Trading for a Living Blog » option trading

Iron Condor – Oh Man, I Want My Mommy…

Ted Nino — Sun, 11 Jul 2010 11:03:08 +0000

Of all the various option spread strategies out there, the iron condor strategy is perhaps one of the most popular, the most talked about, the most used (or misused) – and possibly the most dangerous and misunderstood option strategy of them all.

The problem is that way too many new option traders slap down significant money and start trading iron condors immediately upon discovering them without first equiping themselves with the proper knowledge and skills needed to trade them properly. They are so captivated by the stories and claims of ten percent months and 90 percent probabilities that somehow they don’t stop to think about what they are going to do if their trade doesn’t go exactly as planned.

And it seems that a good percentage of them – if not most of them – promptly wind up getting their groins kicked in, their heads ripped off, their eyes poked out, and getting hurt really, really bad.

Now wait -

Let me explain something here before you start to get the wrong impression.

I LOVE iron condors.

And yes – I really do think it’s a great and dependable way to trade.

And yes, I absolutely believe all those stories and claims you hear swirling around about iron condors generating ten percent plus monthly returns and providing trades that have the probability of winning somewhere in the range of eighty to ninety percent. In fact, I KNOW those stories are true because I see it happen all the time in my very own trading account.

Here is the problem: All those fresh, green and excited new option traders have no idea what they don’t know. This trading options for income thing is like an alien planet – with a whole new set of rules inside a brand new reality. And when the person who has introduced them to this new way of trading just tells them about the good but forgets to tell them about the bad – they wind up jumping in with way too much confidence, misunderstanding, and expectations that are completely wrong.

See what isn’t being talked about with iron condors is that while yes, they can provide great monthly returns and high probabilities of winning- they also come attached with a horrendous risk to reward ratio – sometimes as poor as 10 to 1!

This means that in order to achieve those 80 to 90 percent probability trades – you need to risk ten dollars to make just one – or to be more realistic – you need to put at risk $10,000.00 for the chance to make just $1,000.00.

And as my dear old mammy used to say: ‘that smells a lot like an awful bad egg’. Which in fact it is. That risk to reward ratio is nothing but a low down, no good, smelly rotten deal!

Because once you do the math you find that even with those glorious monthly returns with 80 to 90 percent probability of winning – all it takes is just one problem month to come along and cause a loss that will completely obliterate the 8 to 9 wins you’ve managed to rack up – as well as potentially the rest of your entire account!

Nevertheless…

All is not lost…

Like I said before, I LOVE the iron condor trade.

It’s one of my favorite trades – and it continually generates profits for me.

So clearly there must be a way to profitably trade this strategy without allowing that awful risk to reward issue to get in the way.

And there is.

It’s all in how you manage the trade.

As soon as you discover the ‘right way’ to place these trades initially – and then how to properly go about managing and adjusting them – that risk to reward dilemma instantly vanishes and goes away.

Once you possess the correct iron condor knowledge and know how – and understand how to apply a couple super easy to implement adjustment tricks – you’ll know exactly how to exterminate any problematic market threat that comes your way, allowing you to experience the iron condor trading strategy for all that it’s ‘actually’ cracked up to be.

To learn these ‘tricks’ to trading the Iron Condor , go to this Iron Condor Adjustments site and watch my free video. It will show you an extremely simple method for properly placing, managing, and ADJUTING iron condor trades.

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Butterfly Spread – Launching These Beasts For Monthly Profits

Ted Nino — Tue, 06 Jul 2010 17:48:21 +0000

The butterfly spread trade is a preferred strategy with option income enthusiasts. Not only does this trade give the trader a substantial quantity of premium at the start of the trade which might be parlayed into an important monthly cash flow, it also provides an extremely effective position structure which can put up with and tolerate a variety of trading circumstances, including particularly volatile situations like the ones we are seeing now. In a wild stock market exactly where a lot of other option methods do not have a chance, the butterfly spread may be put on and if appropriately monitored, come out smelling like a rose.

