Answers and Information to Common Questions and Topics:
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Do I need to trade every day?
The market is not always set up for "perfect setups"and we pride ourselves in not over-trading but waiting for those points where a BIG MOVE occurs with minimal risk and maximum profit!
Sure there are opportunities to make money every day as there is to lose money every day. Our system is developed for people who do not want to be glued to the computer tick after tick.
Listen to our calls and timing and trade it. Some people get too anxious cannot wait and others are over-traders. It is better to miss a trade wanting in it, then short a trade at the bottom wanting out of it when it bounces (for example).
Does it matter what type of option instrument I use?
Money can be made on any option instrument as long as it is used appropriately at the correct time. It is recommended that spreads be used in a margin account to offset risk.
OPTION AND TRADING QUESTIONS
What are the Benefits of Trading Options?
Orderly, Efficient and Liquid Markets Standardized option contracts allow for orderly, efficient and liquid option markets. Flexibility Options are an extremely versatile investment tool. Because of their unique risk/reward structure, options can be used in many combinations with other option contracts and/or other financial instruments to seek profits or protection. Leverage An equity option allows investors to fix the price for a specific period of time at which an investor can purchase or sell 100 shares of an equity for a premium (price), which is only a percentage of what one would pay to own the equity outright. This allows option investors to leverage their investment power while increasing their potential reward from an equity’s price movements. Limited Risk for Buyer Unlike other investments where the risks may have no boundaries, options trading offers a defined risk to buyers. An option buyer absolutely cannot lose more than the price of the option, the premium. Because the right to buy or sell the underlying security at a specific price expires on a given date, the option will expire worthless if the conditions for profitable exercise or sale of the option contract are not met by the expiration date. An uncovered option seller (sometimes referred to as the uncovered writer of an option), on the other hand, may face unlimited risk.
What are the Risks of Trading Options?
Options are very time sensitive investments. An options contract is for a short period - generally a few months. The buyer of an option could lose his or her entire investment even with a correct prediction about the direction and magnitude of a particular price change if the price change does not occur in the relevant time period (i.e., before the option expires). Some investors are more comfortable with a longer term investment generating ongoing income - a "buy and hold" investment strategy. Options are less tangible than some other investments. Stocks offer certificates, as do bank Certificates of Deposit, but an option is a "book-entry" only investment without a paper certificate of ownership. Options aren’t right for every investor and are just right for others. Options can be risky but can also provide substantial opportunities to profit for those who properly use this very flexible and powerful financial instrument.
How are Options Priced?
Pricing Options The value of equity options is derived from the value of their underlying securities, and the market price for options will rise or decline based on the related securities’ performance. There are a number of elements to consider with options. The Strike Price The strike price for an option is the price at which the underlying asset is bought or sold if the option is exercised. The relationship between the strike price and the actual price of a stock determines, in the unique language of options, whether the option is in-the-money, at-the-money or out-of-the-money. In-the-money, At-the-money, & Out-of-the-money scenarios In-the-money: An in-the-money Call option strike price is below the actual stock price. Example: An investor purchases a Call option at the $95 strike price for WXYZ that is currently trading at $100. The investor’s position is in the money by $5. The Call option gives the investor the right to buy the equity at $95. An in-the-money Put option strike price is above the actual stock price. Example: An investor purchases a Put option at the $110 strike price for WXYZ that is currently trading at $100. This investor position is In-the-money by $10. The Put option gives the investor the right to sell the equity at $110 At the money: For both Put and Call options, the strike and the actual stock prices are the same. Out-of-the-money: An out-of-the-money Call option strike price is above the actual stock price. Example: An investor purchases an out-of-the-money Call option at the strike price of $120 of ABCD that is currently trading at $105. This investor’s position is out-of-the-money by $15. An out-of-the-money Put option strike price is below the actual stock price. Example: An investor purchases an out-of-the-money Put option at the strike price of $90 of ABCD that is currently trading at $105. This investor’s position is out of the money by $15. The Premium The premium is the price a buyer pays the seller for an option. The premium is paid up front at purchase and is not refundable - even if the option is not exercised. Premiums are quoted on a per-share basis. Thus, a premium of $0.21 represents a premium payment of $21.00 per option contract ($0.21 x 100 shares). The amount of the premium is determined by several factors - the underlying stock price in relation to the strike price (intrinsic value), the length of time until the option expires (time value) and how much the price fluctuates (volatility value). Intrinsic value + Time value + Volatility value = Price of Option For example: An investor purchases a three-month Call option at a strike price of $80 for a volatile security that is trading at $90. Intrinsic value = $10 Time value = since the Call is 90 days out, the premium would add moderately for time value. Volatility value = since the underlying security appears volatile, there would be value added to the premium for volatility. Top three influencing factors affecting options prices: the underlying equity price in relation to the strike price (intrinsic value) the length of time until the option expires (time value) and how much the price fluctuates (volatility value) Other factors that influence option prices (premiums) include: the quality of the underlying equity the dividend rate of the underlying equity prevailing market conditions supply and demand for options involving the underlying equity prevailing interest rates Other costs? Don’t forget taxes and commissions. As with almost any investment, investors who trade options must pay taxes on earnings as well as commissions to brokers for options transactions. These costs will affect overall investment income.
