My Option Trades: Buying DV for call

According to the charts that we examine with the AXIS TRADES trading instructor, base on the 10-year history of DV, it will goes up this week or next. And since  I have a little money left in my account in TD AmeriTrade, I bought call for DV last Friday October 23, 2009 strike 65.

The last two days that past showed that DV dived to $54 from $55. The 10-year history chart showed that buying calls for DV during this time is indeed the right thing to do. And because of this, I am still hoping that my Options Trade will still give me a little money.

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TD Ameritrade says 4Q profit fell 9 pct

OMAHA, Neb. — TD Ameritrade Holding Corp. said Tuesday investors kept its online trading operations busy in its latest quarter as the markets improved but lower interest rates and rising expenses sent its profit down 9 percent compared with a year ago.

Ameritrade said it handled 35 percent more trades per day on average and its trading-based revenue soared almost 38 percent in its fourth fiscal quarter.

The company's acquisition earlier this year of options-trading specialist thinkorswim helped it top trading numbers from last fall's panicked selling during the turmoil around the bankruptcy of Lehman Brothers. And retail traders stayed engaged in the improving market.

The average number of trades it handled soared to an average of 410,576 trades per day in the quarter.

But Ameritrade said low interest rates drove its asset-based revenue, which includes money earned on its customers' deposit accounts and various investment products, down 29 percent. The net effect was a slim 1 percent increase in overall revenue.

It said higher expenses — mostly associated with the thinkorswim acquisition — also hurt its profit.

Ameritrade earned $156.7 million, or 26 cents per share, in the quarter that ended Sept. 30, down from $172 million, or 29 cents per share, a year ago. Revenue edged up to $657.9 million from $649.2 million a year ago.

Analysts surveyed by Thomson Reuters expected earnings of 22 cents a share on $630.48 million in revenue.

Its shares slipped 21 cents, or 1.1 percent, to close at $19.27 Tuesday. Its shares are still closer to the high end of their 52-week range of $9.34 to $20.93.

Over the past year, Ameritrade has tried to limit its costs, boosted advertising to attract more business and acquired thinkorswim.

"We couldn't control the markets and we couldn't control interest rates, so we focused on the things we could control," said Fred Tomczyk, Ameritrade's CEO and president.

The Omaha-based company expects to earn between $1.10 and $1.40 per share in fiscal 2010. Analysts are looking for $1.29 a share.

Credit Suisse analyst Howard Chen said in a research note that he thinks Ameritrade has performed well, but he expects a pullback in trading activity that will hurt the company's prospects.

"Management has executed soundly and fundamentals have remained strong for the AMTD franchise in a difficult operating environment," Chen wrote.

Tomczyk said when the Federal Reserve does begin increasing interest rates, Ameritrade is likely to benefit significantly because it will generate more revenue on its asset-based fees. The company estimates that for every quarter-point increase in the federal funds rate, Ameritrade's earnings per share will increase by 7 cents.

Tomczyk said he is cautiously optimistic about the economy, but he thinks any significant bad news could still send the stock market down.

"I think any recovery here is going to be slow and over a long period of time," Tomczyk said in an interview. "I don't expect us to rocket back here."

Ameritrade continues to hold onto a substantial amount of cash and other liquid assets to help it weather the recession. The company had about $1.1 billion on hand at the end of September.

Company officials said between $260 million and $320 million of that cash will be used to purchase auction-rate securities from investors as part of a previously announced settlement with government investigators.

The auction-rate securities market involved investors buying and selling instruments that resembled corporate debt whose interest rates were reset at regular auctions. They were sold as being as safe as cash, but the market for them fell apart in early 2008.

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The Source:
          The Associated Press
.

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Why Buy Calls When You Can Sell Puts?

by Kevin Cook

A great question came to the ONN.tv virtual mail bag recently regarding iron condors and other credit spread strategies:

Do ITM debit spreads = OTM credit spreads? I notice a lot of traders have a preference for credit vertical spreads & iron condors. Aren’t ITM debit spreads synthetically equal to OTM credit spreads (e.g., AAPL 200/205 bull call spread & AAPL 205/200 bull put spread) and iron condors = to long condors? If that is the case – how does one choose which one to go with – i.e., the credit side or debit side?

I love this question because it really gets new option traders thinking about the basic mechanics of risk/reward with spreads, and about option synthetic relationships. On Oct. 27, I pulled up a quote chain for December Apple (AAPL) options so we could use real prices for the examples. With the stock trading around $197.50, the bid/ask premiums for puts and calls at the 190- and 195-strikes were:

190 Strike: call 13.50 ask; put 5.75 ask

195 Strike: call 10.50 bid; put 7.75 bid

Now let’s construct the in-the-money (ITM) debit call spread vs. the out-of-the-money (OTM) credit put spread. Both are bullish strategies with identical risk/reward characteristics and payoffs. In both, we want the underlying shares to stay higher than $195 to achieve max profit and avoid losses:

