How to Make Trading Profitable?
If you have read: "10 Simple Rules to Make You Serious
Money in the Sharemarket and Keep it!" you will have
read about options.
Here is a free excerpt of the Trading Ebook:
(This is a short version)
http://www.southwest.com.au/~tutor/js1dload.html
You don't necessarily want to buy any stock, but you do
want to control, by outlaying a little money. Does this
sound like something you could get excited about?
Well, if so, welcome to trading options for quick returns
or quick losses!
The amount you outlay is only a small part of the purchase
price, but you could control a large pile of stock.
When the asset rises or falls your option will also rise
and fall in value. Generally you can expect that options
will show greater volatility and it's by trading these
ups and downs that you can make superior returns, which
make stock investing look foolish.
Some Key Points About Options
Option traders use this volatility to make superior profits.
You see you can make money when the value falls by purchasing
a "PUT OPTION" and you can capture price rises
when you buy a "CALL OPTION".
Now there are many option strategies, but I believe in keeping
it simple - that way I understand what I'm doing and you should
too!
People who buy stocks, also protect
their holdings by using options.
You see the idea of using leverage to buy is a very old one. Let's
face it we may not want to spend the money, but we want to control
and options give us the opportunity to do so.
Options can do 2 simple things:
they give you "the right to buy"
and
they give you "the right to sell",
at a future time and at a future price.
You are not obligated to buy or sell, but the life of your option
is diminishing from the moment you enter the contract. Soon the
option will expire worthless. So you must trade it!
When we are ready, we either exercise our option, we sell the option
and make trading profits - or we cancel our obligation, if we are
option writers.
We can also cancel our obligation if we have written a "PUT" by buying
it back. Likewise if we write a "CALL" we can buy it back and cancel
our obligation to sell stock.
I've discovered a home study course you should take a look at if you
are interested in using the power of leverage.
Okay, so if I haven't scared you so far, talking about using leverage
via options - let's carry on.
When you read my ebook you will see % figures, that like the following
example demonstrate the difference in movement of stock prices versus
option prices.
If you have not invested in a trading package you can do so by going to
the link below:
http://www.tutorhelp.com.au/sharemarket.html
Now let's move on.
If you buy the stock XYZ at $37 and the price increases 12% to $41.50 you
are using lots more of your precious money to capture the move than if you
purchased say a $35(strike priced) option for $3.50 per option.
Now each contract in the U.S. represents 100 shares. So your total cost is
$350 per contract. In Australia one contract represents 1000 shares.
If your stock goes up it will influence the option price. Options can be
extremely volatile - so you need to monitor prices very closely.
So let's say your stock goes up to $41.50 and now the $35 option series is
selling for $6.50. This represents an 86% price increase.
So what has happened:
stock up 12%
option up 86%
Which trading situation do you think will make you the
biggest trading profits?
Would you rather hold the option or the stock?
If you answered "the stock", I'd be very worried about you!
Drawbacks of Options:
1. Volatility - needs close monitoring.
2. You can lose your option money if you don't sell it
before it expires.
3. Short life of options - usually months.
4. You need education in option trading.
Advantages of Options:
1. Leverage.
2. Volatility - can make more money per trade.
3. Less money needed than owning stocks.
4. Play the market UP or DOWN - flexibility.
If you increase your understanding you could do what every other trader is
doing - making money from time to time!!
You see losses are part of the game - not all your trades will succeed.
Playing the game with this fact in mind will help you to trade better and to
have a healthy respect for the market and controlling RISK.
We control risk firstly by being educated! I've chosen this link because I
think it will help you understand and trade options so much better.
http://options-university.com/go.php?3440A7209221175
Regards,
Joseph Sgro
THE 10 Simple Rules Ezine
http://www.tutorhelp.com.au/ezine.html
About the Author
Joseph Sgro has spent 18 years as trader. He is
also a writer and educator. He has recorded his
trading experiences and offers "Learn to Trade"
information.
Visit the BLOG:
http://www.tutorhelp.com.au/BLOG.html
For more resources go to:
http://www.tutorhelp.com.au/resources.html
Copyright (C) 2005 Joseph Sgro