What is a call?
A call is an option contract that gives the owner the right to buy the underlying stock at a specified price (its strike price) for a certain, fixed period (until expiration). For example, an American-style XYZ Corp. July 60 call entitles the buyer to purchase 100 shares of XYZ Corp. common stock at $60 per share before the option's July expiration date. For a call option writer or seller, the contract represents an obligation to sell the underlying stock if the option is assigned.
What is a put?
A put is an option contract that gives the owner the right to sell the underlying stock at a specified price (its strike price) for a certain, fixed period (until expiration). For example, an XYZ Corp. July 60 put entitles the owner to sell 100 shares of XYZ Corp. common stock at $60 per share before the option's July expiration. For the writer or seller of a put option, the contract represents an obligation to buy the underlying stock from the option owner if the option is assigned.
What is a strike price?
The strike price is the price at which an option holder can purchase (call) or sell (put) the underlying stock, sometimes called striking price, strike or exercise price.
What do “buy to open” and “sell to close” mean?
Open An opening transaction is one that adds to or creates a new trading position. It can be either a purchase or a sale. With respect to an option transaction, consider both: An opening purchase is a transaction in which the purchaser's intention is to create or increase a long position in a given series of options. An opening sale is a transaction in which the seller's intention is to create or increase a short position in a given series of options. Close A closing purchase is a transaction in which the purchaser's intention is to reduce or eliminate a short position in a given series of options. This transaction is frequently referred to as "covering" a short position. A closing sale is a transaction in which the seller's intention is to reduce or eliminate a long position in a given series of options.
What is an exchange?
In the financial markets, an exchange refers to a securities exchange where members of the exchange trade stocks, options and/or futures contracts for their own accounts and the accounts of their customers. These exchanges are registered with and regulated by the Securities and Exchange Commission (SEC). The current U.S. exchanges that list and trade equity, ETF and index options contracts are: BATS Options Exchange (BATS) BOX Options Exchange (BOX) C2 Options Exchange (C2) Chicago Board Options Exchange (CBOE) International Securities Exchange (ISE) ISE Gemini (GEM) MIAX Options Exchange (MIAX) NASDAQ OMX BX Options (NOBO) NASDAQ OMX PHLX (PHLX) NASDAQ Options Market (NOM) NYSE Amex Options (NYSE Amex) NYSE Arca Options (NYSE Arca)
Do all listed stocks have listed options?
By the standards established by the options exchanges, securities meeting the following criteria can list options: A national stock exchange in accordance with the National Market System (NMS) lists the underlying equity. The underlying has a minimum price of $3 per share for five consecutive trading days prior to listing. There are at least 7 million publicly held shares outstanding, excluding shares held by directors or holders of 10% or more of the underlying equity shares (e.g., the public float must be 7 million or more). There are at least 2,000 shareholders. Generally, there would be a minimum of five trading days from the IPO date before listing options on any stock, but meeting these criteria alone would not guarantee listing.
What are quarterly options?
Quarterly options (Quarterlys) are options that expire at the close of business on the last business day of a calendar quarter (March/June/September/December). The last business day of a calendar quarter is also the last trading day for quarterly options. Visit the exchange website where the option trades to learn more.
How do I find a broker?
