Valuable Insight on Trading Options in the Stock Market
Fortunately for traders and individual investors, an increasing number of educational resources are available to help investors learn the trade. Market conditions being what they are today; volatile and uncertain, many opportunities exist for Market participants to further enhance their knowledge, maximize gains and mitigate loss. So without further ado, let's explore some "options" ...
Thanks for viewing this lens and good trading!
Disclaimer: Information provided here is for educational purposes; not to be construed as a recommendation to buy or sell a particular stock or option.
In Search of Profits with SPY
SPDR S&P 500 Exchange Traded Fund (ETF)
By Chuck AnthonyThe SPDR S&P 500 ETF is Standard and Poor's Depository Reciepts trust that is involved in the financial services industry. S&P's holdings in this Exchange Traded Fund are comprised of the 500 stocks in the S&P 500 Index. The fund is designed to capture price performance of a large cross-section of equities publicly traded in the U.S. Stock Market. The ticker symbol for SPDR S&P 500 is SPY, sometimes referred to as "spiders."
As a dedicated options trader, I enjoy trading these types of index options because price and volume fluctuations are less of a factor than individual stocks, particularly in the style of technical trading that I like to use. Stock prices in general are heavily influenced by events such as rumors, earnings reports, management changes, etc., whereas an ETF such as SPY, while still affected by the news, market conditions, what have you, inplies a lower degree of uncertainty.
Another reason, i prefer trading options on SPY is that it is relatively inexpensive and I don't have to commit to purchasing the actual stock. I like to think of options trading as a way of "renting" stocks. For example, if I buy 1 contract on the SPY April 83 Call (Option Symbol SZCDE) for $3.20, I am actually controlling 100 shares of stock (multiply by 100) and my cost basis would be $320. If SPY advances in price the next day and the option price is now $3.80. I can decide to sell it at a profit of .60 cents or in other words, $60 when you do the math.
This example is an oversimplification of course, as there are expiration dates, risk tolerances, etc. to consider. We can discuss these in future articles, but for now, suffice to say that trading options on indexes such as SPY, QQQQ (Nasdaq) and DIA, (Dow) can be an great entre into the market when practice, care and due diligence are employed.
I think a key point to remember is also the fact that index options such as SPY are heavily traded and therefore show massive amounts of something called open interest. This benefits both the Trader and Market Maker. The shear volume of orders benefits the Market Maker as this enables them to "shorten the spread" between the "bid" and "ask" prices (on the option). The trader benefits because he or she can get in and out of the trade quickly just by targeting a .40 to .60 cent profit for example. So depending on the number of contracts bought, traders can pick up some nice gains in a relatively short period of time, provided they don't greedy! Incidentally, if the stock goes the wrong way, it's wise to have your stop-loss orders in place. Take my word for it, GREED can be the kiss of death when it comes to trading options.
The top ten components of SPY are as follows (stock symbol followed by company name):
1.) XOM, ExxonMobil Corporation
2.) GE, General Electric Company
3.) C, Citigroup, Inc.
4.) MSFT, Microsoft Corporation
5.) T, AT&T, Inc.
6.) BAC, Bank of America Corporation
7.) PG, Procter & Gamble Company
8.) JNJ, Johnson & Johnson
9.) PFE, Pfizer Inc.
10.) MO, Altria Group, Inc.
Bookmarked Options
Updated Four Times Daily
The Most Important Thing About Options...
An option is defined as a contract that gives the buyer the right, but not the obligation, to buy or sell a particular underlying stock at a specified price on or before a certain date.
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Via Schaeffer's Investment Research Blogs
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ProShares UltraShort S&P 500 -- SDS June 2009 56 Put

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Closed out this trade on 06/03/09 up 77% -- See updates below for results.
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Shown is a 6-month chart of ProShares UltraShort S&P 500 (Symbol: SDS) with its 40-day Moving Average and Moving Average Convergence/Divergence (MacD).
As described on the ProShares website, this Exchange Traded Fund (ETF) seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the S&P 500 Index. In simpler terms, SDS is what you buy when you are bearish on the S&P.
I orignially was prepared to enter an options play on the SDS June 2009 60 Call as I believed the S&P index (SPX) would lose about 50% from the rally that started on March 9, 2009 -- that would be SPX 800. I still think that will happen, but just not as quickly as I had anticipated. Luckily, I was able to hold off on that trade and entered SDS June 2009 56 Put instead.
I think now the market will extend its rally up to around SPX 930 prior to any decline in May. In effect, that would retest SPX highs earlier this month but I don't think SPX can breakthrough that resistance. In fact, SPX has traded in a range between 880 and 920 since mid May there's likely more dowside risk than upside potential in the short term.
The following is a synopsis of the trade showing a daily updated status report after the market close...
Stock: ProShares UltraShort S&P 500
Stock Symbol: SDS
Option Symbol: .SDSRD
Description: SDS JUN 56 Put
Contracts: 15
Price/Cost Basis: $1.75 (1.75 x 100 x 15)
Total Cost Basis: S2,625.00
Price (market close 06//03/09): $3.10
Market Value (market close 06//03/09): $4,650.00
Gain/Loss: $2,025.00
Notes:
Update 06/03/09: Closed out this position today for gain of $2,025.
Position Opened: 05/21/09
Option Expiration Date: June 19, 2009
Expected Close-out Date: June 5, 2009
Target: Gain 40%
Target Status: Up 77%
Stop Loss: 35% tolerance
Position Update: Following each trading day
Chart Update: Weekly on Mondays

