultural options has created an exciting new opportunity to make spectacular profits at a low fixed risk. George Angell shows how to master these new instruments to earn maximum profits.

(more…)

]]> http://calloptiontrading.net/agricultural-options-trading-puts-and-calls-in-the-new-grain-and-livestock-futures-markets-hardcover/feed 0 Agricultural Options: Trading Puts and Calls in the New Grain and Livestock Futures Market (Hardcover) http://calloptiontrading.net/agricultural-options-trading-puts-and-calls-in-the-new-grain-and-livestock-futures-market-hardcover http://calloptiontrading.net/agricultural-options-trading-puts-and-calls-in-the-new-grain-and-livestock-futures-market-hardcover#comments Wed, 16 Dec 2009 15:59:24 +0000 admin http://calloptiontrading.net/agricultural-options-trading-puts-and-calls-in-the-new-grain-and-livestock-futures-market-hardcover Agricultural Options: Trading Puts and Calls in the New Grain and Livestock Futures MarketNo description for this product could be found, but have a look over at Amazon for reviews and other information.

]]> http://calloptiontrading.net/agricultural-options-trading-puts-and-calls-in-the-new-grain-and-livestock-futures-market-hardcover/feed 0 How To Start A Home Business With Options Trading And Credit Spreads http://calloptiontrading.net/how-to-start-a-home-business-with-options-trading-and-credit-spreads http://calloptiontrading.net/how-to-start-a-home-business-with-options-trading-and-credit-spreads#comments Wed, 16 Dec 2009 05:48:45 +0000 admin http://calloptiontrading.net/how-to-start-a-home-business-with-options-trading-and-credit-spreads If you are like most people, in these times of economic uncertainty you are looking for a way to earn extra money, that doesn’t take a lot of time, preferably from home and that doesn’t require a lot of capital to get started. If you fall into this category then options trading might be just what you are looking for. Although trading is a simple business to get started in, it is far from easy and be wary of anybody who tells you differently. Also you may have heard that trading options is risky, and while nothing in life is risk free, there are ways to substantially reduce the risk.

How much money do I need to start?

One of the beautiful things about options trading is it’s one of the few businesses that you can take for a free test drive to see if you can be successful at it. By trading in a simulator you can start your business with no money. Obviously you won’t be earning anything either, but you will be gaining valuable knowledge. You can find a simulator at CBOE.com. After you’ve traded in the simulator for a few months and become consistently profitable you can start with as little as $2,000.

Finding a broker

The first step in getting started in an options business is finding a broker. There are many (excuse the pun) options available, a few of the good ones include, OptionsXpress, TradeStation and Interactive Brokers. These are all members of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC), which are two organizations that protect you against fraud from financial brokers.

Putting the Odds in your favor

While this isn’t a comprehensive list there are a few things that you can do to stack the odds in your favor when dealing in stock options. First of all rather than buying puts and calls you can use credit spreads. This method of selling a higher priced option and purchasing a lower priced option alone will stack the odds enormously in your favor simply because this method can allow you to make money whether the markets go up, down or sideways. As a matter of fact using this method can allow you to win as much as 80-90% of the time, which is why professional traders use this type of trade to generate consistent income. The next thing you want to do is a bit of technical analysis and look at the S&P stock index. If the index is moving above it’s 200 day moving average you generally want to be purchasing stocks or using bull put credit spreads. If the index is moving below it’s 200 day moving average you should short sell stocks or use bear call spreads. How much can I earn? This can fluctuate depending on market conditions but by using credit spreads you can make anywhere from 5-20% a month. So with $10,000 you can generate anywhere from $500-$2000 in extra income a month.

Reducing Your Risk

1.Start off by trading in a simulator at CBOE.com

2.Always use a stop loss or have your positions hedged.

3.Never trade with money that you need to pay for you day to day expenses with such as rent and bills. Nervous money always loses.

If you’d like to find out more about options trading and credit spreads click on the link in the resource box below and sign up for a free 10 part course.

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