Archive for November, 2009
i want to know how to buy options. i am new to trading options and futures, and i am a little confused. where do i set the strike price? and why would i buy out-the-money?? and how does options work? what is the difference between buying a PUT and selling a PUT and in the same trade you would buy a CALL and sell a CALL.. i have more questions BUT i am only allowed so many characters
www.cboe.com
Also www.irs.gov. The IRS has very unusual rules for options and futures. You do not need to engage in a closing transaction for you to be taxed on your positions in quite a few cases. It is very important that you understand the tax rules before you engage in a transaction. They do not work like the rules for stocks.
As a very very experienced investor, stay away from options and futures until you really understand them. Futures in particular are more dangerous than options. The laws governing futures permit and expect insider trading. That is the reason that when Hilary Clinton invested $1000 in pork bellies and walked out with $100,000 a year later no one could do anything about it. As a governor’s wife she was not violating the law to have trades placed that were set up to win. If you are not rich, or the spouse of a governor, expect to be taken advantage of.
For example, could a holding company owning shares in many other companies place covered calls on those shares? What would be a good resource for more info on relevant regulations? Sources please.
Any individual or corporations may open options trading accounts. I have a friend who owns a company and has an options trading account opened in the company’s name as well.
I applied for options trading on my brokerage account and was only approved for covered calls.
How much equity or liquid net worth is needed to trade level 2 options? I believe this is why i was denied…
It’s not so much the equity as it is the credit score of the applicant(oh yes!) and the years of trading that they have you down as doing and of course whether or not you apply for a margin account(you can only get level 3 and level 4 accounts with a margin account). And of course it also depends on how stingy and overcautious the broker is. I’m pretty new at stocks and the first broker I signed up with was sharebuilder/ing. Now those guys rejected my margin application and as a result only allowed me to trade level 2 options. I have tens of thousands in unsecured credit card lines but sharebuilder denied me a measly 2:1 margin LOC and gave me a piddly $25 overdraft on my checking account lol. I wasn’t happy with sharebuilder obviously especially after I discovered realtime trades were not $4 but rather $9.95 with them so I signed up with sogotrade who offer $3 per equity trade with an additional $0.70 per option contract.
https://www.sogotrade.com/Setup/Default.aspx?rf=392837
Oh and the 100 free trades for new signups didn’t hurt either lol. Now I may sound biased and I have no idea which broker you have right now but based on my own bitter experience I would suggest you give sogo a try. They approved me for a level 4 Options account weeeeeee!
Other then them I suggest you give optionshouse and optionsxpress a look but I personally have not applied at either of the two so I have no idea how reasonable they are but since "options" is there middle name I would hope for good stuff and if I weren’t so happy with sogo I would be trying one of them next.
As a note, I have not yet tried *writing* any options because I intend to educate myself on risk management and the greeks before I take that plunge but from the looks of it the fees that sogo charges options underwriters are quite reasonable. Oh and I forgot to add you only need $500 deposited at sogo to get red carpet treatment, speaking from personal experience. I added more later though.
because it did not mention in most of the website who offer trading about the trade options if the 1st thing you do is to trade call options 1st before you can trade put options. I hope those who have knowledge about this will share his or her opinion..
don’t understand the question very well. that said, puts and calls are two different things. you can trade either one or the other or both. you don’t have to do anything first or anything second.
Not necessarily the one that made the most money or the highest percentage return, but where everything worked out like you’d want it to?
My favorite was US Cellular in 1999. USM wasn’t a rocket, but it had been moving steadily higher before I bought it and continued higher at about the same rate. I was able to move my fairly tight stop every week or so. As it approached a double it started moving faster, which was a mixed blessing for me because more volatility raises the odds of getting stopped out. I had a double on paper but then the stock spiked down and stopped me out. It went on to double again very fast but I never got back in, and then it crashed a few months before the general crash began. I’ve had a few other doubles and near-doubles but never one so quickly and smoothly.
I don’t play option. It’s just to complicate for me. That’s like trying to figure out where the market is head so, I am going to leave this one for the professional.
http://www.beathead.co.uk offers dj equipment for sale, currently payment options are limited to Paypal and Google Checkout. Would you be more likely to purchase if there was the option of card payments and/or pay monthly finance?
No, with paypal you know it’s secure and they can’t steal your money. I usually look for paypal first, then a card payment option.
flow(I feel I have longterm covered). There are numerous stocklike investments on the internet ( forex,stocks,comodies, options, funds
and etc). Should I learn a SYSTEM or develop my OWN? Because there is SO much out there to invest in, it is confusing as to with one to learn.
If you ask these questions, my recommendation is to go with indexed funds. It would allow you to learn along the way (by just monitoring your account’s activities/performance/portfolio) at the same time get you into the "action" 
. The risk is definitely there, as with stock investment; however, it would be lower than if you are to invest in individual stocks yourself.
