October 13

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?

An option is a derivative instrument based on stocks, commodities, futures etc.

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

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)

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.

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

July 6th,2012

The estimates for the non-farm payroll were lower than anticipated and unemployment remained at 8.2%... the markets reacted accordingly the Dow closing under 124 points. Let’s go through the days positions.

Crude Oil- 

I liquidated crude at 84.40 with a 2,087 loss but after some additional research I reestablished the position. I bought 2 contracts in the crude oil, the first at 84.65 and the second at 84.52 which brings me to an average price of 84.59. Adding to a position allows you to enter at different levels as opposed to one price. If crude is dipping I would suggest a buy!

Apple- 

 I added to my apple position buying more $625 calls at 11:08 am when the stock was trading at 603.83 settling at 606.25, which gives me a total of two positions in Apple. This is an approximately a $1,500 winner.  I am going to review some charts this week.

Google

I decided to buy some Google positions in addition to Apple. I bought the $625 calls when the stock was trading at 584.83; this was also a $625 call.

Ten Year Note- Loser

Oh the ten year. I decided to add to my ten year position, I’ve have three contracts short at 134’00, currently is 1,406 loser. Even though this is currently a losing position and a lot of people would suggest against adding to a losing position. I am confident in my decision.

Gold- The Winner!

I bought gold at 1577.40 settling at 1578.90, for every dime gold moves it has a $10.00 tick value therefore this is a $1,500 winner. Are you with me? Ended the day a happy girl! Even though I lost money in crude I definitely reestablished myself with this position.

Google and Apple are both promising companies. It’s important to remember that prices are based on the future of a company, a lot of the information we are receiving now has already been factored into the market. I think an important tip if you are interested in trading is looking for an edge in the market. You want to be able to see various cause and effect patterns and factor those into your decision.

For example the news of a new iPhone being released will not have a profound effect on the price, Apple releases a new iPhone every year that’s not an edge. However, finding out that Apple has ordered parts to start making televisions is an edge that will effect the market.  Keep this in mind when you are considering the direction of a market or investing in different stocks.

I’ve been getting some questions about getting started with trading, I think paper trading is a very good way to begin to understand the markets. Sign up for a virtual trading account to get familiar with the terminology and understanding your decisions without risking anything. Also studying charts helps, cross-referencing charts and events for the company will help you understand the future of the company.

Friday was definitely a tough market but I am comfortable with my positions. Earnings will be released soon I will have some thoughts at that later this week. I have attached screen shots of my calls for proof… Be sure to follow me on twitter @TheBritReport for the most up to date positions.

That’s all for today!

Brit