|Market Outlook||Strategy||Payoff Graph|
|Very Bullish||Call Ratio Backspread|
|Bullish||Bull Call Spread|
|Bullish/Stable||Put Ratio Spread|
|Moderately Bullish||Bull Put Spread|
|Slightly Bullish to Neutral||Covered Call|
|Very Bearish||Put Ratio Backspread|
|Bearish||Bear Put Spread|
|Bearish/Stable||Call Ratio Spread|
|Moderately Bearish||Bear Call Spread|
|Slightly Bearish to Neutral||Covered Put|
|Stable||Long Iron Butterfly|
|Volatile||Long Synthetic Straddle|
What are options?
Firstly, there are two types of options. You have call options and you have put options. In both cases of put and call options, the holder of the option, also known as the buyer of the option gives the holder(buyer) the right but not the obligation to buy or sell shares of the underlying securities at a specified price on or before a specified date.
So why isn’t the buyer of the option obligated to buy or sell shares of the underlying security? Well, since they have bought the option, it is their call as to whether they should exercise that option, that is, the right to buy or sell 100 shares of the underlying security.
You have to remember that there are 2 sides to every market. The options market functions like any other market in the world. To facilitate, liquidity, these rules have been put in place to avoid confusion in the first place.
Before you being your options trading journey, you are advised to do a few things. You would have to acquire as much knowledge as possible to make options trading a successful endeavour. This website contains all that you need for investing and trading success.
However, I urge you to go beyond what is spoken about in most forums and find out what your inclinations towards the subject is. Perhaps, you are an investor who wants cash flow but shuns the risk of a leveraged position. In such a case covered calls are for you. In other instances, there are others who like taking on risk and believe in long only positions that can reap huge rewards. Then the long call option strategy may be for you. In any case, there is something for every one here. From there, you can want to acquaint yourself with strategies suited to your personality. From here, we suggest that you take the next step which is to educate yourself about option strategies.
Be well versed with the option strategies that you intend to use. Ask yourself questions such as do you understand the strategy that you are executing? Do you have a target price to exit the trade?
If you are curious to find out more about how options as an instrument came about, you might want to find out more about the history of options being used. Before standardized contracts came into play, option contracts did were difficult to trade due to its non-standard contract features. You can learn more by reading : History Of Options Trading.
Technical analysis is the art and science of interpreting charts to make buy or sell decisions. In technical analysis, those buy or sell decisions are timed so as to maximise profit from trading. In fact, many option traders use technical analysis to determine their entry and exit points in the market.
Technical analysis can be further classified into:
- Indicator based
- Price patterns
Indicator based technical analysis
Indicators are mathematical algorithms that take all available information from price action, trading volume and other factors of an underlying security, processing the information, and then predicting the future direction of a traded security.
Price patterns are based on chart patterns that are being formed by a financial security. By studying these price patterns, the future direction of the security is predicted.
More Information about technical analysis
1. Consolidation chart patterns – flags
2. Consolidation chart patterns – pennants
3. Consolidation chart patterns – triangles
4. Consolidation chart patterns – Wedges
5. Double/Triple Bottom
6. Double tops and triple tops
7. Fibonnacci Retracements
9. Head and shoulders
10. Reverse Head and shoulders
11. Introduction to basic chart patterns
12. Introduction to technical analysis
13. Moving Average Convergence Divergence (MACD)
14. Moving Averages
15. Parallel Trendlines
16. Relative Strength Index
18. Support and resistance
19. The basics of price patterns
20. Time frames
22. Volume action
When a trader decides to sell options, he gets to keep the option premium which he sold it for. Eventually, over the life of the option, the option loses its time value.
Without any major price moves of the underlying security, the options that the trader sold is likely to expire worthless. When the option expires worthless, the trader gets to keep the entire premium which he sold it for initially. When the options expire worthless, the trader is in effect buying back the options at a cost of $0.