The Smart Way To Understanding Put And Call Options
Put and Call Options are a variety of trading contract that are very useful for traders. They giver brokers the options of playing safe with a stock, limiting risk when used with other financial products. We will now look into what put and call options are.
Many confuse them with a somewhat similar product, futures contract, but in reality they are very different.
Options are used to control the risk of buying and selling stocks. As we know the market can be very volatile and the stock you buy today at $100 can be worth $1 or a $1000 in the future. With the skilful use of call and put options you can manage the risk losing when it works against you and maximizing the profits when it happens in your favor.
As we mentioned above, some confuse call and put options with futures. In futures you actually buy a commodity like oil or wheat at a certain price in the future. This way you make sure you have the supply of the product or the ability of selling it again if you think the price will go up.
However, with futures if the price works against you, and you cannot sell the commodity, you are still stuck with what you bought, it is yours. With options you do not actually buy anything tangible or real, you are just buying the option, or right of buying it. If you change your mind there is no problem, you just lose the premium you invested.
This is a strange concept to digest when you first hear it, so let us use an analogy to explain. You are a seasoned real estate trader and have the hunch, based on facts and experience that the price of a certain property is going to rise considerably in a year. So you approach the owner of the property and give him an offer to buy the property in a year. Maybe you tell him you need the time to sort out your finances or something.
To close the deal you pay him a deposit (or option premium). This deposit makes the agreement legally binding. Now you have the right (call option) to buy that property at the price agreed in a year. If that year comes and your hunch was mistaken and the price of the property has actually dropped, you can simply walk away from the deal and lose your deposit. On the other hand the owner of the property, the seller of the call option, is legally bound to providing the commodity at the price agreed.
In conclusion, Call Options are the right you purchase to buy a stock or financial product in the future at a certain price. If you change your mind you do not have to purchase the stock. However if you sell the call option you are forced to sell the stock at the agreed price. Put options work exactly the same with the exception that you are purchasing the right to sell at a fixed price in the future.
About Author You find more on call options by following the link. The same can be said for put options, as both topics are covered.
Stock Market Wisdom-learning to Trade Like The Legends, Part 7
Top traders and investors know the most money will be made by following the main trend. Jumping in and out of the market trying to scalp it, is generally not a good idea. The big money is made playing the long swing. The key is to stay with your winning trade, until you get a definite indication the trend has changed. This is called, letting your profits run. I use a weekly chart to determine the main or major trend. It is never a good idea to trade against a major trend. Stay in sync with the market, and always trade in the direction of the major trend.
Diversification is a crutch for ignorance. You are much better off only trading when the odds are strongly in your favor. Gerald Loeb stated, “The greatest safety lies in putting all your eggs in one basket, and watching that basket”. I totally agree. If you want mediocre results, at best, diversify. If you want superior trading results, you must only trade the very best opportunities. Top traders know you are much better off with one great stock, instead of ten average stocks, spread across ten different sectors. It is amazing, listening to some of the so-called experts who preach diversification. They simply do not have a clue on how to attain superior trading results.
Conventional wisdom tends to be a disaster for a trading account. This includes the stock market, and the futures market. The majority of traders blindly follow this way of thinking, and doing things. They are usually not very happy with their trading results. Examples of conventional wisdom include, buying cheap stocks, thinking it is a great deal. Most cheap stocks are cheap for a good reason, and usually just keep getting cheaper and cheaper. A great example is listening to so-called experts like Jim Cramer. The Cramers of the world will lead you on a path, to not only monetary failure, but will strip you of your psychological capital also.
The world’s best traders and investors know that conventional wisdom is mostly hogwash. It is put out there to fool most of the people, most of the time. It works only too well. Elite traders do not follow the crowd. They implement historically proven methods and principles, which are considered unconventional by the vast majority. Elite traders think and act differently. That is why their trading results are superior, and they make vast fortunes trading the various markets.
About Author Hi, I’m Gary E Kerkow, founder of Tradingmarkets4u.com. This site provides information to help traders and investors become successful. I have over 20 years of trading experience including stocks, futures and options. Visit my website at http://www.tradingmarkets4u.com
Stock Market Wisdom-Learning to Trade Like the Legends, Part 3
All the very best traders and investors have a method that will give them an edge. Having an edge means the odds, or probabilities are in your favor each time a trade is initiated. The method implemented depends upon the individual traders philosophy. It can be technically based, fundamentally based, or a combination of both. It can be short-term or long-term. There are very successful traders with methods that are completely different. You simply can not win unless you have a method that puts the odds in your favor. This includes the stock market, or any other trading venue.