190/195 bull call spread debit is $3.00

Potential return on risk is $2/$3 = 67%

190/195 bull put spread credit is $2.00

Potential return on risk is $2/$3 = 67%

The fact that the spread premiums create precisely the same return is not surprising, even though traders may be able to get into these spreads for slightly better or worse prices that will affect which one they prefer. That said, they are still synthetically equivalent (a property of put-call parity relationships) and thus virtually identical in terms of risk/reward.
So, if the strategies are essentially equivalent, which is what makes synthetic option relationships work, which do you choose? It may simply depend on what type of trader you are. Here are a few reasons different traders choose among equivalent credit or debit strategies:
• For option traders who are only approved for buying options and spreads, they have few choices. Their broker or type of account may not allow any short or credit strategies. This may seem unfair if the strategies are equal, but that’s how options are treated to protect account holders and brokers.
• For active option traders, especially institutional professionals, it comes down to efficient use of capital. They are able to sell more OTM spreads and iron condors because they collect premium upfront, have minimal and/or offsetting margin collateral requirements (i.e., portfolio margining), and can earn meaningful interest on balances. Additionally, professional traders are often trading these synthetically equivalent strategies against long and short stock positions, capturing arbitrage profits from conversions, reversals, and boxes.
• For traders who focus on volatility strategies, they may prefer selling spreads and profiting from “overvalued” options and time decay, while trying to avoid ever paying up for options volatility. Theoretically, this volatility issue shouldn’t matter that much in equivalent spreads. But because they think “selling is better,” it dominates their strategies.
A final issue affecting all traders to various degrees is commissions from exiting spreads, or from exercise and assignment at or before expiration. If you sell the 195/190 bull put spread and it stays OTM as you had hoped, your options expire worthless with no additional commissions. But the 190/195 bull call spread staying ITM will require you to either exit before expiration and pay commission(s), or pay the commissions from exercise and assignment at expiration.

How to Practice for Free

Understanding option synthetic relationships and equivalent spreads launches your options trading expertise to a new level. If you still struggle with the concepts, you could pick up a book that explains put-call parity and synthetics.  You could also read my article in SFO Magazine from January of this year called, “The Balancing Act of Put-Call Parity.”
The best way to learn this stuff is to practice putting together the spreads yourself with tools that let you simulate their risk/reward profiles. For that, I can recommend no better tools than the OptionsHouse trading platform, which I use every day to build spreads and break down their dynamics. If you don’t have an active options trading account with OptionsHouse, at least open a free virtual one to try the great tools.
The Profit&Loss Calculator let’s you quickly assemble spreads just by clicking on the bids and offers in an option chain. It builds the graphs for you and allows you to watch their progression through time and changes in volatility. You can also quickly eliminate and add option legs and stock to the same graph.

When it comes to understanding the value and risks of options and spreads before you trade them, this kind of practice is priceless.

Source:
            Options News Network TV (ONN)

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OptionsXpress 3Q Pft Down On Low Rates, Lower Trading

NEW YORK (Dow Jones)--OptionsXpress Holdings Inc.'s (OXPS) third-quarter profit plunged by roughly a third as low interest rates and declining trading volumes offset an increase in option contracts per trade.

With interest rates near zero, optionsXpress' net interest revenue and fees dropped 66% to $4.2 million in the quarter.

The Chicago online brokerage's results also reflect a shift away from a surge in the trading of beaten-down financial stocks in late summer. That trend had boosted trades across the online brokerage industry, but activity in September shifted away from those names into more normal patterns, including options trading.

Overall, optionsXpress posted third-quarter earnings of $16.3 million, or 28 cents a share, down from $24 million, or 40 cents a share, a year earlier.

Revenue dropped 7% to $62.3 million.

However, results beat Wall Street estimates, as optionsXpress benefited from a higher average retail commission and the opening of 6,600 new accounts in the quarter, a 13% increase year-over-year.

Analysts polled by Thomson Reuters had expected, on average, earnings of 26 cents a share on revenue of $61.6 million.

OptionsXpress said its daily average revenue trades, or DARTs, a figure closely watched by analysts, fell 12% year-over-year to 42,000.

In an interview with Dow Jones Newswires, optionsXpress Chief Executive David Fisher said the company is seeing a pullback in the trading of low-priced financial stocks such as Citigroup Inc. (C), Fannie Mae (FNM) and Freddie Mac (FRE), which accounted for roughly 30% of the equities trading volumes in July.

Fisher said that while optionsXpress' equities DARTs were flat in September, the company's options trades increased 11% over the previous month.

During a conference call with analysts, Fisher said options as a percentage of total retail trades climbed to 58.5% from 56.6% in the second quarter and reached their highest level since the third quarter of 2008.

While options trading has picked up, Fisher said optionsXpress is "looking at a couple of difficult year-over-year comparisons" over the next couple of months given the surge in retail trading volumes during the panic of the financial crisis.

Fisher said the low interest-rate environment is "bad news" for optionsXpress and the online brokerage industry but added that "the good news is that they can't go any lower. So there's only upside from here, and we're likely to start seeing upside in 2010."

Fisher also said that optionsXpress plans to be active on the deal-making front as M&A activity picks up in the online brokerage space.

"I absolutely expect more deals. We are aggressively looking for deals and think it's a great use of the over $200 million in cash we have our balance sheet."

OptionsXpress' client assets increased 20% year-over-year to $6.3 billion, which Fisher said is the highest in the company's history.

The company is also beginning to see the benefits from its May acquisition of Optionetics, an investor-education firm.

"We are starting to see a steady stream of customers come from Optionetics, which is a great sign for the future," adding that those clients trade more options than the company's current customers.

Shares of optionsXpress recently traded up 47 cents, or 2.5%, at $18.74. The company's stock is down about 48% over the past year but has climbed about 22% in the past three months.