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CBOE a Valuable Resource for Stock and Options Traders
Chicago Board Options Exchange Information
The city of Chicago can be referred to as the center of the universe when it comes to trading options. That's because right there in the heart of the Windy City is the Chicago Board Options Exchange (CBOE); the leader in options volume and a fixture in Chicago since 1973. So when people ask me where to find the most trusted information on the markets worldwide, that's my online preferance. I recommend bookmarking the following URL for quick reference: http://www.cboe.com/tradtool/webcast.aspx
Please exercise care when trading in this volatile bear market.
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Fetching RSS feed... please stand byTrading At the Bottom of a Bear Market
Wait a minute -- Who called a bottom?
Try as they might, the gurus are stepping up to the plate to call a bottom. I'm hearing S&P 800, 700, even 420; Whoo ha, what a bear!One thing's for sure, I'm not looking for a "V" shaped bottom -- don't think one has ever occcurred in these conditions where volatility (VIX) is at an all-time high. I'd rather subscribe to theory that the market will re-test these lows in December after the election. I attribute that to there being too much uncertainty and too much fear right now for any kind of sustained optimism.
But still, it's this same bearish sentiment that can give rise to an unprecedented countertrend rally; you know, those fast and furious ones. So, keep an eye out for that.
Update: February 27, 2009 -- Wll the S&P follow suit with the Dow and retest the lows of November 2008? Read The Bear Market Daily News on Squidoo.
Optional Comic Relief
Options: A Real Waste of Time...
A time-wasting asset, that is. Here's a quick example of how options on a stock can lose their value over time and assuming the stock price is moving in the opposite direction from your trade. Not a pleasant thought, I know... We'll look at "out of the money" options since these values decrease at an accelerated rate as the option's expiration date approaches. Since options are in fact, "wasting assets", these value declines are important because over time, as this out of the money option gets closer to expiration without being "in the money", the probability of its time value is reduced. We call this time decay.This scenario makes a good case for using stop losses if you happen to be in a trade where the stock price is headed in the wrong direction.
Speaking of stop losses, a simpler way to explain options as wasting assets might be to share with you the plight of the Detroit Lions. Right now, the Lions are a winless professional football team at 0-7. Chances of the team finishing 9-7 over a 16-game schedule are becoming less likely. Therefore we can liken the Lions to our "out of the money" options play. Can they finish their season "in the money" at 9 vicories and 7 defeats? Sure, it can happen. But time value and time decay are not in their favor.
More Profitable Options Guestbook
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- djoneshappy djoneshappy Nov 18, 2009 @ 5:20 pm
- Excellent lens on the daily stock market, the size of the world stock market was estimated at about $36.6 trillion US at the beginning of October 2008, with the global recession coming to an end, things are beginning to look bright, especially in less developed nations where their own markets witnessed big shocks.
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- chyneclicks chyneclicks Oct 26, 2009 @ 5:20 pm
- Penny Stocks
are really volatile so it is important to know the details of what the company does. It was not long ago that I made a very high gain on an investment because I knew this stock would skyrocket during hurricane season.Hot Penny Stocks
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- Confidenttrader Confidenttrader May 31, 2009 @ 7:40 am
- Thanks for the great overview of options trading. My preference is selling credit spreads - I have done really well with a steady 15% per month since I started.
Swing Trading Options
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- alteredkat alteredkat Mar 28, 2009 @ 3:52 pm
- 5*...great, informative lens...
Thanks for visiting my buy gold bullion lens recently, I appreciate you taking the time to stop by and comment.
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Reply
- optionzone optionzone Feb 3, 2009 @ 5:00 pm
- Thanks for the compliment and blurb. I'm currently exploiting time decay with Iron Condor spreads on S&P options. The strategy is in effect a combination of a Bull Put Spread and a Bear Call Spread. Trade well!
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Follow optionzone On Twitter

- optionzone
- aka Chuck Anthony
- 270 followers
- 143 following
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- Latest video update on Forex Income Engine 2.0 http://tinyurl.com/yhfredb
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- RT @tradethecycles The market isn't buying/following through on the bogus seasonally adjusted jobs data (you called it, bro)
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- Reading: Not a Good Day for the Smart Money Indicator http://seekingalpha.com/a/3s75
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