5 Tips For Trading Stock Options

You're ready for the exciting world of stock options, but you need some strategies to check out. Thankfully, the Internet is full of advice from traders. Unfortunately, not all of that advice is sound. Some traders are merely mimicking what they've seen other traders do. 
Others are newbies themselves. Still others are offering advice while secretly trying to sell you their proprietary software. While trading in stock options is an advanced strategy, you don't have to over-complicate things. Find yourself a good broker using a site like BrokerStance. Then, start with some basic strategies. 

The Covered Call

A covered call is a basic options strategy. Also called a "buy-write strategy," you purchase the underlying assets outright. Then, you simultaneously write or sell an option on those same assets. So, for example, if you wanted to buy 1,000 shares of General Electric, you would also write the option on GE. The volume of assets (the number of shares) should be equal to the number of shares controlled by the option. 

So, continuing the example, if you had purchased 1,000 shares of GE, you would also want to make sure the option allowed you to sell 1,000 shares of GE. Investors often use this strategy when they have a short-term position and a neutral view of the stock they're buying. You would use this strategy to generate income from the call premium (from writing the option). You would also use this strategy to protect yourself from a potential decline in the underlying stock's asset value. 

Since investors always make money with this strategy, they're attracted to it. However, it is possible to under perform the underlying stock, making it a less profitable strategy than, say, investing directly in the stock and forgetting the option contract. 

The Married Pull

A married pull is where an investor buys or owns a particular stock, and then simultaneously buys a put option for an equivalent number of shares in that stock. Typically, this strategy is used when you believe the underlying stock will decline in value and you want to protect yourself from short-term losses. It basically creates a sort of insurance policy against losses by establishing a "floor" on losses. 

This is a more conservative strategy and depends on you being bearish on the underlying asset. You are taking a defensive stance in your portfolio. The goal isn't necessarily to make money but to avoid losses. 

A Protective Collar

A protective collar strategy is used when you've already made a lot of money and you want to preserve your gains. To pull this off, you need to purchase out-of-the-money put options on the underlying asset and write an out-of-the-money call option at the same time. The effect? Even if your shares decline in price, the put options protect you and you get to keep the gains you've earned. 

Like the married pull, this is a more defensive strategy. You've already done the hard work of figuring out which stocks to buy, and you've made money. You just want to keep from losing it if the stock turns sour quickly. It buys you some time to get out of the asset if execution is slow (i.e. if the stock is thinly traded) or if you think there's new news about the company that will cause an immediate, short-term, reversal on the price. 

A Long Straddle

The long straddle is used when you want the potential for unlimited gains but want to limit your losses to the cost of the options contracts. To implement this strategy, you must purchase a call and a put option with the same strike price. The option is on the same underlying asset. So, in effect, you are "straddling" both sides of the stock. You have the right to both buy and sell that underlying asset. This strategy works best when you think the underlying asset is volatile and will move, but you're not sure which way it will move. 

A Long Strangle

By adopting a long strangle (as opposed to a long straddle), you are essentially trying to do the same thing as with the straddle, but you're buying the options contracts at different strike prices and you're also buying them out-of-the-money (meaning that they're not immediately profitable when you buy them). 

The call option strike price is typically higher than the put option strike price. Use this strategy when you think the underlying stock will make a huge move, but you're unsure of which way it will move. Like the straddle, losses are limited to the cost of the contracts. The upside potential is unlimited. 

Jarryd Harden enjoys sharing his know how on trading stock options. His articles mainly appear on investment blogs.

4 Reasons Binary Options Trading Is Great for Newbies

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Those who are less accustomed to the rules of the trading world might find talks about binary options as foreign as an unknown language. However, as most expert brokers will be quick to explain, understanding binary options is not at all that difficult. In fact, they are considered perfect for newbie traders: though they do come with significant risk, they are also a major source of profit – and, the best thing about them – they are no-strings attached. If you’re thinking of giving binary options trading a go, here are the four basics that you need to know about.

1. A bit of history about binary options

Since we live in a pre-eminently digital era nowadays, many people tend to assume that binary options have always been digitally traded. This, however, is not true – for a long time, they were available over the counter, and could be purchased directly from the institution that issued them. Back then, though they were considered financial instruments, they were part of the exotic options category. They could not be traded on a liquid market and, more often than not, they were offered as part of more complex options contracts.

Since 2008, binary options have been traded on specialized websites and this has also given rise to the emergence of numerous websites explaining how to do binary trading online. It’s worth bearing in mind that online traded binary options are non-exchange-traded (more on that in the following section, which explains the difference between the various types of binary options). Current estimates (as of August this year) say there are over 200 websites up and running online at the moment and they are trading roughly 125 different kinds of underlying assets. Non exchange-traded binary options became regulated as financial instruments in Cyprus, as of May 2012, and in Malta, as of March 2013. In the United States, trading is legal, but not regulated.

