Options are the right to buy or sell a defined number of stocks at a predetermined price. The practice of online options trading is not something to be approached without some degree of knowledge. There are two types of options calls and puts. Both types can be bought or sold, and your decision as to what you do with them is based on your goals as an investor.1
How to Option Trade
Learning option trading is by far the first thing which needs to be accomplished when making the important decision to add this type of activity to your portfolio. Knowing how to option trade effectively can provide better results than to attempt the process with little or no knowledge of how it works. There are courses you can take, both on campus and online, such as the one offered at the Online Trading Academy. They offer a two part program: Options Trader Part 1, which is a 2 day course for $1995, followed by their Options Trader Part 2 course, which takes 3 days for $2995. During this course, you learn important aspects of option trading such as:
different tactics for managing risk
using changing risk to maximize your buying and selling potential
identifying opportunities for buying puts and calls when prices are down, yet about to rise quickly
mastering your technical tool set 2
There are some schools that offer both on-campus and online programs for its Options Trading Courses. You can expect to pay between $195 and $795 in tuition for each course taken, plus course material. This Professional Development course at Northwestern University’s School of Continuing Education provides you with a certificate of completion once you are successful in the program. Classes to be taken are:
Basics of Futures Trading
Economics of Trading
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...t, the decision of when to trade any particular stock can be made before too much money is lost, or while there is some profit in the experience. It’s far better to gain only a little bit than to lose everything on a hope or a feeling.
References
1 The Option Industry Council: http://www.optionseducation.org/basics/default.jsp
2 Online Trading Academy: http://www.tradingacademy.com/courses/Options-Trader.aspx
3 Northwestern University School of Continuing Education: http://www.scs.northwestern.edu/pdp/npdp/courses/?Program=Trading
Resources
1 Online Stock Trading Guide: http://www.online-stock-trading-guide.com/beginner-stock-market-investing.html
2 Options Trade Curriculum: http://www.tradingacademy.com/courses/Options-Trader-Curriculum.aspx
3 Online Trading Academy: http://www.learn-stock-options-trading.com/
4 Investopedia: http://www.investopedia.com/
...etter to invest in a stable firm like House of Fraser than a firm that has a fluctuating trend like Matalan.
Before we invested, we decided to pick two types of companies to invest in. We would choose companies that had expensive stock but steady increasing prices and we would choose smaller companies that had cheaper stock but whom had a chance for potential huge price increases. If the smaller companies’ stock went down the bigger companies’ steadily increasing stock would even it out, but if the smaller companies’ stock price rose greatly, like we predict, we could sell and make a good profit. We found a big name company that had reliable stock prices pretty quick, but finding a small company whose stock price could rise was hard. We
...s can be used for speculative trading strategies like short selling (1) and trading on margin (2). Overall, regardless of your investing
Before playing the stock market game, I honestly had no idea about how the stock market work. I, however, have learned so much about the process of the stock market. It was an advantage to learn how to buy and sell stocks without losing any thing, that will indeed enable me to invest in the real stock market without any concern. I learned that there is no certainty about wining or losing; however, there are many factors that we should consider before buying or selling stocks. One of theses factors is follow the daily news about the firm that you are willing to buy its stocks. Following the history of the firm transactions is also a significant factor that must be considered. The level of stability
can just give up the option premium and discard the options. However, if the company strongly
In order to make the most logical and beneficial purchases, it was first important that I fully understood the terminology used within the stock market. Words such as blue chip stock, mutual fund, stock splits, and ticker symbol would all prove incredibly important for me to understand if I was to do well within the game. For example, the first stock I bought, Disney, taught me the definition of a ticker symbol - in Disney’s case, DIS. This enabled me to quickly identify other stocks by their ticker symbols as well, and I soon became familiar with the term. In addition, when I bought Coca-Cola, I soon learned its financial importance as a reliable blue-chip stock, as it and other stocks like it proved profitable for me. My class was also required to buy a mutual fund, and in doing so I learned how exactly a mutual fund differs from a stock, the positives and negatives of buying one, et cetera. In addition, my knowledge of the history that places like the NYSE contains proved incredibly important towards my success within the game. Because I learned about the NYSE’s foundation and the many people who worked to make it what it is today, I was able to fully appreciate the importance of the stock market as I moved through the simulation. This, in turn, helped me take the Stock Market Game seriously and not waste any of my money on stocks that I considered
By offering the online trading option Schwab was able to lure customers in with an exceptional value proposition as well as a value – delivered system unknown to investors. By placing the decision making and the convenience of trading in the customer’s hands, Schwab made this service exciting and cost effective to customers, thus making many investors satisfied Schwab customers.
"Why We're Expecting a Big Stock Decline in the Next 10 Days | TradeKing." TradeKing Trader Network | Online Stock & Options Trading Community | TradeKing. Web. 28 Nov. 2011. .
