I am so sorry! I have been swamped with midterms. But I wanted to give informative post that kind of breaks down the options market.
What is an option?
What is an option?
you're probably thinking... What is a derivative instrument? It is a trading tool that is valued from another security. This means the value of the option moves due to other securities and variables.
( from http://www.optiontradingpedia.com/)
Options Quotes
( from http://www.optiontradingpedia.com/)
Options Quotes
Unlike the stocks you see ticking on the top of your iphone a options price will be listed separately. While the stock price is important factor of an option it is possible for an option to be down while it's stock is up. I have attached a picture of an options chart
(from Yahoo Finance Options for Google)
(from Yahoo Finance Options for Google)
I have previously tweeted things like I bought a Sept 115 Goldman call, this mean that from the time I bought the call until it expires I expect the stock to be $115. I bought the option when it was trading around $99. We see here how the stock price plays a roll in the option but isn't the end all be all to the option.
Research and expiration
Options are speculative, you speculate if the stock will go up or down. It isn't very smart to just go make decisions on stocks without doing the proper research. You can use sites such as marketwatch and cnbc to identify trends, use current events such as earnings. You can also use spreads but that is a little advanced. Make sure you use the information to help gain an edge.
When picking the price of the call you want the option to be "in the money" before it expires. For instance it is possible for Google to trade at $1000.00, but if you're buying an option that expires soon it is very unlikely for it to happen in the given time frame.
With that being said it's important to pay attention to the price you pay or the price you sell the option (bid/ask) the closer you get to being "in the money" the more expensive they will be. If we look at the table from earlier we see that as the strike price increases the price decreases.
Benefits of Options
Options give you the opportunity to trade highly priced stocks without the capital. (yay for college students) for example: You buy 100 Oct. GOOG Calls, that will cost $300. If you wanted to buy 100 shares of GOOG it would cost $74,400 (woah).
When picking your calls or puts don't just go by the cheapest price, pay attention to the strike and the expiration.
Options also offer some protection, you can only lose the amount that you paid. If we look at the previous example, if GOOG starts to move against you, the loss will be $300 as opposed to $74,400.
They also offer flexibility, you can gain on an option that is gaining or losing. You can also be conservative or risky.
When picking the price of the call you want the option to be "in the money" before it expires. For instance it is possible for Google to trade at $1000.00, but if you're buying an option that expires soon it is very unlikely for it to happen in the given time frame.
With that being said it's important to pay attention to the price you pay or the price you sell the option (bid/ask) the closer you get to being "in the money" the more expensive they will be. If we look at the table from earlier we see that as the strike price increases the price decreases.
Benefits of Options
Options give you the opportunity to trade highly priced stocks without the capital. (yay for college students) for example: You buy 100 Oct. GOOG Calls, that will cost $300. If you wanted to buy 100 shares of GOOG it would cost $74,400 (woah).
When picking your calls or puts don't just go by the cheapest price, pay attention to the strike and the expiration.
Options also offer some protection, you can only lose the amount that you paid. If we look at the previous example, if GOOG starts to move against you, the loss will be $300 as opposed to $74,400.
They also offer flexibility, you can gain on an option that is gaining or losing. You can also be conservative or risky.
Let me know if you have any questions! I am here to help. I know it's a lot of information but it's important to understand the basics before you start!
Best,Brit
For up to date info follow my twitter
Best,Brit
For up to date info follow my twitter
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