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Options give investors so much flexibility that when it came to writing a book named The Bible of Options Strategies, I found myself cursing just how flexible they can be!
Sixty strategies is a lot of ground to cover, but in reviewing them all again (I’ve done it several times already!), I was reminded of the beauty of these amazing trading instruments.
Options give us the ability to do so many things—they enable us to configure our investment aims in any way we like.
The benefits of options are often trotted out to new students or prospective customers as the first salvo of an up-sell campaign, but they’re worth looking at again, this time from a practical point of view. Options enable us to:
Control more assets for less money.
One option contract represents 100 shares of stock and is usually a fraction of the cost of what you’d pay for the equivalent number of shares.
For example, ABCD stock was priced at $26.20 on June 2, 2004. An option to buy ABCD shares (a call option) might be priced at $2.60.
Because one contract represents 100 shares, we can therefore buy one ABCD call contract for $260.00 [100 * 2.60].
The alternative would be to buy 100 shares of the stock for a total sum of $2,620.
So, in this example, we can buy ABCD call options for around 10% of the stock price to control $2,620 of ABCD stock until the appropriate expiration date of the option.
Trade with leverage.
Because our cost basis is so low, the position is much more sensitive to the underlying stock’s price movements, and hence our percentage returns can be so much greater.
Trade for income.
We can design strategies specifically to generate income on a regular basis.
Steps to Trading a Long Put
Buy the put option.
■ Remember that for option contracts in the U.S., one contract is for 100 shares. So when you see a price of $1.00 for a put, you will have to pay $100 for one contract.
■ For S&P Futures options, one contract is exercisable into one futures contract. If the option price is $1.00, you will pay $250 for one futures contract upon exercise.
Steps In
■ Try to ensure that the trend is downward and identify a clear area of resistance.
Steps Out
■ Manage your position according to the rules defined in your Trading Plan.
■ Sell your long options before the final month before expiration if you want to avoid the effects of time decay.
■ If the stock rises above your stop loss, then exit by selling the puts.
| Author | Guy Cohen |
| Language | English |
| No. of Pages | 401 |
| PDF Size | 2 MB |
| Category | Business/Economics |
| Source/Credits | pdf drive |
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The Bible Of Options Strategies Book PDF Free Download