I like most of what you do and teach but you have made some embarrasing comments in discussing options in this lesson.
First, you said " when you buy a put option you are obligated to sell shares at the strike price" That is not so. The Daily panel from the JO Market Location Chart shows JO smack at the bottom of the Trading Range.
If we do take a long trade in JO it will be with a deep-in-the-money (ITM) Call option as a stock substitute.
The bid-ask spreads are too wide for regular trading in JO and you have to go out 87 and 178 days to get decent open interest.
The S&P 500 SPDR (SPY) is the most liquid option trading product available to the small investor. On the technical side, we have commented that stocks in a downtrend often bounce from the bottom of the Trading Range to mid-range where they go generally sideways before resuming the trip to the bottom of the range. The SPY Trading Chart is from the close on Friday so it’s an after-the-fact picture of the rotation from Bull to Bear. FXE is at the bottom of the Trading Range and the historical volatility 20 day lookahead projection suggests that FXE, which is currently trading under 110, could get close to the 113 price level over the next few weeks. The Trading Chart shows FXE is in a good, but not ideal, position for initiating a long trade. The lower right panel of the Trading Chart now shows the Weekly Heikin-Ashi instead of another intraday chart.


XLE has our attention because it has moved vigorously from the bottom of the Trading Range to nearly the top of the Trading Range in a few days.
In this blog post we will discuss more advanced options trading strategies:Vertical Spreads andStraddles and Strangles.Don't worry! The usual formulation is that the buyer of an option has the right, but not the obligation to buy or sell the shares involved. So long as GFI has not gone much below the lower boundary of the Trading Range during that time we would become interested buyers. You may choose to sell shares at that price if Apple has fallen below 420 when the option expires, or before then if you choose.
One of these characteristics is that you must make lots of option trades to keep the law of large numbers on your side.
One other reason GFI has our attention is that its options have an acceptable amount of open interest, in the thousand plus for several strikes.
Options have thousands of contracts in open interest for nearly every expiration with bid-ask spreads usually a nickel or less.
I used the following example:AAPL is trading at $440, and we believe that AAPL will not trade below $425 until expiration (18 more days).
We are swing traders looking to take a few bucks out of the market over the next few days or weeks.
A really deep ITM option will have a Delta of 100% so you gain 1:1 with the stock price at a much reduced cost of entry.


Delta is an important aspect of options trading with more applications than you could ever guess.
For a more detailed explanation please take a look at the previous blog post).We can limit our risk, if we BUY a $420 put option. In our example you can sell it at $420.When SELLING a put option, you have to BUY the underlying stock at the strike price.
I used the following example:AAPL is trading around $440 and we think that AAPL will move higher and trade at or above $480 at expiration date (in 18 days). AAPL) with the same expiration date, but different strike prices.When trading straddles, you think that the stock is about to move, but you don't know (yet) whether the stock prices will go up or down. The cheaper the options, the lower the break-even point and the faster you'll be "in the money".That's why many charting software packages provide powerful "scanners". When I was trading options back in 1989, I analyzed all options of the 30 stocks in the Dax with my Casio calculator.



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Comments

  1. shokaladka

    Youngster of the investment world and the the.

    20.07.2014

  2. STRIKE

    Downside of binary choices, you are positively better you.

    20.07.2014