2. Types of binary options

There are several criteria according to which binary options can be classified, but perhaps the most important distinction is the one made according to the way in which these options are traded. The categories, in this respect, are two: exchange traded and non-exchange-traded binary options. If getting into the technical details sounds daunting, then let’s put it this way: if you’re trading binary options online, you are taking part in a non-exchange trade. This class of binary options has a pre-determined expiration date, which needs to be attained in order for the owner of the options to buy, sell, or trade them in any way. They also come with a pre-established rate for profit (or loss), which is one and the same, irrespective of the difference between the options’ stake price and the value of the underlying assets.

Exchange traded binary options have been available in the United States since May 2008, when they were first introduced by the American Stock Exchange, also referred to as Amex. The Chicago Board Options Exchange followed suit the next month. These European binary options, which operate according to the cash-or-nothing principle, have been standardized. As such, the owners of the options can trade them with continuous quotations, i.e. a way of knowing what the price of the options and the assets has been historically, up to a certain point. 

3. Binary options trading basics

In order to best understand how the process of trading binary options goes, let’s focus on an actual example. Trading starts with a market watch for one or several assets in which one would be potentially interested to trade. 

For the purpose of this example, let’s say it is one of the indexes offered by the Chicago Board Options Exchange, the S&P 500. When the trader decides to invest, the index is sitting at 1175, and the trader believes that, according to their observations, it is going to rise. Binary options are then purchased through a broker, which will offer a strike price on that binary option and a time frame for it. 

In this example, let’s say that expiration comes at the end of the trading day – although binary options can come with just about any expiration frame, be it half a minute, several hours, or several days. Since the trader believes the price is going to increase, they buy a call option; the opposite, when one believes the price is going to fall, is to buy a put option. 

In this case, the payout is 80 per cent for the option ending the trading day ‘in the money’ (above the current index), and the loss is 95 per cent for an ‘out of the money’ situation (if the price should fall). The trader invests $100 and, at the end of the day, finds that the index has gone up. They have just earned $80 – but it is true that, had their predictions gone awry, they would have lost $95.

Before deciding to purchase binary options from any particular broker, it is wise to inquire carefully about their conditions. Sometimes the price taken into account is the last quote on a particular index, but in other cases it is calculated according to the (bid+ask)/2 formula. Also, it may happen that the price has stagnated on expiry. In this case, most brokers will choose to return the buyer’s investment in full. One rule that is largely applied across brokers is to forbid traders from selling their options or choosing to leave the trade before the expiration time is up.

4. Risk management for binary options

Of course, any one trader may choose to manage their risks in any way they see fit. However, binary options are largely regarded as a safe financial instrument, particularly because, unlike vanilla options, the trader knows exactly how much they stand to lose or gain from each trade. It’s also important to understand that, when trading binary options, the margin by which the price varies on a particular asset is irrelevant. All the trader needs to do is estimate whether it will rise or fall. Lastly, most brokers will charge no fees or commissions to binary options traders – this is a very attractive specific condition for beginner traders, who will want to give trading a go, but without having to pay for their one-off chance.

What to Look for in a Forex and Binary Options Platform

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Forex and Binary options are among the simplest and most lucrative way of earning money today. Its popularity among investors is because it can be accessed online at all times. Another factor contributing to its popularity is that an investor does not have to be skilled or experienced to trade. However, just like any other business, a trader must follow some tips in order to be guaranteed of making a profit. 

There are several Forex and Binary Options platforms that can help an investor earn more profits. With the high number of platforms it can be a daunting task for an investor to select the best. Below are some of the things an investor needs to look for when choosing a platform to trade Forex and Binary Options.

It is best to select a platform that gives a return even when an investor is out of money. It can be quite disappointing and discouraging to lose cash and, therefore an investor needs to choose a platform that offers some form of return even for negative outcomes. Not many platforms offer such returns but there are ones that do offer up to a 15 percent return on out of cash results.

An investor or trader should also choose a platform that provides a wide range of trading assets. Today, investors have the opportunity to follow the movement of assets through financial newspapers, business news channels and the internet. A platform that provides a wide selection of assets offers the investor more opportunities to make profits.

There are also some Forex and Binary Options platforms that charge some form of joining fee, so an investor has to take care with such platforms with hidden costs or joining fees. Before starting to trade with any platform, it is important to learn about the joining charges and other fees before signing up. Quality platforms with a good reputation have a page committed to providing this information. 