-By Brett Philbin, Dow Jones Newswires; 212-416-2173; brett.philbin@dowjones.com 

Source:
          The Wall Street Journal

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The Three Questions You MUST Ask Before Trading Options

It’s funny how quickly attitudes can change. Just a few years ago, most casual investors wouldn’t touch stock
options with a 10-foot pole. Now the airwaves and Internet are clogged with offers to teach the secrets of “options investing.”

That kind of talk is just plain dangerous.

Despite my success with options, I would never be vain enough to call my work “investment advice.” When you’re dealing with options, you shouldn’t use the word “investment” at all. It’s speculating. And if you don’t understand the difference, you’re setting yourself up for a massive failure.

You “invest” in things like stocks, bonds, mutual funds, even real estate. You focus on the long-term. Successful investing is like planting acorns and watching them turn into oak trees.

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You Could Get Rich Investing in Scientifically Selected Penny Stocks

My CXS Money-Multiplier Strategy helps me find enormous gains. And I’ve made it incredibly easy. I do all the work, telling you when to buy and sell.

The profits can be awesome. You’ll HATE Yourself if You Miss This One!

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Speculating, on the other hand, is like playing with fireworks on a rainy winter’s evening. You light the fuse, and seconds later, it’s either fizzled out or a huge colorful explosion high up in the sky has illuminated the whole world.

It may sound like gambling. And for people who don’t know what they’re doing, it usually is.  But smart traders know how to bend the odds in their favor. Doing that means having a healthy respect for a speculator’s best friend — and worst enemy — leverage.

Leverage is the magic that turns small price movements into large profits...or losses. It is found in many different guises, but the fundamental design is always the same. The leveraged speculator uses OPM (Other People’s Money) in an attempt to make more money than would otherwise be possible with nothing but his own funds. In other words, you augment your position with borrowed money.

It sounds dangerous...and if not managed prudently, it can be bad for your wealth. BUT, if leverage can be applied to situations with strictly limited risk, it takes on a more sensible aspect. It becomes...superleverage.

Superleverage is the art of profiting from changing prices, with limited risk. No margin calls, no demands for additional funds, no forced liquidations.

The instruments of superleverage are exchange-traded stock options.

Options are tradable contracts that give you the right to buy or sell a specific underlying instrument at a specific price within a set time period. Their value closely follows the ups and downs of the stock they cover…yet they usually sell for a fraction of the stock’s price.

That means a small move in the stock’s price can become a huge move in the option’s price.

On the downside, options are wasting assets. They have strict expiration dates. And if the underlying security doesn’t move enough to give you real value, your options will expire worthless. That is your risk.

It was once calculated that 90% of all options expire worthless. That doesn’t mean you have a 90% chance of losing money...a winning options trader will offset one or two spectacular winners against eight or nine losers...and still have money left over. The trick to always coming out ahead is to develop a strategy and stick to it.

My dad, legendary options trader Paul Sarnoff, explained it best: “Every trader with imagination and talent goes into a specific commodity armed with a trading plan.” With his help, I developed a system I call my Complete Game Plan for Trading Success. Followed correctly, it can be a powerful tool to make sure you don’t get in over your head.

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“Get My Next 24 Recommendations FREE, if I Hear from You Soon!”

With an average maximum return of 94% per recommendation, $5,000 a time into just 24 recommendations could bank you as much as $112,800…

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It starts with some simple calculations Just ask yourself the following questions before you risk a single cent:

1. How much am I willing to pay for the option?
As I said, you can lose 100% of the money you put into an option. So never bet more money than you can afford to lose. Once you’ve set your limit, stick to it. Don’t chase an option that’s more expensive than you want to pay. Either wait for the price to drop, or look for another one to buy.

2. What will I do if I’m right?
Have a profit target in mind for each option you buy, and an idea of how long the move will take. Be realistic — what you honestly think will happen, not what you hope will happen. (If you can’t do that, don’t buy the option.) Again, stick to your plan — give the option some time to reach your goal. If you meet your goal, sell right away.

3. When will I get out if I’m wrong?
This one’s tough. No one wants to admit they’re wrong. And everyone hopes they’ll eventually be proven right. But that’s where another benefit of options trading comes in — with options, you have always known and strictly limited risk. Or, said a different way, you never stand to lose more than you put up. If you invest in stocks, you may have to worry about where to set stop losses so that you don’t lose your fortune. But with options, your stop loss is already built in. They’re the only sensible way to speculate.

You should always speculate based on what you can lose, not what you can gain. Be prepared to handle trading losses. Never add to a losing position. That is how many players get knocked out of the game. You want to be in there when the market goes your way. You, or your broker, must monitor your positions closely. They don’t ring a bell when it’s time to get out, so make sure you have an exit strategy in place for each trade.

It may sound like a lot of work — but believe me, it’s worth it. I’ve seen options skyrocket 210% in three weeks…472% in less than a month…even 260% in eight days…

Of course, I’ve also seen a good number of trades go nowhere. But following the Complete Game Plan for Trading Success, the odds are good you’ll still come out ahead.

Just never make the mistake of thinking that you’re “investing.”

Sincerely,

Steve Sarnoff



P.S.:
To help get you started on your very own Complete Game Plan for Trading Success, I’m offering my next 24 explosive options recommendations absolutely free.




SOURCE:
         HOWESTREET
.

