buying options

32
Buying Options By www.CandlestickForums.com

Upload: investingtips

Post on 03-Nov-2014

295 views

Category:

News & Politics


0 download

DESCRIPTION

www.CandlestickForums.com Buying Options Many traders find that an efficient means of making money in the stock market is by buying options. Traders can use Candlestick analysis to anticipate movement in stock prices to improve their chances of profiting from buying options.

TRANSCRIPT

Page 1: Buying Options

Buying Options

Bywww.CandlestickForums.com

Page 2: Buying Options

Many traders find that an efficient means of making

money in the stock market is by buying options.

www.CandlestickForums.com

Page 3: Buying Options

Traders can use Candlestick analysis to anticipate

movement in stock prices to improve their chances of

profiting from buying options.

www.CandlestickForums.com

Page 4: Buying Options

Traders pay an option premium for buying options which gives them the option but not the obligation to buy

stock or sell stock.

www.CandlestickForums.com

Page 5: Buying Options

The price at which stocks will be bought or sold is the strike price which is determined by

options contracts.

www.CandlestickForums.com

Page 6: Buying Options

There are two directions to go in buying options.

www.CandlestickForums.com

Page 7: Buying Options

These are buying puts and buying calls.

www.CandlestickForums.com

Page 8: Buying Options

A put is an option to sell the stock at the strike price.

www.CandlestickForums.com

Page 9: Buying Options

A call is the right to buy the stock at the strike price.

www.CandlestickForums.com

Page 10: Buying Options

The buyer of a call option expects the stock to rise in

price.

www.CandlestickForums.com

Page 11: Buying Options

In buying United States options the buyer has the

right to exercise the options contract at any time before

expiration.

www.CandlestickForums.com

Page 12: Buying Options

Thus, many traders do not intend to wait until expiration

of the contract to profit.

www.CandlestickForums.com

Page 13: Buying Options

When the underlying stock moves sufficiently in price its option value will reflect the

change in stock price.

www.CandlestickForums.com

Page 14: Buying Options

Buying options is a means of benefitting from stock price

movement with substantially less investment than by

buying stocks.

www.CandlestickForums.com

Page 15: Buying Options

Paying the premium to buy a call or put option is locking in

the opportunity to make money during a market rally

or decline.

www.CandlestickForums.com

Page 16: Buying Options

Technical analysis of stocks helps traders in anticipating stock price movement and buying stock options at the

right times.

www.CandlestickForums.com

Page 17: Buying Options

Someone who buys a stock runs the risk of losing when

the price falls.

www.CandlestickForums.com

Page 18: Buying Options

Buying options is different in the trader will not exercise the options contract unless doing

so will lead to a profit.

www.CandlestickForums.com

Page 19: Buying Options

The monetary risk of buying options is that if the stock does not move in price as

expected the trader does not earn money.

www.CandlestickForums.com

Page 20: Buying Options

However, so long as the option has intrinsic value the trader call sell the option and regain part of the premium.

www.CandlestickForums.com

Page 21: Buying Options

In fact most traders will earn their profit in trading options

by selling their contract to another trader after the stock price moves and the value of

the option increases.

www.CandlestickForums.com

Page 22: Buying Options

As an example, a trader purchases a $100 put on XYZ

Corp. for $3. The options contract gives the trader the right to sell 100 shares of XYZ

at $100 a share. Thus the premium paid is $300.

www.CandlestickForums.com

Page 23: Buying Options

The stock is still trading at $100 a share. Then the price of XYZ drops with news of an

ill conceived merger.

www.CandlestickForums.com

Page 24: Buying Options

It is now selling at $91 a share.

www.CandlestickForums.com

Page 25: Buying Options

If the contract were to expire immediately the trader could quickly execute the contract, sell his shares at $100 each

and buy at $91.

www.CandlestickForums.com

Page 26: Buying Options

The $900 profit minus the $300 premium gives the

trader a profit of $600 on a $300 investment, minus commissions and fees.

www.CandlestickForums.com

Page 27: Buying Options

However, the contract will not expire for another month. The

market may anticipate a recovery of XYZ or may expect that its price will fall farther.

www.CandlestickForums.com

Page 28: Buying Options

Thus the option may be trading above or below $91.

www.CandlestickForums.com

Page 29: Buying Options

Traders use technical analysis tools such as Candlestick

pattern formations in order to anticipate stock price

movement in this sort of situation.

www.CandlestickForums.com

Page 30: Buying Options

If the trader’s Candlestick charting analysis results

indicate further price decline in XYZ he or she will hold the

options contract.

www.CandlestickForums.com

Page 31: Buying Options

If Candlestick chart analysis indicates that XYZ will recover

the trader will likely sell the contract and pocket the profit.

www.CandlestickForums.com

Page 32: Buying Options

www.CandlestickForums.com