When you look at a risk graph of the buttefly spread, you will see that the butterfly payoff is tremendous – specially when analyzed side to side with other option income methods – for instance the iron condor, the credit spread, the diagonal, double diagonal, the calendar, double calendar, and so on.

Depending on where exactly the wings are set on these trades, or in other words how close or far the long options are acquired in relation to the strikes being sold, it is possible to create a butterfly trade where the possible reward is numerous times greater than the risk of loss is that is being taken on.

Even so, in the situations where the reward in the trade is so many times greater than the maximum possible loss in the trade, it is because the wings which are being bought are very close to the sold short strikes in the trade – creating a quite tall yet highly narrow ‘profit income tent’ – which the underlying needs to stay within throughout the duration of the trade to realize that massive payoff – which the odds will probably be extremely low.

Even so, if the underlying stays in the general neighbourhood of this tall, narrow income tent – and just as long as the trader doesn’t plan to stick with the position all of the way until final expiration day – an excellent income can still be obtained from these lower probability butterfly spread trades as the zero day earnings line on the risk graph rises up really quite rapidly, allowing a good quality healthy return to be realized in a pretty short time frame.

Ted Nino is an option selling evangelist – particularly fanatical about trading the Butterfly Spread, the Double Calendar, the Credit Spread, and the Butterfly Spread. Visit his Butterfly Spread Blog to learn more about this option strategy.

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Find Out How To Trade The Forex, Stock Market, And Option Trading

Carol Smith — Fri, 02 Jul 2010 18:33:06 +0000

The first thing you should understand is what exactly a stock is before you delve into the intricacies of the stock market. Stocks, which are also known as shares, are portions of companies that people can buy, on exchange platforms such as the NASDAQ, and therefore own a small part of the company. But even though you may own a part of a company, only those who have invested a large amount of money and purchase large quantities of shares have any real say in how the company is to function.

If you are interested in learning the fundamentals of investing, you have come to the right place. Our primary mission is to educate the people how to invest in the stock market and other investment opportunities.

The information here will help you to better understand the stock trading and other investment vehicles such as Currency Trading. Zowes will teach you how to invest your money for the greatest possible gains while reducing the associated risks in the stock market and other investing opportunities. We’ve included full specs on penny stocks, Forex, and option trading.

The lessons I have learned during my investment career are passed on here to help guide you through the sometimes confusing world of the stock market. This information will give you the knowledge and expertise to make informed decisions regarding your portfolio. You will also have the opportunity of automating your investments by using our Automated Forex Trading Systems.

I know there are many people out there who want to learn how to invest, but are apprehensive because they just don’t have the education or the background to make informed choices. And admittedly there are many financial websites that you can visit to try to gain a better understanding of stock trading, and investing in general. The advantage here is that I designed this site to be extremely user-friendly with step by step instructions on how to invest that other investing websites do not match.

Many sites have so much information that it is overwhelming, so I am keeping this a common sense, simple to use, financial site to help people start from scratch and be successful with their investment portfolio. Zowes will show you the things you need to know as you start on this journey and I will be here to help you every step of the way.

Need new investing tools and considering equity stocks. You may also be interested in currency trading tutorial

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Credit Spread – The Foundation Of Monthly Option Income

Ten Nino — Sun, 20 Jun 2010 17:02:01 +0000

A preferred non directional trading strategy is the option Credit Spread. This strategy is one of the easier option spreads to comprehend for newer option traders. In addition it is simple to place and there is not much to do management wise while the trade is in play – which allows the credit spread trader to be freed from their trading chair and not have to watch every up tick and down that the market makes all day.

The credit spread trade is a basic building block of many if not most other more complex option trading strategies such as the iron condor spread, the butterfly, and the double diagonal trade. For example, the butterfly is created using one credit spread and one debit spread, while the iron condor is made up from two credit spreads, one on either side of where the underlying is currently trading at.