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Options Spread Trading Explained: How to Make Triple-Digit Gains From Double-Digit Opportunities

by Karim Rahemtulla, Options Expert

Thursday, October 15, 2009: Issue #1116


“Why would I want to trade options? They’re too complex and scary. I’ll lose all my money.”
If I had a dollar for every time I’ve heard this from investors, I’d be kicking back on a Caribbean beach right now.
I actually love getting questions like this. It gives me a chance to bust a few myths and educate the person on why they should add options trading to their investment arsenal.
Simply put, options give you greatly increased leverage and several different ways to make money. What’s more, any investor can – and should – use options.

Three Return-Boosting, Risk-Reducing Option Strategies
Compared to stocks, which limit your ability to either play the upside or downside, options give you greater flexibility to manage both your returns and your risk.
Here’s how…

• Covered Calls: This is one of the most basic options trades. As the name suggests, you sell call options against an existing share position in order to “cover” yourself. Because there are 100 shares in an options contract, you must own at least 100 shares of a company to execute a covered call trade. When you do, you receive a premium from selling the call option, which essentially reduces the price you paid for the shares. But you also maintain a healthy upside. This enhances your return potential, while reducing your risk at the same time.
• Put-Selling: My colleague, Lee Lowell, has highlighted the excellent double benefit that comes from selling put options. Here, you try to buy a stock at the price you want (i.e. at a discount to the current price) and get paid for it, too.
• LEAP Options: This allows you to bet on a company’s long-term outlook – be it positive or negative. The additional duration of these options gives you more time to be correct with your call, and by buying LEAPS, you only use 15-20% of the cash required to hold the actual shares.

Time to bust another myth: Options trading is not gambling. When I use options – and recommend options trades to my readers – I don’t gamble. Quite the opposite, in fact. My goal is always to lower risk…

The Options Spread Trade: Putting You in the Driver’s Seat
So I come up with ways that put me in the driver’s seat, rather than just going along for the ride and “hoping” for a particular outcome – which includes one of my favorite option strategies that can generate significant wealth – the options spread trade.

Spread trading takes you one step beyond average investors and puts you in a position to generate the kind of returns you normally only see in advertisements. It works like this…
A spread trade requires two simultaneous transactions. For some reason, this is where most people decide to tune out. Their loss. It’s this extra step that can make the difference between making 20% and 200%, or 2,000%. I know that if someone offered me a chance to add a few zeros to my returns, I’d be all ears!
For the sake of simplicity, I’ll use a bull spread for this example…

Feeling Bullish? Rise to the Occasion with Spread Trading
A bull spread implies that you expect the price to rise.
Take gold, for example. If you think gold prices will shoot to $1,500 or $2,000 over the next 30 months, you can use a bull spread to play your prediction.
We’ll do it using one of the biggest gold producers – Goldcorp (NYSE: GG).

Regular investors would play it by simply buying Goldcorp shares for $40 a pop. For 1,000 shares, that’s a hefty outlay of $40,000.
Smarter investors, though, could buy the 2012 $40 Goldcorp call options (LGX-AH). This gives you the right to buy GG for $40. And for it, you only spend $13.30 ($13,330 if you want to control those same 1,000 shares – $13.30 multiplied by 1,000 = $13,330).
Let’s say you have a $60 target price for GG shares by 2012.

• The Stock Buyer: If you buy GG shares outright, you’d make $20 – or 50%. In dollar return terms, that would be $20,000 on a $40,000 investment.
• The Option Buyer: If you bought the LEAP option and Goldcorp rises to $60, your return would be $6.70 ($60 minus $40 minus $13.30 -the amount you paid for the option). That’s a dollar gain of $6,700 on $13,330 invested.

Not too bad at all. But if you take this one step further, you’d not only reduce your risk substantially, but boost your returns substantially, too.

Here’s what to do…
“Spreading” the Wealth
Having bought the $40 call option for $13.30 and ponied up $13,330 for 10 contracts (1,000 shares), I’d then sell the January 2012 $60 call option against it (LGX-AL).
When you sell an option, you first get money back for selling the option. It also limits your upside to the strike price of the option that you sold ($60).
The $60 call option is trading for $7.30. So…

• Buy the January 2012 $40 option. Cost: $13,330
• Sell the January 2012 $60 option. Receive: $7,330
• Net cost of the trade: $6,000 ($13,330 minus $7,330)

By doing this, we’ve entered into a spread.

• The Spread: The spread is the gap between the price at which we can buy GG and where we have to sell GG. In this case, the buy price is $40 and the sell price is $60. So the spread is $20.
• The Profit: In dollar terms, our maximum upside is $20,000 ($60,000 minus $40,000 based on 10 contracts or 1,000 shares), with a cost of $6,000. This means if Goldcorp hits $60 or more, we can make $14,000 net profit on a $6,000 outlay. That’s 233% ($14,000 divided by $6,000 cost).
• The Risk: What’s more important, though, is that our maximum risk here is limited to the cost of the spread – $6,000. That’s just 15% of the amount that a regular shareholder would have at risk if he bought the shares outright ($6,000 divided by $40,000) and probably much less than the stop-loss that most people would institute on the trade.

I’d much rather risk $6,000 to make $14,000 than $40,000 to make $20,000 in any market, especially this one. And if you dump the $34,000 that you saved by executing the spread trade into an account that earns just 2% interest, you’d offset your cost by a further $900 or so, too.
The Best Spread Trading Candidates
Next time you see a stock that you want to own, consider using this spread strategy to both reduce your cost and increase your upside at the same time. This is the exact same trade I used in my 400 Report service recently to make 166% on Petrobras (NYSE: PBR). And while we could have held the position for two years, we cashed out in less than six months (yes, you can close out these trades early if you’re sitting on a handsome profit).

