Factory Plan, the World's No. Leave a Reply Click here to cancel reply. Your email address will not be published. Sign me up for the Money Morning newsletter. The idea of options trading makes a lot of investors nervous — until they start to understand how profitable options trading can be. For example, anyone holding Amazon stock from May 16,until Jan. But using a simple options trade on that stock could have scored you nearly three times as much in the same time period. That's exactly what Money Morning Options Trading Specialist Tom Gentile did for his Power Profit Trades readers. First, there are many options-specific terms that sound confusing. But once you start to learn the options vocabulary, you will find options trading isn't as complex as you first thought. Secondly, options trading got a bad reputation in the stock market crash of People lost a lot of money because they were making trades that were option too risky for what their portfolio and trading tolerance should allow. If those that lost large amounts of money had been using options correctly, they would have limited their risk. Many investors don't know this, but options were initially created to hedge risk. All trading these reasons are why we're walking you through everything you need to know about options trading. This "how-to" guide will help you see opportunities to rapidly grow your net worth and create monthly income while limiting your exposure to risk. Before you can begin to trade optionsyou need to make sure you have the right account and the highest level of options trading clearance possible. Basically, you will need to answer a few questions so the broker can absolve themselves of responsibility if investors lose large sums of money. Again, don't worry, we'll show you how to avoid those types of trades. Not every online brokerage allows you to trade options. Even traditional brokerages that do let you trade options may not be the best fit for you. Commissions are usually cheaper on options accounts than stock-trading accounts. Because of that, Tom Gentile option opening an options account that you can also trade equities stock with. Even within options accounts, there are two different types: The one you choose depends on your personal preference. This is your ticket to bigger and better returns… and it won't cost you a penny. What are you waiting for? Snapshot accounts are great for beginners or position traders those who hold trades for 30 or more days. They are option of the market instead of live information. This means the information you are looking at may be delayed a few minutes. For a new trader, this should not pose any problems. The snapshots can help keep you from getting overloaded with information. The snapshot options broker that Tom Gentile recommends is OptionsXpress. Streaming accounts are great for traders with some experience and who want to enter and exit positions in shorter time frames under 30 days. Orders and information come in at real time. The streaming platform that Tom Gentile recommends is ThinkorSwim TD Ameritrade's active platform. If you are unsure what type of account to choose, start with a snapshot account. You can upgrade to a streaming account once you have some experience and feel more comfortable trading options. No matter which platform you choose, you will need to fill out an application and answer several questions to get your options trading level clearance. These are not trick questions and we'll walk you through what to expect. The goal for any investor is to get the highest level possible. You may not want to do some of the more advanced techniques right away, but you'll want to have the clearance to do so when you are ready. All of the questions you answer will help determine what level of options trading you will have clearance to participate in. The levels for trading are standard, but the wording each brokerage uses may be a little different. Some of these phrases may be new to you. You'll know what they all mean when you're done reading this guide:. Before you start trading real money, Tom Gentile recommends that you "paper trade," or practice your orders on paper before you do your first level through your broker. This will ensure you understand everything involved. The good news is that once you make it through this section, we can talk more about applying level strategies. An option is a lot like renting a stock. When you buy an options contract, you purchase the right to buy or sell the stock and then try to sell that right to someone else for a profit. A call gives the owner the right, but not the obligation, to BUY shares of a particular stock at a predetermined fixed price. You buy a call when you think the price of the underlying stock will rise. A put gives the owner the right, but not the obligation, to SELL shares of a particular stock at a predetermined fixed price. You buy a put when you think the price of the underlying stock will fall. Now that we have calls and puts straight, let's talk about an option symbol. The symbol gives you a lot of valuable information about the option. The first thing the symbol to the left gives you is the stock ticker of the underlying security. The underlying security is the stock, ETF, or security that the option gives you the right to buy or sell. It is sometimes referred to as the underlying. In this case, the underlying security is Amazon. The six digits to the right of AMZN represent the expiration date. The expiration date is always the third Saturday of the month. The last day of trading for the option is usually the Friday before the expiration date, unless that Friday is a holiday. The letter following the expiration date is the option type. The C stands for a call. There would be a P there instead if the option was a put. The last piece of information on the option symbol is the strike price. This is the price at which the underlying can be bought in the case of a call or sold in the case of a put. Know Exactly What to Buy, What to Sell, and How to Protect Your Money in Now that you know how to determine what type of option you are looking at, the next step is to determine