Discipline is an absolutely crucial element. All the great traders and investors know that without discipline, it does not matter how good your trading plan or method is. You need discipline to implement your trading plan. You can not be second-guessing your entry signal, exit signal, and money management rules. Basically, you must have the discipline to completely follow every part of your trading plan. This will also help keep emotions out of your trading.
Top traders and investors fully understand that sometimes a trade you put on, is not going to work out. They realize that some trades are going to result in a loss. The key is to keep all losses small. There are fantastic traders in the stock market and futures market, who only win about 50% of their trades. The key is their winning trades tend to result in substantial profits, while their losing trades result in only small losses. The best traders know they will win over the long run. Taking a small loss does not bother a great trader at all.
About Author Hi, I’m Gary E Kerkow, founder of Tradingmarkets4u.com. This site provides information to help traders and investors become successful. I have over 20 years of trading experience including stocks, futures and options. Visit my website at http://www.tradingmarkets4u.com
A Word of Advice: Do Not Think, React in Stock Market
Here is another example of how futures trading are quite different from everything else in life. In every other endeavor we are taught to think first, and then react. In futures trading—with a caveat to follow—you are often far better off reacting first and then thinking later. The caveat is this: this is only true if you have developed and are executing a well thought out trading plan. If you decide that you will exit a particular trade if a certain set of Criteria is met in stock market, then that is exactly what you need to do. The specific chain of events that caused your exit criteria to be met are completely irrelevant. While they can be analyzed after the fact for information that may help in the Future, they cannot be allowed to convince you to do one Thing when you know you should be doing something else. At the most base level considers a floor trader who typically scalps the stock market trying to make two or three ticks per Trade. He is long 30 T-Bond contracts when a huge wave Of sell orders hits the trading floor. He has two potential Courses of action:
a) Stand around and try to figure out “why” a wave of Selling is occurring
b) Start hitting bids instantly to exit his long positions If he is a good floor trader and if he wants to survive, he Will choose b. In other words, he needs to react immediately. Every second he spends analyzing the situation costs him money in stock market.
If a situation arises for which you have already determined exactly what you should do in case of just such an event, react and do it. Don’t think (whoever thought you’d hear that kind of advice?). If a situation arises for which you have not prepared, and you have no idea how to react, and then think in terms of risk control. Ask yourself, “what are my choices and which one is the least likely to result in a huge loss?” Then do that.
LSE chairman heads towards the exit
The London Stock Exchange (LSE) is planning for the exit of Chris Gibson-Smith, its chairman, by sounding out potential non-executive directors about their interest in the role.
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The Trading Systems Toolkit: How to Build, Test and Apply Money-Making Stock and Futures Trading Systems
Product Description
The Trading Systems Toolkit shows how to combine indicators to build a profitable trading system and how to customize a system to meet a trader’s specific goals. Well-known futures trading educator Joe Krustinger provides everything a trader needs to know to test and evaluate a system before putting money at risk. Specific topis include: The three essential building blocks for every system; The advantages and disadvantages of a variety of technical indicators; Choos… More >>
Free Penny Stock Picks : Penny Stock Picks
The key to making money in the stock market starts with the successful trade. It doesn’t matter what you’re trading. Many people look for penny stock picks to help get them on the right track and this is perfectly okay. However, there is a little bit of qualifying that must be done first. Let’s talk about that.
Perhaps one problem that plagues penny stock traders, which leads to capital loss, is the thought that penny stock buying is somehow easier or less valuable than buying “regular” stocks like Starbucks. This isn’t so. The same due diligence must be performed.
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If you were to survey all the wealthy people on the planet (those with real wealth who stay that way), you’d find that by in large everyone would have one same characteristic: money in any denomination is highly valued and respected.
So, let’s talk penny stock picks and having more successful trades. It’s okay to get your hot penny stock picks from a newsletter, stock forum, blog, etc. What you do with your stock pick from there will largely determine your long-term success.
I’ve discussed this at length on my penny stock site, but let’s briefly talk a little about research. You’ve got to do it. I don’t care if you’re buying 100 shares or one billion. You must do at least some research.
Do you know what the one question you must ask first that could save you from losing a lot of money in the stock market? More on this later.