You can execute spread trades on any stocks that have options available. But the most popular stocks for spreads are volatile and expensive ones. Companies like Apple (Nasdaq: AAPL), Google (Nasdaq: GOOG) and Research In Motion (Nasdaq: RIMM) are ideal candidates.

Next time: Turning it up a notch into quadruple-digit profit territory.
Good investing,
Karim Rahemtulla


Editor’s Note: Karim Rahemtulla is the Investment Director of the Xcelerated Profits Report – an advisory that shows any investor how to “invest like a pro,” using the same high-level, yet easy-to-execute strategies that today’s top traders employ. For just $49 a year, you’ll see exactly how these powerful strategies work in real life, with Karim and the team issuing specific wealth-building recommendations each month on stocks, options and commodities. For more information, take a look at this report. Find more information on Karim’s LEAP options service, The 400 Report.

PR: wait… I: wait… L: wait… LD: wait… I: wait… wait… Rank: wait… Traffic: wait… Price: wait… C: wait…

(Australian Stock Market Blog, 8/26/09)

Source:
          Investment U
.

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Stock Options - What You Need To Know.

Call and What?

An option is a “legal financial contract”. The holder has the right, but is under no obligation, to accrue or sell a predetermined number of stock shares. This is to be done at a price that has been predetermined which is called a strike price. It is also to be accomplished on or before a specific date.

There are just two basic types of stock options, the European and the American. An American stock option is a contract that can be exercised between the purchase date and the expiration date.

Each stock option is designated by the following:

• Name of the stock

• Strike price

• Expiration date

• The premium that was paid for the option plus the broker’s commission

Two of the most popular types of stock options are Calls and Puts. If you own a call you have the right but are not obliged to buy a stock at the strike price at any time before the stock option expires. If an option expires, it is useless and worthless.

The other most common stock option is the PUT. This is almost the exact opposite of a Call. If you own a put you have the right, but are not obliged, to sell a stock at the strike price any time before the expiration date of the option.

How in the world do people trade these stock options? Stock options traders will rarely exercise their option and purchase (or sell) the underlying security. Instead, they will buy back or sell the option. This saves on commissions.

Options officially expire on Saturday following the third Friday of the month in which the option expires. Shares of stock have a 3-day settlement interval but option settle the very next day. The option has to be traded by Friday in order to settle on Saturday.

Another thing you may hear about with regards to stock options is volume and open interest. Volume is the number of contracts that are traded on any given day. The open interest figure is the number of contracts that are outstanding at any given time.

For those who are curious, a Put-Call theorem has been formulated which defines the following relationship for the price of puts and calls:


P=C-S+E+D

• P= the price of the put
• C= the price of the call
• S= the stock price
• E= the present value of the exercise price
• D= the present value of the dividends

An ordinary investor will see a violation of the put-call parity from time to time. This is not a time to instantly buy, but it is a reason for you to check your quotations for timeliness because as you will probably see at least one of them has expired.

If you want to get into the stock option trading business, then you should probably start by writing covered call option for stocks that are currently trading below the strike price of the stock option.

There are many places on the Internet if you do a search for stock options where you can set up an account for just a small amount of money. My advice to you is to do your research well and only put up as much money as you are willing to part with.

Stocks Explained If you want to discover your pot of gold in the stock market, then you have to know it inside out. And for all the inside-out information on the stock market explained in simple, concise, layman terms, all you need to do is click on this link: Stock options.

Source:
          ARTICLE MANIAC

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Straddle Strategies in Option Trading

The straddle strategy is an option strategy that's based on buying both a call and put of a stock. Note that there are various forms of straddles, but we will only be covering the basic straddle strategy. To initiate a Straddle, we would buy a Call and Put of a stock with the same expiration date and strike price. For example, we would initiate a Straddle for company ABC by buying a June $20 Call as well as a June $20 Put.

Now why would we want to buy both a Call and a Put? Calls are for when you expect the stock to go up, and Puts are for when you expect the stock to go down, right?

In an ideal world, we would like to be able to clearly predict the direction of a stock. However, in the real world, it's quite difficult. On the other hand, it's relatively easier to predict whether a stock is going to move (without knowing whether the move is up or down). One method of predicting volatility is by using the Technical Indicator called Bollinger Bands.

For example, you know that ABC's annual report is coming out this week, but do not know whether they will exceed expectations or not. You could assume that the stock price will be quite volatile, but since you don't know the news in the annual report, you wouldn't have a clue which direction the stock will move. In cases like this, a Straddle strategy would be good to adopt.


If the price of the stock shoots up, your Call will be way In-The-Money, and your Put will be worthless. If the price plummets, your Put will be way In-The-Money, and your Call will be worthless. This is safer than buying either just a Call or just a Put. If you just bought a one-sided option, and the price goes the wrong way, you're looking at possibly losing your entire premium investment. In the case of Straddles, you will be safe either way, though you are spending more initially since you have to pay the premiums of both the Call and the Put.

Let's look at a numerical example:

For stock XYZ, let's imagine the share price is now sitting at $63. There is news that a legal suit against XYZ will conclude tomorrow. No matter the result of the suit, you know that there will be volatility. If they win, the price will jump. If they lose, the price will plummet.