There are several recommended initial steps to find a broker: Talk with sales people at several firms. Ask about investment experience, professional background and education. Investigate disciplinary actions taken by securities regulators and criminal authorities against any brokerage firm and/or sales representative by calling the National Association of Securities Dealers, Inc (NASD) toll free hot line at 1-800-289-9999. Contact your state securities regulators to verify the license of a sales representative. Investors can also check the background of a broker online via FINRA BrokerCheck. FINRA will provide information on disciplinary actions taken by securities regulators and criminal authorities. State securities regulators also can tell you if a sales representative is licensed to do business in your state. Understand pay and fee structures. Ask for a copy of the firm's commission schedule. Some firms pay sales staff based on the amount of money invested by a customer and the number of transactions done in customer's account. A firm may pay more compensation to a sales representative for selling their firm’s own investment products. Ask what fees or charges are required to open, maintain and close an account. Evaluate what services meet your needs. Determine whether you need the services of a full-service or a discount brokerage firm. A full-service firm typically provides transaction services, recommendations, investment advice and research support. A discount broker generally provides transaction services and does not make recommendations on securities to buy or sell. Fees may differ depending on services the firm provides.an obligation to buy the underlying stock from the option owner if the option is assigned.
Can I trade options in my IRA?
Probably, depending on your brokerage firm’s policies and procedures regarding trading in retirement accounts. Find a firm that offers you the flexibility you desire.
What are current option trading hours?
Options on equities, narrow-based (sector) indexes and narrow-based ETFs, generally open at 9:30 a.m. ET and close for trading at 4:00 p.m. ET. Options on some broad-based ETFs and index products trade until 4:15 p.m. ET. Please consult the product specifications at the exchange where the product trades for exact trading hours.
What are the trading hours for ETFs?
Trading hours for ETFs vary. Generally, ETFs based on broad-based indexes trade until 4:15 p.m. ET. The general rule for options on ETFs is that they are open for trading whenever shares of the underlying ETF are open in the primary market.
What is liquidity?
Liquidity can have many meanings. In the context of securities trading, liquidity is generally the term used to describe the ease of entering and or exiting a securities position at a fair price. A “liquid market” is evidenced by a tight (or small) spread between bid and offer, as well as large size bid and offer. Liquidity can also refer to the availability of stock near the last sale price. When the bid-ask spread on an option is wider than typical, it usually means that the market makers are not sure where they can reliably buy or sell shares of the underlying stock to hedge possible options transactions. Sometimes that means that the stock is more volatile, but not always. It is possible to have a volatile stock that is liquid. This means that there are many stock shares to buy or sell at prices near the last sale. In that case, the options' bid-ask is likely narrow. When the market on an option is narrow, it typically means that investors can buy or sell shares of the underlying stock in quantity near the last sale price, or that the option itself has a lot of buyers and sellers near the last sale price of the option. Usually if an option is liquid, the underlying stock is also liquid.
The most basic of options strategies is to simply buy call or put options. When you buy options, you are said to have a long position in that option. You have a long call position when you buy calls or a long put position if you buy puts. Generally, when you are bullish on the underlying asset, you can buy call options to implement the long call strategy and when bearish, you buy put options to implement the long put strategy. In both cases, you hope that the underlying stock price move far enough to cover the premiums paid for the options and land you a profit. Cost Considerations When Buying Options The price you pay to own the option is called the premium which is affected by many factors such as moneyness, time to expiration and underlying volatility. Moneyness Out-of-the-money options are cheaper to buy than in-the-money options but they are also more likely to expire worthless. For call options, this means that the higher the strike price, the cheaper the option. Similarly, put options with lower strike prices are therefore less expensive to purchase. However, the size of the premium alone does not tell us the whole story. In fact, at-the-money options can be considered the most expensive even though their premiums are lower than in-the-money options. This is because their time value is highest and time value is the part of the premium that will waste away as the expiration date approaches. Time to Expiration Obviously, the longer the time to expiration, the more chance the option buyer have for the underlying price to move in the right direction and therefore the more expensive the option. Implied Volatility (IV) Watch out for the implied volatility (IV) when buying options. Options are more expensive when the IV is high and less expensive when it is low. Selecting the Right Option to Buy Which strike price and expiration you choose all depends on your outlook of the underlying. For instance, if you believe that the underlying will make an explosive move upwards very soon, then it makes sense to buy an at-the-money call option expiring in the nearest expiration month. Buying Options for the Purpose of Hedging Other than speculation, options can also be bought as a means to insure potential losses for an existing position in the underlying. To hedge a long underlying position, a protective put can be purchased. Similarly, to protect a short underlying position, a protective call strategy can be used.
