A Beginner's way to trade options.

[Smart_trade]

Hi Saint Sir
Hello to all frends, Im Ajaz from Kuwait new to this thread, I have been
searching to learn options, now im in the right place to learn.
Pls advise, trading in options is risky, does it require more amount, what we will be learning here so that I can prepare myself.
thanks to all in advance.

Ajaz.

This is a wrong conception that trading in options is risky....trading in anything without understanding and managing the risk is risky . Option buying is not risky as your maximum loss is limited to the premium paid by you. Option selling is a bit more risky as the losses could be open ended and unlimited but there are many strategies in options that are having limited risk and also limited rewards.We will see those later.

Options are meant to reduce financial risk though they can also be used for speculation.....how one uses is upto oneself. Options trading with proper risk control is not risky.

Best Wishes,

Smart_trade

 

[praveen taneja]

This is a wrong conception that trading in options is risky....trading in anything without understanding and managing the risk is risky . Option buying is not risky as your maximum loss is limited to the premium paid by you. Option selling is a bit more risky as the losses could be open ended and unlimited but there are many strategies in options that are having limited risk and also limited rewards.We will see those later.

Options are meant to reduce financial risk though they can also be used for speculation.....how one uses is upto oneself. Options trading with proper risk control is not risky.

Best Wishes,

Smart_trade

Congrats ST bro for the nice views but options were meant only earlier for hedging trades thats why people saw them with limited risk and unlimited profits but as it hav become retail investor part of play it needs much more care then it hav
It is not an easy task to put a SL in options but v can put a SL on NF or Stock on which We are trading. Hope I am not disturbing your flow by posting here as I trade only in options want to improve my working with your views too Thnx again

 

[jamit_05]

ST Sir,

One has read Option Basics and is familiar with the ground work. However, since one has not traded them some concept might have been missed, which will be worked upon as and how we progress.

There are so many option strategies, each of different nature. Some are used to sell against a future position (covered), some make us take two position but in opposite direction (straddles and strangles) while the others in same direction (ratios and covered) to mention only a few.

Therefore, if you could only start the thread with a particular nature of strategy which you deem most fitting then it would be a good start.

Conclusively, pls lead us with one suitable trade in options. We will take it live (or on paper depending on individual) and learn from it as possibilities open. In a couple of months time we will have grounded ourselves.

The above is only one way that comes to mind. However, it entirely depends on what the teacher thinks best.

 

[pleaseharsh]

i agree with u amit..
for newbie having nill knowledge regarding the 'abc' of options, pls visit the below link and get the basic required knowledge...pls go through the link below :

http://www.investopedia.com/university/options/

the link covers the following topic :
1) Options Basics: Introduction
2) Options Basics: What Are Options?
3) Options Basics: Why Use Options?
4) Options Basics: How Options Work
5) Options Basics: Types Of Options
6) Options Basics: How To Read An Options Table
7) Options Basics: Conclusion

regards
harsh

 

[Smart_trade]

Congrats ST bro for the nice views but options were meant only earlier for hedging trades thats why people saw them with limited risk and unlimited profits but as it hav become retail investor part of play it needs much more care then it hav
It is not an easy task to put a SL in options but v can put a SL on NF or Stock on which We are trading. Hope I am not disturbing your flow by posting here as I trade only in options want to improve my working with your views too Thnx again

Praveen...,

No problems...you can put any questions...I will try to answer. In case I dont know the answer,I will tell so. I dont claim to be an expert...we can all exchange ideas and benefit from it.

Options can be used as a hedging tool or it can be used for speculation.Depending on youw view on the market,you can decide whether to buy or sell options,strike price etc You can have various combinations of options,futures & options depending on what you want to achieve.

You can put a stoploss in options. In fact if the market is going against your assumed view,it is better to cut your loss and preserve the balance premium.There is absolutely no problem in keeping a stoploss in options...it is not difficult than stoploss in futures. In fact I have found so many times the SL in future is hit but in options it is not hit because of time decay.

Best wishes to you...

Smart_trade

 

[Smart_trade]

One must understand the basic difference between futures and options. Option is a wasting asset.It looses its value with the passage of time and hence even if the underlying remains unchanged,the option price will loose its value with passage of time (it looses value exponentially in last one week before expiry.)

So it is very important to understand that in options you should be right in your judgement on following :

1) Direction of the move

2) Extent of the move

3) The time in which you expect the move to materialise.

As there are many new learners in this thread, we will initially concentrate on plain vanilla buying of calls and puts.

A call gives you a right to buy an underlying at a particular strike price till the expiration and the put gives you a right to sell the underlying at strike price till expiration.Remember that it is a right and you may or may not excercise this right.The option seller has obligation and he takes the other side of your option buy contract.

Option buyer has to pay the premium and option seller gets the option premium.

One can trade miniflow or 60 min flow with the help of options....when you get a buy,buy at the money call, and when you get a sell then buy at the money puts.

Smart_trade

 

[pleaseharsh]

st ....wanna ask you one thing ....its been in my mind since long long time...
the buyer has got limited risk while the writer got unlimited risk...simple yeah..
ok...but y so ? is it because
the time decay plays an important role or
the writer has got an upper hand ALWAYS or the writer is more professionally/technically talented/equipped like fii/ institutions than the buyer.. ...i.e has they always got an edge over the buyer of option from very beginning..i.e its not a 50 50 game...

i hope u got it wt i mean to ask..
thanks
harsh

 

[Smart_trade]

st ....wanna ask you one thing ....its been in my mind since long long time...
the buyer has got limited risk while the writer got unlimited risk...simple yeah..
ok...but y so ? is it because
the time decay plays an important role or
the writer has got an upper hand ALWAYS or the writer is more professionally/technically talented/equipped like fii/ institutions than the buyer.. ...i.e has they always got an edge over the buyer of option from very beginning..i.e its not a 50 50 game...

i hope u got it wt i mean to ask..
thanks
harsh

This is because most people trade options like they trade futures.The option buyer has to be quick in getting in and out so that the time decay will be minimum. People buy options and ferget it and loose the premiums most of the time.

Option seller has unlimited risk so has to be more capitalised,more smart,more market savvy ,he pockets the premiums most of the times but when the market takes a large move against him,he looses really big if he is not good in cutting his losses. Imagine what was the put sellers'condition in Jan 2008 whem narket crashed....some suffered huge losses.

If option buyer is smart enough,he can shift the edge in his favour....

Smart_trade

 

[sansoma]

Thanks for starting this thread. Can options order be put OFF MARKET hours. ie the previous day or in the morning.

 

[Smart_trade]

Thanks for starting this thread. Can options order be put OFF MARKET hours. ie the previous day or in the morning.

It can be done ....but not recommended as initial 5-10 minutes option trades are very rough...lots of slippage...so if you put orders before market opens,you may get terrible fills. Better to trade after 5-10 min once option board settles down.

Smart_trade