So we decide to initiate a Straddle strategy on the XYZ stock. We decide to buy a $65 Call and a $65 Put on XYZ, $65 being the closest strike price to the current stock price of $63. The premium for the Call (which is $2 Out-Of-The-Money) is $0.75, and the premium for the Put (which is $2 In-The-Money) is $3.00. So our total initial investment is the sum of both premiums, which is $3.75.

Fast forward 2 days. XYZ won the legal battle! Investors are more confident of the stock and the price jumps to $72. The $65 Call is now $7 In-The-Money and its premium is now $8.00. The $65 Put is now Way-Out-Of-The-Money and its premium is now $0.25. If we close out both positions and sell both options, we would cash in $8.00 + $0.25 = $8.25. That's a profit of $4.50 on our initial $3.75 investment!

Of course, we could have just bought a basic Call option and earned a greater profit. But we didn't know which direction the stock price would go. If XYZ lost the legal battle, the price could have dropped $10, making our Call worthless and causing us to lose our entire investment. A Straddle strategy is more conservative and will profit whether the stock goes up or down.

If Straddles are so good, why doesn't everybody use them for every investment?

It fails when the stock price doesn't move. If the price of the stock hovers around the initial price, both the Call and the Put will not be that much In-The-Money. Furthermore, the closer it is to the expiration date, the cheaper premiums are. Option premiums have a Time Value associated with them. So an option expiring this month will have a cheaper premium than an option with the same strike price expiring next year.

So in the case where the stock price doesn't move, the premiums of both the Call and Put will slowly decay, and we could end up losing a large percentage of our investment. The bottom line is: for a Straddle strategy to be profitable, there has to be volatility, and a marked movement in the stock price.

A more advanced investor can tweak Straddles to create many variations. They can buy different amounts of Calls and Puts with different Strike Prices or Expiration Dates, modifying the Straddles to suit their individual strategies and risk tolerance.

If you want to read more information on straddles and other option strategies, visit http://www.option-trading-guide.com/options_guide.html

by: Steven T. Ng
     Article City

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Options Education Series - Part 1 : Three Ways to Capitalize On Options

You will reduce your risk if you take your 500 shares of ABC stock, sell them, and then buy five ABC call options that are a few strike prices in-the-money.

Example:



If ABC is at $60.00/ share, and you pull up the option chain and look at the 2009 January calls, you might see these call options available:



2009 January 60 calls trading at $9.00    (These are at-the-money)


2009 January 55 calls trading at $12.00  (These are one strike price in-the-money)

2009 January 50 calls trading at $15.00  (These are two strike prices in-the-money)

2009 January 45 calls trading at $18.50  (These are three strike prices in-the-money)



It makes more sense to buy five of the 2009 January 45 calls at $18.50 (for $9,250.00)instead of buying 500 shares of ABC stock at $60.00 (for $30,000.00).  THEN, put the remaining $20,750.00 in a money market account and earn 5%.




The intrinsic value of the option is $15.00 (because the stock price of $60.00 minus the strike price of $45.00 = $15.00) and the extrinsic value of the call option is the remaining $3.50 (because the call costs $18.50 minus $15.00 intrinsic value = $3.50).  That means that over the life of the call option (especially in the last few months leading up to the January 2009 expiration), that $3.50 extrinsic value (aka "time value") deteriorates.  That means that if your ABC stock trades flat at $60.00 for the next 16 months, the option would lose $3.50 and move to $15.00.




Keep in mind that the $3.50 loss (assuming that you actually held on for the next 16 months) is a loss of $1,750.00.  But since you put the rest in a risk-free money market account, you earned $1,383.33 interest.  So the loss is reduced to $366.67.  (And that would equate to 73 cents of the call option instead of $3.50.)



Now - what are you getting in return for your willingness to lose 73 cents over the course of 16 months on a $60.00 stock (which really only equates to 1.21%?)



#1) You know that your absolute MAXIMUM downside risk is the $18.50 (or $9,250.00) that you invested in the call option, instead of the $60.00 (or $30,000.00) on the stock which likely wouldn't lose all of its value, but as we know, a loss of anything between one cent and $30,000.00 is possible.



There are many benefits here that one wouldn't consider at first.  One of them is the psychological benefit.  I mean, you would be a lot less worried about the stock market crashing, for one. That would allow you to feel more confident when buying when people are fearful.  That means that you would be buying when things are down.




(Also, remember that you should usually play both sides of the market.  So you can also buy in-the-money put options to bet on the downside.  That means if the stock is at $60.00, and you were betting that it would trade lower, you would buy the 2009 January 75 puts.)



#2) If your stock moves higher, you are making almost the same amount that you would have made on the stock.




#3) If your stock moves lower, you are probably going to lose much less than you would have on the stock.  (A very basic hypothetical example is that if the stock trades up 10 points, you will probably make 9 - 9.5 points, but if the stock trades down 10 points, you will probably lose about 7 points.)  So you see, the downside vs. upside ratio is less than par.

You only get the downside vs. upside ratio benefit if you do two important things:



1) Buy the options that are in-the-money by a few strike prices.

2) Buy an option that has a long time until expiration day like the example that we used, preferably at least one year.  The ultimate goal is to be out of the position at least three months before the option expires.