what goes into the cost of an option. The premium is the amount you pay if you buy the option or the credit you receive if you sell the option. There are three main components that make up the premium:. Remember, if your call allows you to buy a stock at a price much lower than market, or your put lets you sell a stock for much higher than market, you are likely to exercise your option. Exercising an option simply means you will buy or sell the stock at the strike price before the expiration date. Now that we know what goes into the price of an option, let's take a look at an options table. An options table lists the different strike prices for calls and puts. The bid price is the price you can sell an option, and the ask price is the price you will pay for the option. The left-hand column shows the option's strike price. The call bid and ask prices are next, followed by the put bid and ask prices. Let's say you wanted to buy a put at a strike of There are two positions you can take with every option: Being long on an option simply means you bought the options contract. Being short on an option means that you sold the options contract without ever owning the option. Don't worry if this seems confusing at first. We'll go through each scenario in detail, complete with clear examples to show you exactly how these work. When you buy calls — or trading long calls — you buy the right to buy shares of the underlying at the strike price. Let's say the current factor for your call is 0. This is one of the best buying opportunities of The other way to profit from this call is to buy the stock at the strike price by exercising your option, then sell those shares at the market price. The profit would be the difference between the strike price and market price minus the original cost of the call option. If the price of the underlying goes up and you still own the option at expiration, you may be assigned the shares the option is written for and owe money of the purchase. If you do not want to purchase the shares, make sure to sell your call before the expiration. We will use a factor of 0. Our example shows you breaking even because option made the math simple to see. You wouldn't exercise the call to buy the stock and then sell those shares at market price unless you were going to make a profit from the trade. If the Market Goes Down. If the price of the underlying security goes down, below the strike price of your call, you are only risking the money you used to buy the call. The option level will go down by the same factor per dollar as we saw in the previous example. We'll use the same factor of 0. When you buy long puts, you buy the right to sell shares at the strike price. If the Market Goes Up. If the price of the underlying security goes up, you are only risking the money you used to buy the put. The option price will go down by a factor per dollar increase. Let's stick with the example we've been using with a factor of The profit of the put changes as a factor of the price move of the underlying security. If the current factor for your put is The other way to profit from this put is to buy the stock at the market price and sell it at the strike price. The profit would be the difference between the market price and strike price minus the original cost of the put option. If the price of the underlying goes down and you still own the option, shares could be sold for you automatically. If you don't want to sell shares, make sure to sell your put before the expiration. We'll use the same factor of Instead of selling the put, you can also exercise it. You wouldn't buy the stock and exercise the put unless you were going to make a profit from the trade. With short calls, you sell someone else the right to buy the underlying stock — but you don't own the option although you might own the stock, but don't have to. If the option is exercised, the buyer will have the right to shares of the underlying security at the strike price, so you will have to sell them shares to fulfill that contract. If you don't own those shares, you have to buy them at market. If the price of the underlying security goes up, you can buy the call to close out your short position for a loss. This will protect you from having to sell the shares of the underlying stock if the call is exercised. If you keep your position and it is exercised, you will have to sell shares to the option buyer at the strike price. This option is best used if you don't mind selling shares of the stock you already own. If the price of the underlying security goes down, you can keep the money you received for the sale of the call and don't need to worry that the option will be exercised. If the call buyer can buy the shares for option at market, there's no reason for the buyer to purchase shares at the strike price. If you wanted to secure profits before the market went back up, you could buy the call to close out your short position at a profit. To realize maximum profitability, you will want to let the call expire worthless. We will assume trading want to buy to close the call. With short puts, you sell someone the right to sell a stock at a certain price. If they exercise the option, you are obligated to buy shares of the underlying security at the strike price from the put buyer. If the price of the underlying security goes up, you can keep the money you received for selling the put and don't need to worry that it will be exercised. The put buyer wouldn't sell the stock at the strike price if the stock's market price is higher than that. If you wanted to secure profits before the market went level down, you could buy the put option to close your short position at a profit. We will assume you want to buy to close the put. If the trading of the underlying security goes down, you can buy to close the put for a loss. That will protect you from having to buy the shares of the underlying at the strike price if the put is exercised. If you keep your position and it is exercised, you will have to buy the shares at the strike price. Now that we've talked about calls and puts, and long and short positions, there are two very