Option traders love to trade this strategy because the way these trades are constructed can allow the trader to be wrong and still make money. If the trader creates a particular credit spread position, he or she can win if the stock or index being traded winds up doing three out of four possible scenarios. If the stock goes down, the trader makes money. If the stock goes nowhere the trader makes money. If the stock goes up a little, the trader makes money. The only way the trader can lose money if the stock goes up far enough to threaten the credit spread that has been sold. And even then, there are management and adjustment techniques that can be utilized to hedge against losses.

Let’s create an imaginary trading scenario to illustrate. Imagine that a trader believes that a particular stock will be heading down in the short term. Because he is bearish on this stock, he sells a bearish credit spread called a bear call spread which benefits from bearish move.

The only way this spread trade can lose money is if the stock winds up doing 1 out of 4 possible scenarios – giving our trader a three out of four likelihood of winning. If the stock moves down as our trader predicts he wins. If the stock stays stagnant and goes nowhere, he wins. In fact, even if the stock moves against our trader and heads upward he wins just so long as the underlying doesn’t move so far as to breach the spread sold. The only our trader loses is if the underlying moves far enough upwards passing the option strike price that was sold – which if it does, our trader could still salvage the position through appropriate management and adjustment methods

While credit spread trading can be a great way to generate passive income, of course like any investment method there are potential pitfalls one should be aware of before jumping in. To learn more about how to properly trade this option strategy, including how to correctly place, manage, and most importantly how to ADJUST them, visit our free video training website at Credit Spreads

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Option Trading – Developing An Option Trading System

Micheal Thomas — Tue, 27 Oct 2009 22:31:33 +0000

If you plan to engage in option trading then you will need to understand the two types of option trading systems currently being used in the market today. They include discretionary and mechanical. A trader or investor using the discretionary method does not use a particular technique, process or method but instead makes trading decisions based on his current knowledge or speculation on the market for that day. The mechanical options trading require traders to understand and select stocks, determine entry and exit strategies, and transform these methods into objective processes, usually by way of a computer application. The advantage of the later process is the elimination of human judgment and possible error based on speculation rather than actual trends and analysis.

Year ago I migrated from discretionary to mechanical option trading in order to gain more consistency with successful option trading. I developed a mechanical option trading system called the Star Trading System (http://www.mastersoequity.com). You can develop your own mechanical trading system utilizing the following guidelines:

1. Stock Selection

Begin developing a list which includes criteria which must be true for a stock to quality as a viable option trading opportunity. Quantify and research the criteria you are using to develop your strategy. Use a computer application that will allow you to record the criteria you have established and then compare the stocks you have selected against your dependencies. You can cross verify your finding with stock information from the internet to formulate your final stock selections.

2. Option Selection Procedure

After performing your stock selection analysis you can more confidently begin selection of a stock that meets your established criteria. Additionally you can create your option trading system using OTM options or ITM options as well as basing it on current market conditions. Market conditions can be bullish or bearish at the time you are making your selections so you could include this factor into your overall analysis.

3. Entry Procedure

Once you make your conclusions as to which stock to watch and which option to buy, you will need to decide what conditions will invoke a purchase. This decision could be simply to purchase at market opening or be more complex and require watching the underlying stock movement for a pre-determined timeframe making that purchase. Use your option trading system to help navigate these decisions.

4. Exit Procedure

When you have open position you will need to determine when to take a profit or when to stop a loss. The two exit strategies include Stop Loss and Profit Taking. Stop loss in option trading is based on the percentage loss of the option position or based on the percentage loss on the underlying stock. Profit Taking is based on the target price or the percentage gain on the option position. Once you have established this criteria your broker assist in the automation of this transaction. Many traders proceed to a stop loss or profit taking based on emotions, which is why brokers develop automatic processes to control these actions. If your broker does not support include automatic mechanisms and you tend to make emotional decisions, then you should find a broker that with these offerings.