Source:
          iStock Analyst

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Tokyo Stock Exchange launches new Tdex+ options trading platform

Tokyo Stock Exchange, Inc. ("TSE") is pleased to announce today the successful launch of "Tdex+ System", a new trading platform for options contracts. Tdex+ System is the advanced electronic trading system based on LIFFE CONNECT®, which has been used by NYSE Liffe , the largest European derivatives exchange by trading value, and is highly rated for its performance and functionality by investors worldwide. With the introduction of Tdex+ System, order processing performance is dramatically improved to 6 milliseconds of order response* and about 20 thousand transactions per second. Functionality for strategy trades is enhanced as well.

In addition to this, TSE also introduced the Market Maker scheme for all listed options contracts today. Market makers started to quote bid and offer continuously for not only Options on JGB Futures, which have already high liquidity, but also Equity Options.

Atsushi Saito, President and CEO of Tokyo Stock Exchange Group, Inc. said "Today's launch of Tdex+ System is the first step to further develop the TSE options market. The introduction of the Market Maker scheme provides investors the opportunity to trade Japanese options contracts in a highly transparent exchange market. I strongly believe that development of options market enhances the possibilities of alternative investments on Japanese financial markets, and greatly contributes to make Japanese markets more attractive. TSE will continue to make every effort to establish efficient and convenient markets for investors around the globe in the future."

"NYSE Euronext is privileged to play an important role in the TSE's Tdex+ System," said Duncan L. Niederauer, CEO, NYSE Euronext."Today's launch of Tdex+ is the culmination of a year long endeavor involving both business and technology teams from NYSE Euronext working in partnership with the TSE.Technology provides the foundation for future business co-operation between our two organizations, and we are committed to doing our part to deliver significant benefit and value to the TSE and its customers."

Source:
          FINEXTRA

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TSE faces competition as clearing house supports smaller platforms

The Tokyo Stock Exchange will face greater competition as a marketplace for buying and selling Japanese shares from next year after the country's main clearing house unveiled plans to support smaller alternative trading platforms.

The Japan Securities Clearing Corporation said it would start providing clearing services for the country's alternative share trading platforms from next July, a move that market participants said would help increase liquidity.

Japan's proprietary trading systems (PTS) are similar to the alternative trading platforms in the US and Europe, such as Chi-X Europe. They have won only marginal market share from the TSE in spite of having been around for at least five years.

This is partly because the trades are not cleared by a clearing house, which increases the counterparty risk for each side of the trade. As a result, many institutional investors do not use the platforms. Clearing provides a safeguard in asset trading since a clearing house acts as the buyer to every seller and also seller to every buyer in a transaction, ensuring that a deal is completed if one party defaults.

The JSCC has been discussing the viability of introducing such services since March. SBI Japannext, a PTS operator partly owned by Goldman Sachs, said it was starting preparations to use the clearing services. The JSCC said it was also in talks with other such operators. Tomohiko Hamada, a director for equity execution and programme trading at Credit Suisse in Tokyo, said: "This is good in terms of a reduction in counterparty risk from the users' perspective."

Market participants said the introduction of clearing services should help increase liquidity. It should also contribute to reducing settlement costs for investors using a number of trading venues, one participant said.

The TSE has more than 90 per cent market share, with the remainder held by Japan's regional bourses, such as the Osaka Stock Exchange. PTS platforms have about 1 per cent market share combined. Japan's largest bourse said it did not think any increase in liquidity on PTS platforms would necessarily come at the expense of the TSE.

Source:

          FINANCIAL TIMES UK

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Online FOREX Trading Platform

You need to look at few important things before registering and depositing your money in an online FOREX trading. First you need to see whether you can deposit your money into the trading platform account instantly with your credit card. Choose an online FOREX trading platform which allows you to fund your account with your credit card, so you can start trading immediately, regardless of banking work days or hours. If possible, choose a trading platform that protects your credit card security and privacy to highest standards. I believe most of these online FOREX trading platforms have this criterion.

Some trading platforms let you start trading in less than 5 minutes. They don’t have any tedious procedures for account set-up and you do not have to download any software at all. You can immediately register, deposits the margins for the deal and start running. All you have to do is login with your username and password every time you want to trade. Also, look for any hidden costs before depositing your money into an online FOREX trading. Some platforms have hidden costs and it can be very costly if you’re unlucky. Find a platform that doesn’t charge you any hidden costs. Look for FOREX online trading platform that only charges you on spreads (which is the difference between the bid price and ask price).

Outdated information can be costly sometimes because you might make wrong judgment and lose money because of outdated information. Choose an online trading platform which has Real-Time streaming quotes. Choose a platform that presented the most updated rates. Make sure you can check your accounts and positions in real-time and make a deal base on real-time information. You don’t want to lose money because of this stupid mistake. You can avoid it easily if you choose the right platform.

Choose an online platform wisely before considering on investing your money there for long term. If you choose the wrong platform, you’ll receive large and unwanted extra costs. If possible, open a mini account in few platforms and see which one suits you.

Easy forex is an online trading platform gives lots of free valuable tools. You can start trading instantly at a very low cost. However trading forex involves risks, easy forex will not be responsible for the losses incurred by forex traders.

Visit online forex trading or go to http://genuineforextrading.com to trade at lowest cost

SOURCE:
      ARTCILE MANIAC

Note:
Usually, platforms who offer online forex trading are also the one offering online stock option trading.

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Stock Options Trading Information

Stock options trading can be ridiculously tough if you don't know what you are doing. You can lose the whole of your capital within the first few days or even hours if you aren't careful. The difference between the successes and those who go broke is most often in the quality of their information. Read on to see how good quality stock information can help you.

