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Advice On How To Select The Best Stock Trading Strategy For You
Wednesday, September 18, 2013
An Introduction To Stock Trading Systems & Strategies
Information About Online Brokerage Stock Trading
Saturday, April 10, 2010
Internet Stock Trading - Great Way
To Invest
The immense technological advancement and the advent or invasion of computers at almost every nook and corner of this world, the concept of Internet stock trading has gained massive popularity among all sections of the masses. Stock trading, which has been a way of profit making for only a privileged few for ages is now exercised by all and sundry. Internet stock trading has in fact become the second source of primary income for millions of people of varied professions all across the globe.Due to its speed and transparency in trading methods, Internet stock trading is preferred by many. Nowadays, with the sophisticated technologies in place, Internet has provided the investor a major trading platform. Similarly, the brokers have also been equally benefited by these technologies.
How to Get Rich With Online Stock Trading
Tools
Internet now acts as an interface between the stock exchange, the broker and the investor for executing various securities transactions.An online broker can execute a large number of transactions for a large client base. More importantly these extremely sophisticated and efficient technology and software are now available at very low costs. Technology is also getting upgraded day by day to keep pace with the growing and varied needs of the customers.
To begin with, the investor signs an agreement with his Internet broker and gets access to a password enabled trading terminal on his computer. Thereby, he gets access to real-time trade information on the offers and bids. He also gets information such as the last offered bid, volume last traded including the rate and quantity. He can set his own choice of market watch for various shares that he is interested in.
Four Stock Trading Tips to Follow Before You Trade
Internet also enables him to constantly track his portfolio, the value of which gets updated on a real-time basis. Internet-based stock trading is fast, hassle free and transparent. Once the investor places his order, it goes to the broker's trading server and from there to the main stock exchange. After the order gets executed, the confirmation along with the order number, trade number and time of execution all flows in to the client.
With the type of interface that works in an Internet-based stock trading mechanism, the brokers have full power to control the activities of their clients on a real-time basis. The broker can fix advance exposure limits of the clients on the basis of the deposit by the client with the broker. Risk management for brokers has thus become easy and the mechanism is absolutely flawless as is needed while dealing with these faceless customers.
The Truth About Online Stock Trading
The traditional methods of placing orders either through phone calls or by personally visiting the broker's office are now almost forgotten stories. The days of face-to-face interaction generating arguments, frustrations, debates, discussions and disputes are now over. Increasingly busy life and acute time crunch has gladly led to the acceptance and adoption of the new system of Internet-based stock trading.
Ease of trading and settlement along with reduced transaction costs of seamless trading systems have made the life of brokers as well investors a lot easier. The advent of Internet-based trading have brought about a sea-change in the volume of stock transactions made per day, the nature and settlement of stock trading and the profile of market participants. Internet stock trading is considered an exciting way of trading in stocks as transaction can be completed within minutes and sometimes within seconds.
Friday, March 19, 2010
Selling Stock Options
You've probably heard how difficult it is to make money buying put options and call options. It is difficult, and you'll see estimates that 90% of all long put and call trades end in losses for the buyer, with many of those being 100% losses.Note that I said "long put and call trades". By going long, or buying an option, you hope to use leverage to benefit from a move that you expect in the underlying stock, and the sooner the better.
If you are right going long, you can be spectacularly right, making multiples of your investment in weeks or even days. Unfortunately, it is exceedingly difficult to make money consistently by buying options, and benefits to your portfolio from periodic big wins are outweighed in the long run by more frequent big losses.But there is another side of options trading.
Perhaps because it lacks the explosive profit potential of buying puts and calls you don't hear as much about it. I'm referring to "writing" or "selling" stock options.Writing options is literally the other side of options trading; it is the other side of long put and call transactions. Buying options involves using leverage in the hope of making big profits, while writing or selling options usually involves hedging an existing stock position in your portfolio, for increased safety.
Here are the mechanics: let's say it's June and you own 100 shares of XYZ, now trading at $50/share. You feel good about the long-term prospects of the company but the stock price has had a recent run-up from $40 and you fear a temporary pullback. You aren't ready to sell the stock yet, as you know you could be wrong about a pullback, or maybe because of the tax implications of selling, but it would be nice to somehow lock in some of the recent gains.
You could sell a December XYZ call option with a 55 strike price, for let's say $2.50. As you are selling something you receive funds, in this case $250 ($2.50 x 100 shares covered by the contract). This is from someone who paid the $250 premium for the call contract and is convinced that the price of XYZ will move upward, and above $55 per share if he holds the contract until December.
He expects a move upward, you fear a temporary move downward or a pause, or at least you think there's a good chance that the stock will not be above 55 by December.So let's look at possible outcomes. Let's say that the upward trajectory of XYZ continues, and that by December price of the stock is $60 per share. The person who owns the call contract that you sold has the right to buy XYZ at $55 per share, from you.
You deliver those 100 shares that you own to the holder of the call for $5,500, and in this case you would secure a nice profit by selling at 55, assuming you bought the stock when it was below 40. However, the downside for you in this case, as the option contract writer, is that you are forced to exit your position at a lower price than the current market value, reducing your percentage gain for the trade.
