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Options Advantage Pro

Introduction to Options Advantage Pro

Options have been around for decades now and are used as another tool in the advanced traders toolbox more often than their original purpose which was to create a contract which gave a buyer the right but not the requirement to buy a certain good at a certain price at a specific time in the future.

Options definition:

In finance, an option is a contract which gives the buyer (the owner or holder of the option) the right, but not the obligation, to buy or sell an underlying asset or instrument at a specified strike price on a specified date, depending on the form of the option.

https://en.wikipedia.org/wiki/Option_(finance)

Here are some specific option types, known as the ‘vanillas’:

Call Options

For example, an airline could buy the right to buy fuel at a certain price in the future. This allows them to forecast their costs more accurately in to the future, and protect themselves agains any unforeseen price shocks. This is known as a Call Option.

Put Options

A Put is the same, but it gives you the option (not the obligation) to sell something at a certain price (the Strike PRice) and time in the future.

Put and calls video:

https://www.youtube.com/watch?v=EfmTWu2yn5Q

Futures

Futures are not options but they are the same, only if you engage in a futures contract then you are committedd to buy or sell at the price in the future, you don’t have the ‘option’ to buy or sell.

Why use Options

Between puts and calls you can make more advance trading strategies that give you more flexibililty, are an instrument that can be traded themselves and limit your downside when trading.

Risks

Options contracts cost money, and may leave you ‘out of the money’ and required to pay more than you would have had to if you’d not took the option out at all .

In the Money

If the price of the item is currently above the Strike price agreed on the contract, then the options contract on a call option would be in the money.

Volatility

If the price of an underlying asset has never moved in the past and doesnt look likely to move in the future then you could quite confidently price an option for it. If it has been and looks to be very volatile in the future then the price you have to pay someone to take the other side of your options contract might be quite high. Therefore volatility affects options pricing.

Leverage

Options allow you the option to buy lots of stock at an in the money price by only putting doen the money to buy the option, not the stock. If it gets in the money then you can sell the option contract and someone can use it to buy lots of stock cheap, so a small investment could be worth lots of money.

The Greeks

Delta Theta and Vega are Greek sounding letter names used to abbreviate principles of options pricing.

Options pricing tutorial video:

https://www.youtube.com/watch?v=MiybniIIvx0

Delta

Delta is the relationship between the price of the underlying instrument and the p[rice of the option,. When one moves, the other should move in ratio, such as 1:10 or 1:1.

Theta

Theta is the amount the option price changes as the strike date approaches. If an option has 3 months to reach a strike price there is more liklihood that it will, than if it only has one day to get in the money.

Vega

Vega is the relationship to implied volatility. If this is a concern to you then you need a more advanced options trading course.

 

Beginners can learn to trade for a living by getting an online education from a course that can teach them all the basics such as FX, stocks, puts and calls and everything else involved in Options 101.

From this they can try to get a job that will lead to a career, perhaps starting from home.

There are also some legitimate software tools that can help a trader but be aware because it’s easy to spend money on things you think you need but don’t use as much as you could.

Resources:
  • barchart.com
  • dailyfx.com
  • ig.com
  • cmegroup.com
  • macrotrends.net
  • quandl.com
  • danielstrading.com
  • theice.com
  • m.moneycontrol.com
  • marketonmobile.com
  • moneymorning.com

Trade options beginner video:

https://www.youtube.com/watch?v=SB2viufbLEM