If you don’t have a broker already, I recommend Vanguard. It offers many low-fee/no-load funds for you to choose from.
Best wish!
I am just looking to make a $10.00-$20.00 per option contract profit daily on each contract purchased. Some days it works, other days doesn’t? I have a hard time with the realtime charts to know when to get in and get out? I had heard that there are services that can give buy sell signals through out the day on options. I want to close my postions out daily, instead of swing trading options like I have been currently doing. This market moves so fast, you can loose 50% in a day or less.
Try Wizetrade. They have some great software available.
When i buy either put vertical spread, do i make money by hoping the stock will go down? Or do i want the stock to trade within my put spread range? For example, i buy XYZ $100 put option June for $1.00 and sell XYZ put $90 option at $0.50 when the stock is trading at $101. Should i hope that the stock stay between $90-$100 or should i hope for it to drop below $90.
<<<When should i buy option vertical spread?>>>
First, you should not trade options at all until you understand the risks and rewards associated with options, as well as the ways to control the risks. Second, I am assuming you did not ratio the spread. IOW, I am assuming the number of short options equals the number of long options.
As for when you would want to buy a vertical spread, it would be when
(1) you are either bullish or bearish on the underlying and
(2) you believe implied volatility (compared to the volatility the underlying will experience prior to expiration) is either too high or too low. If you do not have a forecast for implied volatility you should trade the underlying instead of options on the underlying,
If you are bullish, you want to buy a call vertical spread.
If you are bearish, you want to buy a put vertical spread.
If you believe implied volatility (IV) is too high, you want to sell the option with a strike closer to the underlying price and buy the option with a strike further away from the underlying price.
If you believe IV is too low, you want to sell the option with a strike further away from the underlying price and buy the option with the strike closer to the underlying price.
If the underlying is a stock use the current price of the stock increased by the risk-free interest rate until expiry less any dividends expected prior to expiry as the underlying price.
<<<When i buy either put vertical spread, do i make money by hoping the stock will go down?>>>
You don’t make any money by hoping anything.
All else being equal, a long put vertical spread will increase in value if the underlying decreases in value.
All else being equal, a long call vertical spread will increase in value if the underlying increases in value.
<<<Or do i want the stock to trade within my put spread range?>>>
At expiration, a long put vertical spread will provide the maximum return in the underlying is below the lower strike price, have a smaller return if the underlying is between the two strike prices, and be worthless if the underlying is above the higher strike price.
At expiration, a long call vertical spread will provide the maximum return in the underlying is above the higher strike price, have a smaller return if the underlying is between the two strike prices, and be worthless if the underlying is below the lower strike price.
Assuming you want the maximum return you do not want the underlying trading between the two strikes at expiration.
<<<For example, i buy XYZ $100 put option June for $1.00 and sell XYZ put $90 option at $0.50 when the stock is trading at $101. Should i hope that the stock stay between $90-$100 or should i hope for it to drop below $90.>>>
Assuming you want to make as much as possible, you want it to drop below $90, but you would rather have it between $90-$100 than above $100.
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I strongly suggest you read at least one good book about options before trading them.
It’s not Scottrade, IMO. I would like to hear only from those who have actually used the brokerage for things like spreads, straddles, condors, etc.
Please explain why you think it is the best? Is it order entry, cost, reputation, support, etc.?
Had E*Trade once and would not go back.
No, it’s not scottrade. And it’s definitely not Fidelity either!
optionsXpress, ThinkorSwim, or Interactivebrokers are probably the top three choices. Each has their pros/cons depending on what’s important to you.
If it’s just for trade execution, etc, then Optionxpress is very good. They also have some decent rates (email me). They also match up to internal orders as well when they can. Additionally, they have some interesting scanning tools that can help you apply advanced strategies such as ratio spreads, etc to a stock.
Interactivebrokers is probably the cheapest. It’s software based and takes a while to get used to. They route most of their trades through themselves, so that’s one reason they are cheaper. You’ll have to look at how active you are to see what fits best for you. Of the three, IB has the least desirable search tools, etc.
TOS is relatively new. They have some amazing tools and are very hungry for business right now (again, email me and I can help you with this). They have some great routing tools and have scanners specific to spreads, etc.They also (currently) have some fantastic free training as well. Executions have been decent as well. And in the long run, your executions’ll be the most important.
With TOS and OXPS, I’ve been able to call their trading desk and they’ve been able to help with orders and/or take orders when I’ve not been at a computer to do the trade as well.
So, decide what’s important to you. You might also check out Barron’s annual article on brokerages that comes out in the spring.
If you have any further questions, I’ll be glad to assist where I can.