Volume is something you absolutely must look at before jumping into any penny stock. The best penny stock picks in the world are absolutely worthless if the stock is very difficult to get out of. You want to trade with stocks that allow you to get in and get out whenever you want.
Here’s a great tip for finding research over time. Use Google Alerts. I always recommend this to people. You can have Google alert you for company news, industry news, topical news, blog postings and much more. It’s really a valuable tool in my everyday life.
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Article Source:http://www.articlesbase.com/day-trading-articles/free-penny-stock-picks-penny-stock-picks-1767045.html
Differences Between Stock Investing Vs Futures Trading
At some point, most serious stock traders and investors become aware of the futures market. There is a whole industry built around attracting new participants into commodities, as well as an entire industry catering to teaching how to trade futures.
(Note that I am using the terms “commodities” and “futures” interchangeably. Some in the futures industry use “commodities” to denote futures on agricultural, livestock, and other food products. They use futures to denote financial futures like stock indexes, bonds, and foreign currencies).
Most investors should “quit while they are ahead”, and avoid getting involved with futures. The surest way to build wealth is the stock market. Futures, on the other hand, are a good way to lose your money.
But, to provide a basic understanding, here are the differences between investing in stocks vs. futures:
1. The “future” in futures – When we buy or sell shares of a stock, we are actually buying or selling the stock today. With futures, you are actually entering into a contract to buy or sell a certain amount of a product at a certain date in the future. From a fundamental point of view, this means that a stock investor is trying to analyzing supply / demand for today. The futures trader is trying to analyze how supply / demand will be in the future.
2. Specific contract sizes – A stock market investor can buy or sell as many shares as they want. A futures trader is limited to trading in specific contract sizes. For example, I can sell 1 share of IBM stock, but I can only trade corn futures in multiples of 5,000 bushels. This makes it hard to use re-balancing formulas (a very powerful method in stock trading) with futures.
3. Leverage – A stock trader can, at most, use 50% leverage. This means that, if they have $100, they can buy $150 worth of stock. Futures traders, on the other hand, can use almost 90% leverage. For example, at a price of $2.54 per bushel, a futures contract of corn is worth $12,700. The margin to buy or sell a corn contract, however, is only $2,000. This means that, for $2,000, you can control $12,700 of corn.
At this level of leverage, a 15% increase in corn prices will double your money. But, a 15% decrease will wipe you out. If corn prices fell 30%, you would lose double the value of your account, and would have to pay the difference.
This leverage is the critical factor with futures trading. This ability to make a lot of money fast is what attracts people to futures, but it has also been the cause of many bankruptcies, divorces, and suicides.
Ironically, the commodities themselves are less volatile than stocks. This makes sense, because there are more factors that can affect IBM than can affect corn. Growing grain is easier than running a multinational company. It’s the leverage that makes it volatile. Essentially, you are magnifying the price movements. The drawback is that a futures trader is more vulnerable to random fluctuations. This is why futures trading is more like gambling. Even if you analyze correctly, and price eventually reaches your prediction, a sudden, short lived price spike can wipe out your account.
4. Ease of short selling Since stock traders are actually buying and selling shares of stock, it is harder to sell short to take advantage of falling prices. Since you can’t create a share of IBM, you actually have to borrow shares through your broker. Then, you pay interest and dividends to the owner until you buy back the shares. With futures trading, going short is as easy as going long. Since you are entering a contract to buy or sell something in the future (rather than actually selling something), you just create a contract promising to sell.
5. Expiration dates With stock trading, once you own shares in a company, they are yours to keep until you sell them. You can own shares forever. With futures, they have a certain date at which they come due. If you don’t offset your contract before that date, you may have to deliver or take delivery of the product. For example, if you have a contract to buy 5,000 bushels of corn, and you don’t sell it before the date, you might start getting warehouse bills for your corn.
I hope this article has provided you with a basic understanding of futures vs. stocks. As I stated before, I think most traders are better off sticking with stocks. Futures are less forgiving and more random, so it is much harder to develop a system that has a sustainable edge over time.
Author: Praveen Puri
Article Source: EzineArticles.com
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Penny Stock Prophet Review – Great Penny Stocks Picker
If you’ve been interested in investing in penny/cheap stocks, you should use an analytical program to help you differentiate the good stocks from the bad. A low priced stock focused program will undoubtedly deliver the highest and most profitable picks because cheaper stocks are known for their greater volatility. This is a review of the great penny stocks picker, Penny Stock Prophet.