Selling options is another way to profit from option trading. The basic idea behind the option selling strategy is to hope that the options you sold expire worthless so that you can pocket the premiums as profits. Things to Consider When Selling Options Covered or Uncovered (Naked) When it comes to selling options, one can be covered or naked. You are covered when selling options if you have a corresponding position in the underlying asset. Being covered or naked can have a big impact on the risk/reward profile of the strategy you wish to implement. Implied Volatility When selling options, one should take note of the implied volatility (IV) of the underlying asset. Generally, when the IV is high, premiums go up and when implied volatility is low, premiums go down. So you would want to sell options when IV is high. Selling Call Options Writing Covered Calls The covered call is probably the most well-known option selling strategy. A call is covered when you also own a long position in the underlying. If you are mildly bullish on the underlying, you will sell an out-of-the-money covered call. Otherwise, if you are neutral to mildly bearish on the underlying, then the in-the-money covered call strategy will be more appropriate. Writing Naked Calls Selling naked calls is a high risk strategy that can be used when the option trader is very bearish on the underlying. Note that your broker will not permit you to start selling naked calls until you have been deemed to possess sufficient knowledge, trading experience and financial resources. Ratio Call Write Using a combination of covered calls and naked calls, one can also implement what is known as the ratio call write. The trader implementing the ratio call write is neither bullish nor bearish on the underlying. Selling Put Options Writing Covered Puts A written put is covered when you also have a short position in the underlying. The covered put has the same payoff as the naked call and is seldom employed because the naked call write is a much better strategy for a number of reasons. Firstly, if the underlying asset is a stock, the covered put writer has to pay dividends on the short stock while the naked call writer need not. Secondly, call options generally sell for higher premiums than put options. Lastly, having to short the underlying and the option at the same time also increases the commission costs for the covered put writing strategy. Selling Naked Puts Writing uncovered puts is a high risk strategy that can be used when the option trader is very bullish on the underlying. Selling naked puts can also be a great way to purchase stocks at a discount. Again, like all naked option writing strategies, your trading account must be assigned a sufficiently high trading level by your broker before you are allowed to trade naked puts. Ratio Put Write Using a combination of covered and uncovered puts, one can also implement what is known as the ratio put write. This strategy has the same risk/reward profile as the ratio call write but for the same reasons that the naked call strategy is preferred over the covered put write, the ratio put write is considered inferior and rarely used. Options Spreads By simultaneously buying and selling options of the same class, a wide range of strategies known as spreads can be created. Spreads are characterized by having limited profit potential coupled with limited risk.
In options trading, an option spread is created by the simultaneous purchase and sale of options of the same class on the same underlying security but with different strike prices and/or expiration dates. Any spread that is constructed using calls can be refered to as a call spread. Similarly, put spreads are spreads created using put options. Option buyers can consider using spreads to reduce the net cost of entering a trade. Naked option sellers can use spreads instead to lower margin requirements so as to free up buying power while simultaneously putting a cap on the maximum loss potential. Vertical, Horizontal & Diagonal Spreads The three basic classes of spreads are the vertical spread, the horizontal spread and the diagonal spread. They are categorized by the relationships between the strike price and expiration dates of the options involved. Vertical spreads are constructed using options of the same class, same underlying security, same expiration month, but at different strike prices. Horizontal or calendar spreads are constructed using options of the same underlying security, same strike prices but with different expiration dates. Diagonal spreads are created using options of the same underlying security but different strike prices and expiration dates. Bull & Bear Spreads If an option spread is designed to profit from a rise in the price of the underlying security, it is a bull spread. Conversely, a bear spread is a spread where favorable outcome is attained when the price of the underlying security goes down. Credit & Debit Spreads Option spreads can be entered on a net credit or a net debit. If the premiums of the options sold is higher than the premiums of the options purchased, then a net credit is received when entering the spread. If the opposite is true, then a debit is taken. Spreads that are entered on a debit are known as debit spreads while those entered on a credit are known as credit spreads. More Options Strategies There are quite a number of options trading strategies available to the investor and many of them come with exotic names.