A trader should also choose a Forex and Binary options platform that has excellent customer support. A good customer service department will ensure that any assistance needed can be provided within the shortest time possible as required. This is important because regardless of an investor's experience, sometimes one might need technical or other assistance. 

Therefore, customer support provided should be good to advise and offer help when required. An experienced customer service team should be trained in order to offer instant help without having to make other enquiries which can waste precious time.

Choosing a Forex and Binary Options platform that puts the investor first allows you to focus on your trades and profits.

Understanding Binary Options Trading

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When it comes to binary options trading, there are a lot of things that people would like to know. The most important thing that you should know first of all is that binary options trading is not something that you can expect to master on your own. Sure, you will be able to get a clear idea of the concepts and the basic terminology, but in order to be able to successfully predict and gain profits in this field, it is important for you to register the help of an experienced guide. 

Basically, the whole point of binary options trading is to make the correct predictions. When it comes to this type of trading, what you have to do is to predict the value of an asset as it would be after a certain period of time. If your prediction turns out to be true, you gain money on your investment.

And, if you fail to make the correct prediction, you will lose money. However, there are several brokers out there who will return a certain portion of your investment in case you lose.

At present, there are hundreds of different online trading platforms that people can choose from. When it comes to binary trading, all you need is knowledge, a computer and an internet connection. When it comes to binary options trading, here are a few things that set it apart from other types of trading:

• It is much more direct as compared to other types of trading 
• Those who learn to successfully trade binary options stand to gain lots of profits. 
• A lot of information is required before you can begin to play 
• You can learn with time, but it is going to give you a lot of losses. That is why your own will power plays a very big part here. 

If you are interested in binary options trading, the first thing that you need to do is to read a proper binary options review, which will tell you on how you need to trade options properly, and what the whole system is all about.

Binary options trading is all about making the right choices and the right investments, so if you are not experienced, it would be wise to join a forum in order to gain a clear idea about how binary options trading should be carried out.

Obviously, when it comes to trading assets, you will need to be vigilant in order to make sure that you get the right estimate, so your concentration levels play a very important part. You need to make sure that when trading assets, you have a binary options broker to consult with, as these experienced professionals can help you gain much higher profits.

Obviously, changes in the market value will affect your chances of success or loss, but the good thing is that you can make the right choice from the get go and stand to earn money on your investment! This is binary options trading in a nutshell!

Author Bio: Peter Christopher is an experienced financial writer and blogger. His forte is writing informative articles on different investment and personal finance topics.

Various Types of Binary Options

Binary options are meant for investors throughout the globe for trading. This is because only binary options trading can provide high return. Also binary trading involves low risk, with easy concepts and can be done easily, and hence attract more attention. Not only are the new traders, even the experienced traders too interested in binary trading.

The only thing that any trader taking up binary option trading should take care of is the expiry time. No matter whether the trader has opted for long term or short-term trade, this is the best thing to do. The expiry time vary from few minutes to many days. Also there are various assets available and these assets are stocks, currency pairs, commodities and indices.

The binary options which are known as digital options are excellent for those who want to earn dual benefits both by manual as well as internet trading. It is not at all tough to earn money through binary trading. The only thing the traders have to do is to do the estimation about the movement of the option and then take a decision. If the decision is correct then the trader earns good returns. However, a wrong decision would not give any financial benefit though the loss would be insignificant. There are two types of possibilities in binary trading options, one is “in the money” where the trader earns good amount of money and the other one is “out of the money” where the trader gets no financial rewards.

Here are the types of binary options available in the market. These are:

• Above/Below: This option is also known as High/Low and it is the most popular among the binary options. In this type of binary trading, the trader has to provide the estimation of the rise and fall of the value of an asset. There are two options ready for purchase in this type of binary trade. The call option is for those traders, who estimate that the price of the asset would be higher than the strike price. The ‘put’ option is for those traders who estimate the value of the assets to be lower than the strike price.
• Boundary or Range option: In this option the trader has to estimate whether the price of a particular asset would be within a specified range when the expiry time approaches. There are various types of values that are given and the traders have to estimate whether the price of the assets are within that range. If the trader choose the “In” option, that means that the trader would estimate that the price of the asset would be within the range of upper and lower value specified. If the trader chooses the “Out” option, it will mean that the asset price would be outside the specified value range.
• Touch: In this binary option, if the trader chooses the “Touch” option, then that means that the trader is estimating that the price of the asset will reach the strike price by the expiry day. If the “No Touch” option is selected, then the price of the asset would not reach the strike price according to the estimation of the trader.