The most fundamental thing you want to understand when you are starting out is exactly what it all means. Learn as much terminology and slang or jargon as you can. Do you really want to lose money because you don't understand what your broker is telling you? Not only will this lose your money quick time, but it will also mean your broker has less faith in you, and will be less likely to come to you with hot tips. That's not what you want – a broker with reliable tips is worth his weight in gold, so do anything you can to stay on his good side.

Make sure you are getting into stock option trading for the right reason. There are three main kinds of trading: investing, speculation, and trading. If you are looking to invest, this is more of a long term strategy, and to be

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Online Stock Option Trading News: Call Trading Picks Up on Visa Inc.

Visa Inc.
(V: sentiment,chart,options) was the center of some heavy options trading on Wednesday, as more than 53,200 contracts changed hands. This volume was more than three times the equity's average daily trading volume of 17,300 contracts, according to data from WhatsTrading.com. In addition, 66% of the volume changed hands on the call side. In the front three months of options, the most active strike was the November 75 call, which added approximately 1,300 new positions to lift its open interest up to nearly 2,300 contracts.

Overall, options players remain skeptical of the shares. The International Securities Exchange (ISE) continues to see a preference for puts over calls. The ISE 10-day put/call volume ratio comes in at 0.71, which is higher than 57% of all those taken during the past year. In addition, the Schaeffer's put/call open interest ratio stands at 1.14, as put open interest outnumbers call open interest among options slated to expire in less than three months. This reading is higher than 98% of all those taken during the past year. In other words, options players have been more skeptical of the shares only 2% of the time during the past 12 months.

Short sellers are also adding to their bearish bets. During the past month, the number of UNH shares sold short rose nearly 24% to 21 million. This accumulation of bearish bets is more than five times the stock's average daily trading volume and accounts for nearly 3% of the company's total float.

Source:
          Schaeffersresearch

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Stock Option Trading – New Options Clearing Corporation Rule

A few years ago on a Monday morning, I checked my brokerage account and to my surprise it showed that I had purchased 1,000 shares of AMD for a total cost of $15,000. The payment for this purchase was taken out of my brokerage money market account.

Why surprised you may ask. I had not put an order for this purchase nor did I really intend to buy AMD. I get to this in a little bit.

Had I wanted to sell the stock on that day, I would have received around $14,500, a loss of $500 in just a few hours. In the end it worked out and I sold that particular stock a few months later for a handsome profit.

But on that day I had a paper loss of $500 and if I didn’t have enough money to pay for the purchase, the

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Stock Option Trading To Increase Returns

There has been a steady rise in the use of stock options by investors to maximize their leverage and returns over the past twelve months. Chicago Board Options Exchange confirms this observation when they recently reported that the month of March was their busiest on record with volume up 55% over the same month last year. In fact all previous stock option trading records were broken when over 5.6 million stock option contracts were traded in a single day.

Stock option trading enables investors to increase their leverage and thus their rate of return over simple stock trading. If an investor has a solid approach to picking stocks that go up in the short term, the returns can be increased by 10 to 15 times using stock options. The trade off for this increased return is that the investor has to also judge the time period over which the increase will occur.

Being able to pick the stock, direction, and time period are all critical for successful stock option trading. A recent statistical analysis of over 30 years of stock data has revealed certain reoccurring patterns that can

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Stock Options Trading: The Risks And Rewards

Trading stock options is the process where options on stock are traded instead of the stock itself. When you purchase or sell a stock, you are buying or selling an actual part of the ownership in that company. A stock option is a contract between two individuals or businesses. Stock options are another kind of security that can be bought, sold, or traded. These securities offer great versatility, and a trader can adapt their position according to the situation. Stock options can be made as conservative or as speculative as you want to make them. Stock options are a very complex security, and there is always the risk of a loss of capital no matter who tells you differently.

A stock option is simply a contract that gives a buyer a right to purchase or sell an underlying asset at a fixed price before a set date, but does not create an obligation for the buyer. A stock option costs you a price, and

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Online Stock Option Trading: Systems Explained

Systems On Option Trading Explained

Stock option trading has always given the traders additional work of not just predicting correctly the security’s price. They also must choose the best option for trading strategies. But most stock traders incorrectly figure they can easily make the change from stocks to options.

In order to make systems on option trading (or online stock option trading) an on-going basis, the trader needs to fully understand the major differences between the stock (online stock trading) and the option trading (online stock option trading).

With the options buying, time is the enemy. If each day passes without enormous changes, the value of the premium time will decline. In order to solve it, the value of the time premium should be declining more rapidly as the option reaches its expiration. The significant factor that option traders need to evaluate is the amount of

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How Option Trading Profit In Any Market Conditions

By: Jason Ng

All stock market multi millionaires must be able to profit under any kind of market conditions. If you are able to profit only when stock markets go up, then you will find it a gargantuan task to ever have any sustainable success, much less become a stock market millionaire.

Yes! It is possible and easy to profit whether stocks are up, down or sideways using option trading. If the ability to trade all kinds of market conditions is the doorway to becoming a stock market millionaire, then option trading would be the very key.

In this article, I will outline some common ways by which you can profit from all kinds of markets by option trading. For more free option trading information, you may wish to visit www.OptionTradingPedia.com.Simple Option Strategies for Up MarketsBuy Call Option - You could buy the same number of equivalent stocks for a fraction of the price using call options and profit when the stock goes up. If the

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