A combination is an option trading strategy that involves the purchase and/or sale of both call and put options on the same underlying asset. Call & Put Buying Combinations Straddle The straddle is an unlimited profit, limited risk option trading strategy that is employed when the options trader believes that the price of the underlying asset will make a strong move in either direction in the near future. It can be constructed by buying an equal number of at-the-money call and put options with the same expiration date. Strangle Like the straddle, the strangle is also a strategy that has limited risk and unlimited profit potential. The difference between the two strategies is that out-of-the-money options are purchased to construct the strangle, lowering the cost to establish the position but at the same time, a much larger move in the price of the underlying is required for the strategy to be profitable. Strip The strip is a modified, more bearish version of the common straddle. Construction is similar to the straddle except that the ratio of puts to calls purchased is 2 to 1. Strap The strap is a more bullish variant of the straddle. Twice the number of call options are purchased to modify the straddle into a strap. Synthetic Underlying Combinations can be used to create options positions that have the same payoff pattern as the underlying. These positions are known as synthetic underlying positions. Using equity options as an example, a synthetic long stock position can be created by buying at-the-money call and selling an equal number of at-the-money put options.
Bullish strategies in options trading are employed when the options trader expects the underlying stock price to move upwards. It is necessary to assess how high the stock price can go and the timeframe in which the rally will occur in order to select the optimum trading strategy. Very Bullish The most bullish of options trading strategies is the simple call buying strategy used by most novice options traders. Moderately Bullish In most cases, stocks seldom go up by leaps and bounds. Moderately bullish options trader usually set a target price for the bull run and utilize bull spreads to reduce risk. While maximum profit is capped for these strategies, they usually cost less to employ. Mildly Bullish Mildly bullish trading strategies are options strategies that make money as long as the underlying stock price do not go down on options expiration date. These strategies usually provide a small downside protection as well. Writing out-of-the-money covered calls is one example of such a strategy.
Bearish strategies in options trading are employed when the options trader expects the underlying stock price to move downwards. It is necessary to assess how low the stock price can go and the timeframe in which the decline will happen in order to select the optimum trading strategy. Very Bearish The most bearish of options trading strategies is the simple put buying strategy utilized by most novice options traders. Moderately Bearish In most cases, stock price seldom make steep downward moves. Moderately bearish options traders usually set a target price for the expected decline and utilise bear spreads to reduce risk. While maximum profit is capped for these strategies, they usually cost less to employ. Mildly Bearish Mildly bearish trading strategies are options strategies that make money as long as the underlying stock price do not go up on options expiration date. These strategies usually provide a small upside protection as well. A good example of such a strategy is to write of out-of-the-money naked calls.
Neutral options trading strategies are employed when the options trader does not know whether the underlying stock price will rise or fall. Also known as non-directional strategies, they are so named because the potential to profit does not depend on whether the underlying stock price will go upwards or downwards. Rather, the correct neutral strategy to employ depends on the expected volatility of the underlying stock price. Bullish on Volatility Neutral trading strategies that profit when the underlying stock price experience big moves upwards or downwards include the long straddle, long strangle, short condors and short butterflies. Bearish on Volatility Neutral trading strategies that profit when the underlying stock price experience little or no movement include the short straddle, short strangle, ratio spreads, long condors and long butterflies.
There is a synthetic equivalent for all of the basic positions in an underlying security and its corresponding options. In other words, the risk/reward profile of any position can be simulated using a complex combination of the other basic positions. These equivalents are known as synthetic underlying and synthetic options respectively for the underlying security (e.g. stock or futures) and options positions. Options Arbitrage Synthetic positions are often used to perform arbitrage trades in options trading. When prices are right, the arbitrager can make a risk-free profit by going long/short on one position while simultaneously selling/buying the equivalent synthetic position.
Can you tell me about Index Options Trading in General?
Introduced in 1981, stock index options are options whose underlying is not a single stock but an index comprising many stocks. Investors and speculators trade index options to gain exposure to the entire market or specific segments of the market with a single trading decision and often thru one transaction. Obtaining the same level of diversification using individual stocks or individual stock options require numerous transactions and consequently slower decision making and higher costs. Leverage & Predetermined Risk for the Buyer Like equity options, trading index options gives the investor leverage and predetermined risk. The index option buyer gains leverage as the premium paid relative to the contract value is small. Consequently, for a small percentage moves of the underlying index, the index option holder can see large percentage gains for his position. Furthermore, risk is predetermined as the most the index option trader can lose is the premium paid to hold the options. Contract Multiplier Stock index options typically have a contract multiplier of $100. The contract multiplier is used to compute the cash value of each index option contract. Premium Similar to equity options, index options premiums are quoted in dollars and cents. The price of a single equity index option contract can be determined by multiplying the quoted premium amount by the contract multiplier. This is the amount that an index option buyer will need to pay to purchase the option and the amount that the index option writer will receive when selling the option. Rights Conferred As index options are cash-settled options, the holder of an index option does not possess the right to purchase or sell the underlying stocks of the index but rather, he or she is entitled to demand the equivalent cash value from the option writer upon exercising his option.
