Learn all about the exciting and high pressure world of options, futures, forex, and more.
Whether you want to better understand the news or are looking to profit from it yourself this lens if the place to start.
What is a Derivative?
The two main types of derivatives are futures and options.
Derivatives are highly leverages trades which can contain high amounts of risk. However, the origins of derivatives are as hedging tools.
Why do I care about this stuff?
Isn't this only for the rich and fancy people?
The internet has opened up many of these types of trades to everyone. Years back the forex market was controlled totally by banks and other financial institutions. Now anyone can start trading foreign currency for as little as $25.
Or maybe you want to profit from the stock market swings that you hear about all the time; and with these products you can profit whether the market is moving up or down, however you may not have the several thousand dollars to risk but you can get started with BetonMarkets.com and start profiting and learning skills that you can expand into broker based accounts.
The futures markets allow you to profit and protect yourself from fluctuations in oil prices and other commodities.
Options allow you to use leverage to either participate in a stock's movement or protect the price on a stock you already own.
As you can see these products offer a lot of flexibility. While they may not be for everyone and there is certainly risk involved and you should not risk anything you can't afford to lose this is important general knowledge to have.
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Options
Options Terminology
- Call- An option that gives the buyer the right, but not the obligation to purchase the underlying at a given price in the future.
- Put- An option that gives the buyer the right, but not the obligation to sell the underlying at a given price in the future.
- Expiration Date- The date in which the option expires. The buyer of the option must choose to excercise the option by this date or it expires worthless. All US equity options expire on the 3rd Friday of the month.
- Strike Price- this is the price that the option can be excercised for.
- Buyer- The person who purchases the option. The risk is limited to the amount paid for the option.
- Seller- The person who sells the option. There risk is almost unlimited.
- Premium- This is the amount paid for the option.
- Underlying- The asset for which the option was purchased. I.E. 100 shares of XYZ stock
- At.The.Money- An at-the-money option is one that the strike price is the same as the underlying is trading.
- In.The.Money- An in-there-money option is one that the strike price is below for a call or above for a put the price that the underlying is currently trading. The in-the-money option must always trade for at least the difference between the strike and the underlying or there would be an arbitrage opportunity.
- Out.of.the.Money- An out-of-the-money option is one where the strike price is above the current price for a call or below the current price for a put.
- Covered Write- When you own the underlying that you are selling the option against.
- Naked Write- When you do not own the underlying that you are selling the option against.
Options Strategies
- Long Call- This is to purchase a call option. The risk is limited to the premium paid for the option. Profit is reached when the strike price is below the underlying price at expiration.
- Short Call- This is to sell a call option. Profit is limited to the premium received for selling (or writing) he option. Risk is unlimited as stock price can go up. Profit is realized if the stock price is below the strike price at expiration.
- Long Put- This is to purchase a put option. Risk is limited to the amount paid for the option. Profit is reached when the strike price is above the stock price at expiration.
- Short Put- This is to sell a put option. Profit is limited to the premium that was received for selling the option. Risk is almost unlimited (almost as stock can only go to zero). Profit is reached when strike price is below the stock price at expiration.
- Buy Write/ Covered Write- This is when you sell a call option against stock that you own or that you purchase at the same time as the option on a 1:1 ratio. This is a popular strategy used to collect premiums from a stock you already own that you would be okay being forced into sell if it goes in the money.
- Bull Spread- You buy one option and you sell a higher strike price option. The premium that you collect on the higher option helps reduce your cost of purchasing the lower strike option. Profit is maximized if the stock is at the strike price of the higher option at expiration. This is a bullish strategy.
That's nice and all but how do I use these options?