Your next step is to name your option trading system and use it for 6 months. Do not set your expectations high on getting it perfect the first time. Creating a profitable option trading system take time, knowledge and experience.

If you want to learn more about option trading, feel free to visit our website.

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The Basics Of Forex Option Trading – The Tricks To Bigger Profits

Micheal Thomas — Tue, 27 Oct 2009 21:30:00 +0000

If you are an experienced trader, investor or broker then you understanding how the stock market functions. You probably also have a working knowledge of the foreign exchange markets or the basics of Forex option trading. If you are a novice trader then you will need to understand the differences between stocks and forex options. They are somewhat different so it is important to gain the knowledge of each type before you begin trading options to eliminate confusion and become successful.

Foreign exchange markets are based around international currency markets and the trading of these currencies. This form of trading is gaining in popularity among experienced and novice traders and investors due to the potential for high profits with very low risks associated with this form of option trading. Although the risks are lower than that of traditional stock trading, investors and traders need to have a good foundational understanding of how this market transpires. This is essential in order to become successful at Forex trading in the various currencies across the world.

Forex option trading simply is the buying and selling of world currencies. Foreign exchange markets are not tied to the fluctuations of the stock markets but instead encompass a fixed purchase and selling price at a specific period of time or time frame. At the moment you buy an option that price is fixed for that particular transaction. If the market moves in your favor then the final strike price is usually higher than your original purchase price. This creates immediate profits from the transaction or trade. On the other hand if the market moves against your current position then the final strike price is lower than your original stock price and you will and your foreign exchange option generates losses rather than gains from your investment.

When performing forex option trading is to obtain a fixed price during your options transaction. This will prevent you from losing money and instead begin to realize gains from you investments. Using the final strike price and determining a date in which to make the trades can shield your foreign exchange options, contracts and instruments. This way the possibilities of losing money you have invested in limited and provide you with greater protection. Reducing and eliminating risk to your financial investments should be a strong component within your overall options strategy.

Understanding the basics of Forex option trading will increase your chances of success when moving forward with your trading strategies. Foreign exchange trading is a great way to increase your profits when and is not as risky as trading on the traditional stock market.

There is a greater potential for making stronger profits and enhancing your portfolio. Experienced and novice traders and investors are turning to foreign exchange trading for their options and finding that the profits are increasing even in today’s economic climate. The more experience and knowledge gained in this area of investment the great your chances of financial success.

If you want to learn more about option trading, feel free to visit our website.

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Option Trading Explained – In Layman Terms

Micheal Thomas — Tue, 27 Oct 2009 21:03:48 +0000

If you want to join the world of options trading then you will need to understand a little about the strategies and terminology associate with this form of investment. It is quickly becoming a popular form of trading and one that can be profitable if performed properly. Traders and investors from around the world are talking about their strategies for trading options on the market.

Many terms such as Covered Call and Credit Spreads are those used by both the experienced broker and novice traders around the world. Option trading is essentially trading a financial contract or instrument call an option for any given stock. An option contract gives the trader the ability to sell or buy a stock at a predetermined price during a specific time frame.

Now that you understand the very basics of option trading and an option contract you will need to understand how the stock options actually function. Stock option trading provides traders with an understanding of how to increase their investment portfolios as they begin understanding the various strategies and methods used in this industry. Trading options can create a positive effect on your financial growth. To understand the benefits traders experience by option trading you will need to understand some of the basic strategies and terminology associated with stock options. The terminologies and strategies often used within the trader’s daily lives include leverage, discount, protection and market direction. These along with other methods should be well understood before engaging in option trading ventures.

Leverage is the process which allows you to control more shares per option for the same initial amount of money. Instead of purchasing one share per option you can purchase a hundred shares per option which will increase your investment. Discount further extends this concept which means when you control more shares with one option you can control the same number of shares with less investment. Protection allows you to protect the stock you are holding by owning the right to sell them for a predetermined price and within an established time frame. Engaging in option trading using these simple strategies can increase your profits and overall financial portfolio.

