WHAT IS OPTION TRADING?
Option trading can be done in almost any market, whether stocks, futures, forex or even the cash markets of say, gold or bonds.
Options can be bought or sold but in what follows, we will concentrate
on buying options, specifically, buying calls done in anticipation of a price rally, buying puts done in anticipation of a price decline,
and buying option spreads which can be constructed for both bullish and bearish price scenarios.
Furthermore, we'll be looking at options
on futures or commodities because they provide trading opportunities across a diversity of markets, many of
which are in the current headlines and are of particular interest to many investors.
Option-buying strategies have the advantage that risk of loss is known at the start and limited yet they still
provide the versatility to trade essentially any price expectation, in many cases, leaving the upside potential open.
Selling options naked, meaning that the option
position is not protected or hedged by another, offsetting position whether that be another option, a futures contract, or even a cash
exposure, entails risk similar to that of an outright futures position and may not be appropriate for the beginning options trader.
For that reason, it will not be treated here. For those who are interested,
information on futures trading can be found under the CONTENT INDEX
pull-down menu on the blue WLF Network Navigation Bar at the top of the page.
This site, by choosing to focus on buying options, differs from most other option-related sites.
Beyond this, there are two other features that distinguish this option trading site from others:
Firstly, only those strategies most relevant to the beginning trader are explored. The criteria are that
the strategies must have limited risk, be fairly easy to understand and, for those with modest amounts of trading capital, be affordable.
While some extended options strategies are introduced with further details freely available by request, they are not allowed
to confuse or overwhelm the main educational objective.
Secondly, this site gives considerable attention to the practical aspects of buying options. So, in addition to
theory, the options trader will find topics on how to decide the proper option-buying strategy, executing the option purchase,
managing the options investment and even how options are treated in the account statement. The strength of this content
draws from the author who has experience trading options on futures.
Your next step...
The content on this site will give you an educational foundation on what is option trading but you need not stop there.
Go ahead and request these option guides.
You'll receive three option brochures for free, each written by the futures exchanges or the industry regulators
which provides your assurance of the integrity and professionalism of content material. Then, sit back and watch a
free options trading tutorial.
This one-hour tutorial for beginners shows how options can provide a low-risk way to invest while
also protecting the value of your general investment portfolio.
Option trading should not be done impulsively but rather, it must follow the rules of a well-defined trading system. A trading
system specifies when to get into a trade, either long or short, and when to close a trade, either at a profit or at a loss.
A trading system must be appropriate for you.
Every trader has their own tolerance level for risk and amount of available risk capital and the trading
system needs to be consistent with these parameters. For more information on trading systems, request our free
brochure, How to Invest: A Beginner's
Guide to Leveraged Investing.
Do you have your own idea for an option trading system? Maybe you’ve spotted a pattern in price activity. It could be a day-of-the-week
effect, a time-of-the-day effect, or a new relationship with other, related markets. Many of us have ideas but have been stopped
short by the daunting task of translating that idea into a trading system and then properly testing that system. While many trading
platforms such as NinjaTrader, MetaTrader and AIQ have become fairly sophisticated in their application for system design and testing,
it seems that a trader needs to be part programmer in order to take full advantage of them - and many of us are not. Our
custom trade system programmer can help. He has coding and programming experience with all of the major trading platforms and is
even a trader himself. He can translate your idea into a trading system and then test it. The result may be a fully automated,
personalized option trading system that generates investment income for years to come.
Have a question about option trading? Then speak to an options professional. They'll help you decide if option trading is right for you.
Go ahead and Talk to an Options Professional in the box above.
Finally, before you trade options with hard-earned dollars, we recommend that you start by
paper trading. This futures and options
simulated trading account is free and a useful educational tool especially for the beginning trader.
The professionals at Edge Valencia who provide this paper trading account are not only
willing to spend the time in helping the beginning trader, but they can also help you
set up a real account when you're ready, making the transition to actual trading easy and stress-free for you.
Did you know? With binary options, you can trade select currencies, commodities, stocks and indices for as little
as $50. Binary options are like regular options with some important differences, for example, they expire in one hour.
Learn more at our specialty web site on Binary Options.
While this web site was designed to be accessible to all, especially the beginner, but that is not to say that
option trading is appropriate for everyone. As with any type of investment, it should be carefully considered along with
your personal tolerance for risk and available risk capital. This web site will help you make an informed decision.
|
Too busy to read this now?
Send an email-to-self reminder.
How Are Commodity Options Traded? Open outcry is still more popular than electronic trading, accounting
for 70% of total options trading volume on CME Group.
Source: CME Group volume comparison. Data over Jan-Dec 2011.
|
Where Are Commodity Options Traded? Within the United States, commodity options are traded on
CME Group which is comprised of four Designated Contract Markets (CME, CBOT, NYMEX and COMEX) and, to a much lesser extent,
ICE Futures U.S., a subsidiary of ICE. Source: CME Group and ICE. Options volume in million contracts, total over Jan-Dec 2011.
|
Diversification and Opportunity From October 2007 to March 2009, the S&P 500 declined some 56% yet even during this time, sugar rallied 43%,
cocoa about 44% and gold was up 31%. With commodities, bear markets present an equal opportunity for gain as do bull markets
so you can add crude oil, wheat and high grade copper to this list. Once you learn about option trading,
you'll be able to participate in these markets without the risk characteristic of futures trading. |
|
© World Link Futures, Inc. All rights reserved.