More Profitable Options in the Stock Market

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Valuable Insight on Trading Options in the Stock Market

This lens wil examine various methods and disciplines for trading options in the stock market. Investors often trade options for two reasons: First, as a hedge to manage risk and second, in order to speculate. Now more than ever, Options are being utilized by professional traders as well as everyday investors to accomplish their financial objectives. Moreover, trading options can arguably be the best money-making vehicle available at any cost, yet, very few people understand how options work. If they did, most would find a way to lose their run-of-the-mill 9-to-5 job and start cashing in big-time in the world of option trading.

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.

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.


A real Bulls-Eye in these
Crazy Markets

In Search of Profits with SPY

SPDR S&P 500 Exchange Traded Fund (ETF)

By Chuck Anthony

The 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

Important!

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.

Option Pundit

Trading Strategies for Consistent Income

One of my favorte options trading blogs
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VIX Bookmarks

Options Pulse

Via Schaeffer's Investment Research Blogs

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The Bear Market Daily News

Only on Squidoo!

Look out below...

Here come da Bears

Video Options "How-To-Trade" Showcase

Jon Najarian: How I Trade Options
by tradewins1 | video info

12 ratings | 11,572 views
automatically generated by YouTube

Schaeffer's Video Tutorials

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The Optionsphere

Daily Options Digest

Optionsphere gives you up-to-date, actionable and reliable information from the most trusted source.
Midday Market Stats: Dow Jones Industrial Average Drops 64 Points
Meanwhile, the CBOE Market Volatility Index (VIX - 21.07) is up 5.9%, after earlier peaking at 21.67 -- its highest perch since Feb. 16. The equity put/call volume ratio across all nine options exchanges stands at 1.26, as 4.013 million calls and 5.057 ...

Trading At the Bottom of a Bear Market

(From My Squidoo the Achives)

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

(From My Squidoo the Achives)

Still one of my favorites :)
McCain and Son - Stephen Colbert Green Screen Challenge
by FunnySong | video info

3 ratings | 496 views
curated content from YouTube

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.

Update 11/13/2010: To all my friends in the Detriot, Michigan area, Glad to the Lions are doing better this year ;-)

More Profitable Options Guestbook

Share your thoughts

  • akline Aug 8, 2011 @ 5:31 am | delete
    Wow, lots of information here.
  • TapIn2U Jun 9, 2011 @ 11:06 am | delete
    I am learning a lot from this lens. Very valuable info that's hard to find anywhere. The stock market is a complex topic to write but from the look of this lens, you sure know what you are talking about. Enjoyed the videos, too! I'm keeping notes for future reference. Great job here! Hey, do you need a daily dose of happy quotes? Check out my newest lens, "Happy Quotes Happiness" and find hundreds of happy quotes. Be happy and share your thoughts, too! Thanks. Sundae ;-)
  • Nov 18, 2009 @ 5:20 pm | delete
    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.
  • Oct 26, 2009 @ 5:20 pm | delete
    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
  • Confidenttrader May 31, 2009 @ 7:40 am | delete
    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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optionzone

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