important risk-management strategies we need to talk about: Both assume you own the shares of the underlying security…. A covered call means you already own the underlying stock and are selling calls against those shares. Ideally, the strike price will be higher than the market price. That way you are not at risk of having to sell your shares. This strategy is best used against shares you don't mind selling if the market price does rise substantially. You should stick to one- to two-month expiration dates to limit your risk of large market changes. Covered calls can help you generate monthly income, because you will receive the premium every time you sell calls. The only downside is the risk of having to sell your shares. Depending on the price you paid for them and the strike price you would sell them at, this might not be all that bad. You could end up selling your shares at a substantial profit. As an example, let's say you own shares of XYZ Company. You decide to sell calls against your shares in order to make a monthly income. You want to make sure the strike price is higher than the market price so that the call you sell isn't likely to be exercised. The only downside here is you will not have the shares to write a call against next month. While this is a smaller profit than if the call were exercised, you get to keep your shares. This means you can sell calls against your shares next month to create a regular stream of income. Insurance puts are puts you buy if you think the level of a stock you currently own will decrease. You will be out the amount you paid for the puts if the price of the shares goes up, but you will protect yourself from large losses on the shares you already own if the price of the underlying security goes way down. You are guaranteeing that you can sell your shares at a certain price, so you know what your maximum losses are. Buying puts when major news is about to break about the economy i. The puts will allow you to sell your shares at the strike price if you decide to sell instead of holding onto the underlying stock. This is important if you think the company will not be solvent if the pending trial option medical or court are not in the company's favor. Insurance puts will allow you to get out of the stock after the negative news breaks with minimal loss, but also let you keep your shares so you still have them if the news is positive. Let's say you own XYZ Company. XYZ is getting ready for FDA approval on a new vaccine, but you're not sure the approval will be granted. If the approval is granted, you can sell your put for a loss or let it expire. One more thing — options are usually short- to medium-term investments. LEAPStrading, are long-term investments. LEAPS stands for long-term equity appreciation securities. Basically they are options that expire three years out as opposed to a few months out. LEAPS are good if you are worried about long-term market volatility or if you want to bet on the long-term upswing or downswing of an expensive stock. With the long investment timeframe, you don't need to be right about the way a stock moves today or next week. LEAPS allow you to sit on your position in hopes that in the future, the market will head in a profitable direction. LEAPS also give you a way around the pricing issue level expensive stocks have. You may want to buy and hang onto a stock long term in order to profit from the continued price increase. For a cheap stock, this isn't a problem. You buy shares and wait until they have gone up in price to sell them at a profit. For expensive stocks, the trading method may not be an option. With LEAPS, you can take advantage of the stock's upswing for pennies on the dollar. Buying LEAPS and selling them before they expire allows you to make profits on the stock price's increase without owning the stock. Remember, because you are making a longer-term bet, LEAPS are more expensive than shorter-term options. Currently, a LEAPS of Alphabet expiring on Jan. That means you're spending Since you invested less capital by buying a LEAPS, you can make a larger percent gain in small movements of the underlying stock. Whether you go long or short on an option, there are ways to help minimize your risk. One of those ways is order types. Another is combining options…. Click here level jump to comments…. Unless you're working with margin, that means you need to fund your account to cover. 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Long Call Example — When the Underlying Rises: Long Call Example — When the Underlying Falls: Long Put Example — When the Underlying Rises: Long Put Example — When the Underling Falls: Short Calls Example — When the Underlying Rises: Short Calls Example — When the Underlying Falls: Short Puts Example — When the Underlying Rises: Short Puts Example — When the Underlying Falls: May 6, Just remember, readers: Gold and Silver Alerts. Before the Bell Preview. Stock Market Crash Insurance. Wall Street Scam Watch. China and All Asia Alerts. Biotech and Pharma Alerts. Small Cap Stocks Alerts. Oil and Gas Alerts. D R Barton Jr. Trending Posts Reads 33 Likes. Here's what you need to know Mexico just legalized medical marijuana. 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The severe disturbances of thought content and process that comprise the positive symptoms often are the most recognizable and striking features of psychotic disorders such as schizophrenia or manic depressive illness.
Of course, students with no experience in essay writing feel rather uncomfortable when they have to write essay in accordance to a certain reference style.
The severe disturbances of thought content and process that comprise the positive symptoms often are the most recognizable and striking features of psychotic disorders such as schizophrenia or manic depressive illness.
Of course, students with no experience in essay writing feel rather uncomfortable when they have to write essay in accordance to a certain reference style.
The Universal Principle of Right, which governs issues about justice.
The team said the young animal had blood coming from his mouth and trunk when it died.