Like any experienced market analyst, this program looks at the full range of the market to get an idea of how individual real time stocks are set to perform. If it finds a current stock which is exhibiting similar behavior to a particular stock from the past which subsequently went to go on a profitable jump, that gives a very precise idea of how that current stock pick is going to act.
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Stock behavior is very specific and can be replicated in the market which is why full scope is one of the major tools in anticipating market behavior which is used by experts and this great penny stocks picker alike.
I mentioned the profitability aspect of cheap stocks and this is easily seen in the first pick I received from the program. I bought 1000 shares of a stock which was valued at 18 cents at first. I logged out from my online trade account and put it in the back of my mind until the end of that trading day when I checked back in on it to find it had skyrocketed up to $.38 a share, just more than doubling over the course of that first day alone.
Literally one of the best feelings you can have is to be invested in great penny stocks as they are growing right in front of your eyes. From there, I began checking on that stock virtually every half-hour once the market open the next day until it finally stalled near the end of that second trading day at $.57 a share. Ultimately that pick more than tripled in value overall.
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This is not to give you the impression that every stock has behaved this way, but it provides a good reflection on roughly average of what I experience from this great penny stocks picker.
In terms of consistency, I have made money on 18/20 trades which it has generated for me. Aside from the profitability of its great penny stocks picks, the other great thing is that you don’t need to have the time or experience to put towards trading yourself because all the legwork is are you done for you so all you’ve got to do is invest accordingly.
I heartily suggest that you try this great penny stocks picker risk free as I have for 60 days to see how invaluable this system can be for you. You don’t even have to invest any money to see it work, simply follow its daily stock picks’ performances in the market and watch them soar.
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Article Source:http://www.articlesbase.com/day-trading-articles/penny-stock-prophet-review-great-penny-stocks-picker-1657550.html
Futures Trading Overview
Futures trading or commodity trading first started in Japan and in Holland, somewhere in 18th century. In US, commodity trading started by establishing a commodity market place in 1840s century. The market offered both sport delivery and futures contracts.
Futures trading differ from spot trading in different aspects. Spot trades are done for actual (and real-time) cash/product deliveries but futures are traded for hedging possible price uncertainties. Spot trades are done usually with a two-day cash delivery method where futures trades are done for usually 3 months durations. The futures trades for contracts which expire by next month or less is also often called spot trades.
The first products available for futures trading include meat, grains and live stocks. Later futures contracts for a variety of products were implemented including those for energy products, metals, currencies and currency indexes, stocks and stock indexes, and private and government interest rates. The CME (Chicago Mercantile Exchange) is responsible for the introduction financial features in 1970s, which very soon became the most traded futures type.
All futures have unchangeable contract specifications which are guaranteed by the clearing houses and margined to minimize counterparty credit risks. They are traded by open outcry of screen in public domain. Futures contracts are almost similar to forward contracts, and often the names are used interchangeably, but forward contracts are typically traded OTC (over-the-counter) through issuer-client or broker-dealer interactions where futures are traded through centralized markets.
Commodity futures are the most common form of futures and are traded all over the world. With the passing of time new and new agricultural, livestock and metal/natural commodities are becoming available for futures trading. Futures options are, like stock options, the right to buy or sell futures contact on a certain price at a specific time. A call futures option is the right to buy a futures contract and put futures option is the right to sell a futures contract.
Stock features or single-stock features are futures contracts for owning an underlying stock. Stock features usually have greater leverage and the holders of futures do not receive/pay any dividends. Stock index futures are meant for multiple purposes like hedging, trading and investing. Hedgers for owning stocks or index options, traders for benefiting form price volatility, and investors for achieving certain goals by not directly owning the stock. Currency features are futures contracts that enable the holder to buy or sell a currency at specified rate at a future date. As these futures are marked-to-market daily, the forex investors can easily overcome the obligation to sell or buy currencies before the delivery date.
In US, the futures trading are regulated by CFTC (Commodity Futures Trading Commission). The major worldwide futures trading markets are CBOT (Chicago Board of Trade), CME, ICE Futures, Euronext.liffe, London Commodity Exchange, Intrade, London Metal Exchange, TOCOM (Tokyo Commodity Exchange), NYMEX (New York Mercantile Exchange), NYBOT (New York Board of Trade), Sydney Futures Exchange, etc.
Author: Praveen Ortec
Article Source: EzineArticles.com
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