Market direction has much to do with how to properly leverage your option trading techniques, discounts and protection mechanisms. You will want to watch the market movements and trends to be prepared to execute your strategies at the proper time. When staying abreast of the market trends you can be prepared to develop more creative strategies to further your success.

There are some negative effects that you will need to learn to avoid and be aware of in order to continue your growth potentials. When creating an option if you have specified a certain time frame in which to execute that option if that time frame expires then you could potentially lose your investment. A negative leverage is one that amplifies your loses rather than your gains. A time decay effect is one where your options reduce in value over time with no gains in any of the stock. The negative aspects of option trading make it even more crucial to your success to engage an experienced broker to help you plan your investments and trading strategies.

If you want to learn more about option trading, feel free to visit our website.

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Forex Option Trading

Micheal Thomas — Tue, 27 Oct 2009 20:59:24 +0000

Foreign exchange trading or forex option trading involves buying and selling of various currencies from around the world through the foreign exchange market. Currencies prices change on a daily basis and is driven by the global market. These varying rates are based on everything from global news and politics, changing industries and economies, agriculture and varying other global market conditions. All these factors need to be considered and understood when moving forward with this type of trading.

Experienced traders and investors watch for currency prices falling in one market. When there are falling prices with one currency another is usually increasing in value. This is where many traders engaging in forex option trading practices will gain their most profits and expand their portfolios. It can be an area where you can lose money if you do not understand the intricacies of this type of trading.

Foreign exchange options or forex option trading are similar to traditional stock market options. They are essentially financial contracts or instruments where a buyer or owner has the right to exchange one world currency for another world currency from a prearranged agreement. The prearranged agreement consists of an exchange rate, known as a strike price, that will be paid by the owner at a previously agreed upon date or time period. This does not necessarily mean the buyer is obligated to make this exchange but it does allow the trader that choice when the prearranged time period arrives.

Trading on the foreign exchange in this manner provides traders and investors to hold forex options to purchase a currency at a fixed exchange rate but when that date arrives if it does not meet initial expectations of the buyer they are under no obligation to make that purchase. If the conditions are profitable for the trader then they can sell the currency they are holding to the market and reap the benefits and the profits from this form of option trading. The traders and investors do have to pay their brokers up-front for this privilege but it is well worth the extra investment to have this type of option.

The up-front premium in which has to be paid by the options owner to the broker provides traders and investors some security with engaging in forex option trading. The broker retains this premium regardless of whether the trader or investor exercises their right to sell the options contract or instrument. If the contract expires and the foreign exchange rate on the currency is less than the initial strike price agreed upon, the options contract or instrument is then worthless.

Forex option trading is gaining in popularity because of the higher and quicker return rates as opposed to those returns from the traditional stock market. Foreign currency traders and investors develop strategies that will be most profitable in the near term and deal less with the routine market fluctuations which occur on the stock markets around the world. This type of trading is also considered daily transactions in large volumes, which makes it extremely important for novice investors and traders to consult with an experienced brokerage before attempting these types of trades.

If you want to learn more about option trading, feel free to visit our website.

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Online Brokers For Options Trading

Micheal Thomas — Tue, 27 Oct 2009 18:51:23 +0000

Trading financial contracts and instruments such as stocks, funds, futures and options are now much easier with the latest technology advances around automation and analysis. Traders and investors can engage in options trading through the internet with discount commission schedules using advanced trading systems. There are now a variety of online brokers offering options trading services including NobleTrading, OptionsXpress and Scottrade.

Consideration when selecting an online broker for options trading takes proper analysis and research to meet your specific trading requirements. Some of the items you will need to consider are highlighted in this article.

1.Products Available Online options brokers vary in their option trading offerings. Some have restrictions which prohibit some traders to trade options on some financial instruments like stock options, futures options and currency options. Select an online broker that allows you to perform traders for your choice of options contracts.