Another approach for stock selection is technical analysis. Levy (1966) stated concepts of foundation of this analysis. This is determination of market value by supply and demand while those are defined by numerous factors. The second concept is that stock prices tend to move in trends that persist for certain period. Thirdly, trends result of shifts in supply and demand and these shifts can be detected in analysis of market action. Also, trends of prices can be revealed on charts that are the core of technical analysis. Concepts of support and resistance are used in order to determine if the market is trading or trending. That is, prices usually move within the support-resistance range. Support line is the price level through which the stock seldom declines. Resistance is the price level that a stock rarely beats. Moreover, traders buy
My knowledge about picking stocks is very unstructured. I did not apply any systematic approach of picking stocks yet. This is my first attempt to formulate rules and techniques. Therefore, this exercise plays important role of developing set of rules and bridge the gap in the overall investing strategy. Also, it will be useful to learn reading this post in the future, when the results of this process will be visible.
I’m sure that most students applying to Trade Quest will have some form of trading experience. I like to read books about trading and I research stocks, but have no ‘real’ experience. Around a year ago, mid-2008, I wanted to buy approximately 200 shares in Apple (which, at the time, would’ve cost around $3000) but never went through with it. I did a lot of research, however, and knew about their upcoming products, their financial situation, and I would monitor the share price everyday. Not making the transaction was my first (and smartest) trading decision, as I didn’t lose any money. You see, at this time, the financial crisis had just started to take effect, and Apple’s share price plummeted from $175 to around $80 in the 6 months that followed.
In the two weeks before trading, I watched several stocks on Yahoo Finance, gaining information from colleagues, and researching the Internet for possible options. I started by typing in random tickers into Yahoo’s search bar. Then, I would look at the fifty-two week range. If the current price was closer to the lowest price in the past year, I would look at the five year chart to see how each stock fared. Once I saw there was a decent profit margin, I made note of the stock to purchase on MarketWatch Virtual Stock Exchange when it opened on January 28th. In addition, some of my fellow classmates advised me on stocks, in which, they received a great return from. Since I learned never to trust web sites and people when it came to the stock market, I know I should double check by looking at charts, financial statements, and past history before making a decision on whether or not to purchase a corporation’s stock. Moreover, search engines such as Google aided in the search for stocks. I looked up the best stocks to buy, and what stocks are increasing in price. Although this tactic was not very helpful, I did gain some valuable information from penny stocks. Even though the minimum stock price on MarketWatch is two dollars, I found a couple that were over the entry amount. Overall, I believe I was well prepared to enter this investment game with complete confidence.
Due to this passive view or narrow framing, people fail to understand the totality of a give situation. The rational-agent model assumes that investors make their choices in a comprehensively inclusive, broad framing manner, which factors all relevant details, including future opportunities and risk. In reality, investors have the tendency to evaluate their portfolios based on an extremely short time horizon. In addition, investor decisions about a particular investment are often considered in isolation of the total portfolio, especially if a loss occurs, as opposed to a comprehensive manner. Ultimately, short-term evaluations lead to excessive trading, increased portfolio expenses and
There is a sense of complexity today that has led many to believe the individual investor has little chance of competing with professional brokers and investment firms. However, Malkiel states this is a major misconception as he explains in his book “A Random Walk Down Wall Street”. What does a random walk mean? The random walk means in terms of the stock market that, “short term changes in stock prices cannot be predicted”. So how does a rational investor determine which stocks to purchase to maximize returns? Chapter 1 begins by defining and determining the difference in investing and speculating. Investing defined by Malkiel is the method of “purchasing assets to gain profit in the form of reasonably predictable income or appreciation over the long term”. Speculating in a sense is predicting, but without sufficient data to support any kind of conclusion. What is investing? Investing in its simplest form is the expectation to receive greater value in the future than you have today by saving income rather than spending. For example a savings account will earn a particular interest rate as will a corporate bond. Investment returns therefore depend on the allocation of funds and future events. Traditionally there have been two approaches used by the investment community to determine asset valuation: “the firm-foundation theory” and the “castle in the air theory”. The firm foundation theory argues that each investment instrument has something called intrinsic value, which can be determined analyzing securities present conditions and future growth. The basis of this theory is to buy securities when they are temporarily undervalued and sell them when they are temporarily overvalued in comparison to there intrinsic value One of the main variables used in this theory is dividend income. A stocks intrinsic value is said to be “equal to the present value of all its future dividends”. This is done using a method called discounting. Another variable to consider is the growth rate of the dividends. The greater the growth rate the more valuable the stock. However it is difficult to determine how long growth rates will last. Other factors are risk and interest rates, which will be discussed later. Warren Buffet, the great investor of our time, used this technique in making his fortune.
experience the volatility of a stock on the stock market, like many other forms of investment do.