On the other hand, let's say that between now and December the stock languished in the 40s and 50s, and that at expiration the price of the stock is $53 a share. The call contract that you sold expires worthless, as the right to buy something at higher (55) than the current market value (53) is worth nothing at expiration, so the buyer of the option loses the entire $250 premium, to you as the seller.
(Note that this happens even though the option buyer was correct about the price of the stock rising from $50. He still loses the entire premium!) You keep your shares and you also get to keep the proceeds from selling the right to buy those shares six months earlier. This is the outcome as long as the price of the stock is lower than the strike price at expiration.
The benefit to the writer in this case is a $250 profit, or a nice 10% annualized return (approximately, over about six months) relative to the value of your 100 shares at $50, when you sold the option. This amount effectively hedges your position, and in the event the stock moved lower from 50 as you feared, the paper losses would be less severe because you wrote this option contract.
You traded potential upside benefits for some safety in case the stock price declined. The premium amount that you receive enhances your position's value compared to what it would otherwise have been (...unless the stock is higher than $57.50 --$5,500 + the $250 premium amount --at expiration.
Note that even if the stock price is above the strike price at expiration and you are forced to deliver your shares, if you deliver below $57.50 you're still at a net advantage because of the premium, which you keep in any case).In practice writing or selling stock options especially suits people with large portfolios who own stock that they can deliver against options that they write.
While one probably won't want to hedge every single stock that they own (maybe it's best to let high-flyers run), the overall performance of a large, varied portfolio might be enhanced through writing options.Options are not for everyone. Please consult a financial professional before you invest your money in them.
If you are right going long, you can be spectacularly right, making multiples of your investment in weeks or even days. Unfortunately, it is exceedingly difficult to make money consistently by buying options, and benefits to your portfolio from periodic big wins are outweighed in the long run by more frequent big losses.But there is another side of options trading.
Perhaps because it lacks the explosive profit potential of buying puts and calls you don't hear as much about it. I'm referring to "writing" or "selling" stock options.Writing options is literally the other side of options trading; it is the other side of long put and call transactions. Buying options involves using leverage in the hope of making big profits, while writing or selling options usually involves hedging an existing stock position in your portfolio, for increased safety.
Here are the mechanics: let's say it's June and you own 100 shares of XYZ, now trading at $50/share. You feel good about the long-term prospects of the company but the stock price has had a recent run-up from $40 and you fear a temporary pullback. You aren't ready to sell the stock yet, as you know you could be wrong about a pullback, or maybe because of the tax implications of selling, but it would be nice to somehow lock in some of the recent gains.
You could sell a December XYZ call option with a 55 strike price, for let's say $2.50. As you are selling something you receive funds, in this case $250 ($2.50 x 100 shares covered by the contract). This is from someone who paid the $250 premium for the call contract and is convinced that the price of XYZ will move upward, and above $55 per share if he holds the contract until December.
He expects a move upward, you fear a temporary move downward or a pause, or at least you think there's a good chance that the stock will not be above 55 by December.So let's look at possible outcomes. Let's say that the upward trajectory of XYZ continues, and that by December price of the stock is $60 per share. The person who owns the call contract that you sold has the right to buy XYZ at $55 per share, from you.
You deliver those 100 shares that you own to the holder of the call for $5,500, and in this case you would secure a nice profit by selling at 55, assuming you bought the stock when it was below 40. However, the downside for you in this case, as the option contract writer, is that you are forced to exit your position at a lower price than the current market value, reducing your percentage gain for the trade.
On the other hand, let's say that between now and December the stock languished in the 40s and 50s, and that at expiration the price of the stock is $53 a share. The call contract that you sold expires worthless, as the right to buy something at higher (55) than the current market value (53) is worth nothing at expiration, so the buyer of the option loses the entire $250 premium, to you as the seller.
(Note that this happens even though the option buyer was correct about the price of the stock rising from $50. He still loses the entire premium!) You keep your shares and you also get to keep the proceeds from selling the right to buy those shares six months earlier. This is the outcome as long as the price of the stock is lower than the strike price at expiration.
The benefit to the writer in this case is a $250 profit, or a nice 10% annualized return (approximately, over about six months) relative to the value of your 100 shares at $50, when you sold the option. This amount effectively hedges your position, and in the event the stock moved lower from 50 as you feared, the paper losses would be less severe because you wrote this option contract.
You traded potential upside benefits for some safety in case the stock price declined. The premium amount that you receive enhances your position's value compared to what it would otherwise have been (...unless the stock is higher than $57.50 --$5,500 + the $250 premium amount --at expiration.
Note that even if the stock price is above the strike price at expiration and you are forced to deliver your shares, if you deliver below $57.50 you're still at a net advantage because of the premium, which you keep in any case).In practice writing or selling stock options especially suits people with large portfolios who own stock that they can deliver against options that they write.
While one probably won't want to hedge every single stock that they own (maybe it's best to let high-flyers run), the overall performance of a large, varied portfolio might be enhanced through writing options.Options are not for everyone. Please consult a financial professional before you invest your money in them.
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