2.Account Type A few online brokers offer single accounts to trade options, stocks and other financial contracts and instruments. Others will allow you to open multiple accounts to perform your trades. Select a brokerage which meets your specific trading requirements.

3.Commission and Charges Each online broker offers a different commission plan. Some require minimum amounts per transaction along with additional charges. The amounts vary and can be as low as $7 per instrument with additional fees of $1 to $2 per traded contract. Some online options trading brokers have hidden fees that are apparent when you first begin trading. They can include fees associated with minimum account balance requirements, account maintenance and wavy charges.

4.Access to Markets Make sure the online broker you select matches your trading style. Many option traders need delayed market access while day traders require real-time, direct, level 2 market access. Not all brokers allow trading for exchanges like ISE, AMEX, PHS, PSE, and CBOE.

5.Trading Software To be successful you need a robust trading platform which is web based and directly accessible. The online broker should provide charting software and analysis tools to help with your trading decisions. It is important to engage an online broker offer these types of platforms who also include training programs in order to properly use their tools.

6.Options Trading Strategies Options traders use a variety of trading strategies from simple call and put processes to multi-legged complex options trading strategies. Make sure your brokerage firm supports you in your options trading strategies.

7.Order Types Find out which market and limit orders your online broker supports. This is important when engaging in complex options trading strategies. Equally important is the software trading platform they offer because you need one that lends itself well to quick decisions.

To locate an online broker to meet your trading requirements begin searching the internet. Make sure you do a thorough analysis of each online brokerage before making a final decision. Finding the right online broker can give you the ability to become a successful trader and increase your overall financial portfolio.

If you want to learn more about option trading, feel free to visit our website.

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Currency Options Trading

Micheal Thomas — Tue, 27 Oct 2009 18:30:27 +0000

A growing trend on the market is currency options trading. This is one of the forex methods within the stock market where traders exchange one foreign currency for another, preferably making the transaction when one currency is trading for a higher amount than the other. This type of forex trading is gaining in popularity as the currencies around the world continue to shift with the overall global economy.

However, currency options trading require a clear understanding around foreign currencies, economic and world trends and the stock market. This type of forex training is not for a novice trader and should be left to experts in the field. If you want to engage in foreign exchange trading then make sure you have a strong mentor or broker who can help you with the details of this type of market trading.

The foreign exchange market is the largest market in the world. Currency options trading and foreign exchange training has gained in popularity in Europe and the United States over the last decade. New strategies, methods and techniques have been developed to assist traders when engaging in the foreign exchange market. These new strategies have been able to increase trader and investor portfolios as their knowledge and experience in this area increase.

Currency options trading had proven to be a viable method for producing financial gains through trading on the foreign market. Over the last few years it has quickly grown to be one of the preferred methods for traders and investors around the world. The technique applied to this type of trading can also be used when people approach conventional market trading options and allows them to better leverage their investments.

There are many types of market trading techniques available to traders and investors in today’s market. Most of these methods require experienced traders and brokers to truly understand and take advantage of capital gains and expand their portfolios. Although anyone can perform options trading it would be wise to seek expert advice prior to your getting involved with currency options trading. Learn from the experienced and those who are actually benefiting from this type of forex trading until you feel confident to move forward with your own investment strategies.

Currency options trading are very similar to the way you approach stock options trading on the market. Trading currency options you basically work in a contract situation that provides you with a means to purchase a world currency at a designated exchange rate within a specific time period sometime in the future. The most important aspect is that this contract does not commit you to buy that currency at that time, so you can decide not to purchase the currency if the price you anticipated did not transpire. However this type of arrange does come at a cost whereby you would pay your broker a premium that will allow you to make these types of trading choices if they arise. This type of trading lets you hedge your investments during unpredictable market trends.

If you want to learn more about option trading, feel free to visit our website.

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