For example, you want to buy 100 shares of XYZ stock which is currently trading at $24.50 but you don't have the cash right now to buy the stock. You could buy an option right now that would give you the right to buy the stock at $25 up to a certain point in the future. You will need to pay for this right but you don't need to worry about missing the opportunity. If the stock goes down, your option is worthless and you can buy the stock in the open market for less money. If the stock goes up you can still buy it for $25 no matter what it is trading at that day. If the stock does run up you may just choose to sell your option in the open market instead of excercising it into stock. This is where leverage can come in to play. You can buy several options for a lot less than the stock and will still participate in gains but your loss is limited to what you paid for the option. However, one thing to always remember is that your option is a decaying asset that will lose value over time and can eventually be worthless where as once you own the stock it is your forever.
Options Books
Wikipedia
- Wikipedia Derivatives
- Wikipedia page on Derivatives
- Wikepedia Futures Contract
- Wikipedia page on futures contracts.
- Wikipedia Futures Exchange
- Wikipedia page on futures exchanges.
- Wikipedia Options
- Wikipedia page on options.
- Wikipedia Forex
- Wikipedia page on forex.
- Binary option - Wikipedia, the free encyclopedia
- Binary option From Wikipedia, the free encyclopedia Jump to: navigation, search
A binary option is a type of option where the payoff is either some fixed amount of some asset or nothing at all. The two main types of binary options are the cash-or-nothing binary option and the asset-or-nothing
Futures
Forex Explained
The market
The currency trading (FOREX) market is the biggest and fastest growing market on earth. Its daily turnover is more than 2.5 trillion dollars. The participants in this market are banks, organizations, investors and private individuals, just like you. (click here to read full market background by Easy-Forex%u2122).
The goods (merchandise)
Markets are places to trade goods, and the same goes with FOREX. The Forex goods are the currencies of various countries. You buy Euro, paying with US dollars, or you sell Japanese Yens for Canadian dollars. That's all.
How does one profit in Forex?
Obviously, buy cheap and sell for more! The profit potential comes from the fluctuations (changes) in the currency exchange market.
The nice thing about the FOREX market, is that regular daily fluctuations, say - around 1%, are multiplied by 100! (in general, Easy-Forex%u2122 offers trading ratios from 1:50 to 1:200).
How risky is Forex trading?
You cannot lose more than your "margin" (your initial investment)! You may profit unlimited amounts, but you never lose more than what you initially risked. However, risk only what you can afford and is not vital for your well-being.
How do I start trading?
Register (Easy-Forex%u2122 offers the simplest and quickest registration process, no obligation); deposit your first trading "margin" amount (credit cards are welcome, only by Easy-Forex%u2122); start trading.
How do I monitor my Forex trading?
Online, from anywhere, anytime. You have full control to monitor status, check scenarios, change some terms in the deal, or close it.
Want to know more? Want to get on-line training? Register here (quick, no obligation), we'll be glad to guide you, every step of the way.
Good luck!
F
Links
- CBOE
- The homepage of the Chicago Board Options Exchange.
Trading Culture
Movies with Trading
New Del.icio.us bookmarks
Disclaimer
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Google News Posts on Derivatives
- Saxo Bank Launches FX Options Board
- Edward Voorhees, Global Head of Derivatives at Saxo Bank, said: ?The FX Options Board will revolut...
- Saxo Bank launches FX Options Board
- Saxo Bank provides one of the most comprehensive and professional online FX Options trading offering...
- NASDAQ OMX PHLX Announces Launch of Four New World Currency Options
- The company offers trading across multiple asset classes including equities, derivatives, debt, comm...
- Currency Currents
- ... plus trading recommendations on currency futures, spot FX, currency options and currency-related...
Google Blog Posts on Derivatives
- OPTIONS TRADING SOFTWARE >> Can Options Trading Software Help You ...
- OPTIONS TRADING SOFTWARE Options are what are sometimes called derivatives. In financial terms, a de...
- Kanhai Chhugani: Taking a dive in the stock market with ...
- Taking a dive in the stock market with Derivatives and Options. So I am planning to take a dive in t...
- Why FX Transactions Did Not Freeze Up During the Global Financial ...
- Administration officials have once again put the need for new trading systems for complex derivative...
- Options trading platform? - Aussie Stock Forums
- Options trading platform? Derivatives. ... I'm mainly looking for a broad range of markets to trade...
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