What are Dow Jones Industrial Average Index Options?
DJIA index options are option contracts in which the underlying value is based on the level of the Dow Jones Industrial Average, a price-weight stock market index calculated from the stock prices of 30 of the largest and most widely held public companies in the United States representing the most important industries. The Dow Jones Industrial Average index option contract has an underlying value that is equal to 1/100th of the level of the DJIA index. The Dow Jones Industrial Average index option trades under the symbol of DJX and has a contract multiplier of $100. The DJX index option is an european style option and may only be exercised on the last business day before expiration.
What are Nasdaq 100 Index Options?
Nasdaq 100 index options are option contracts in which the underlying value is based on the level of the Nasdaq 100, a stock market index which contains 100 of the largest non-financial securities (based on market capitalization) listed on the Nasdaq stock exchange. Included companies are from across major industry groups such as computer hardware and software, retail/wholesale trade, telecommunications and biotechnology. The Nasdaq 100 index option contract has an underlying value that is equal to the full value of the level of the Nasdaq 100 index. The Nasdaq 100 index option trades under the symbol of NDX and has a contract multiplier of $100. The NDX index option is an european style option and may only be exercised on the last business day before expiration. Mini-sized Nasdaq 100 Index Option Contracts To meet the needs of retail investors, smaller sized contracts with a reduced notional value are also available and goes by the name of Mini-NDX.The Mini-NDX index option trades under the symbol MNX and its underlying value is scaled down to 1/10th of the Nasdaq 100.The contract multiplier for the Mini-NDX remains the same at $100.
What are S&P 500 Index Options?
S&P 500 index options are option contracts in which the underlying value is based on the level of the Standard & Poors 500, a capitalization weighted index of 500 actively traded large cap common stocks in the United States. The S&P 500® index option contract has an underlying value that is equal to the full value of the level of the S&P 500 index. The S&P 500® index option trades under the symbol of SPX and has a contract multiplier of $100. The SPX index option is an european style option and may only be exercised on the last business day before expiration. Mini-sized S&P 500 Index Option Contracts To meet the needs of retail investors, smaller sized contracts with a reduced notional value are also available and goes by the name of Mini-SPX.The Mini-SPX index option trades under the symbol XSP and its underlying value is scaled down to 1/10th of the S&P 500.The contract multiplier for the Mini-SPX remains the same at $100.
What are S&P 100 Index Options?
S&P 100 index options are option contracts in which the underlying value is based on the level of the S&P 100, a capitalization-weighted index of 100 leading U.S. stocks which are among the largest and most established companies in the S&P 500 index that have exchange-listed options. The S&P 100® index option contract has an underlying value that is equal to the full value of the level of the S&P 100 index. The S&P 100® index option trades under the symbol of OEX and has a contract multiplier of $100.
What are S&P MidCap 400 Index Options?
S&P 400 index options are option contracts in which the underlying value is based on the level of the S&P 400, a capitalization weighted index that measures the performance of the mid-range sector of the U.S. stock market. The index components consist of 400 mid-cap stocks chosen on the basis of market capitalization, liquidity and industry group representation.
The S&P MidCap 400 index option contract has an underlying value that is equal to the full value of the level of the S&P 400 index. The S&P MidCap 400 index option trades under the symbol of MID and has a contract multiplier of $100. The MID index option is an european style option and may only be exercised on the last business day before expiration.
What are S&P SmallCap 600 Index Options?
S&P 600 index options are option contracts in which the underlying value is based on the level of the S&P 600, a US equity market index designed to measure the performance of smaller public companies based in the United States. The index is calculated based on 600 small-cap common stocks with market capitalization in the range of US$200 million to US$1 billion. The S&P SmallCap 600 index option contract has an underlying value that is equal to the full value of the level of the S&P 600 index. The S&P SmallCap 600 index option trades under the symbol of SML and has a contract multiplier of $100. The SML index option is an european style option and may only be exercised on the last business day before expiration.
What are Russell 1000 Index Options?
Russell 1000 index options are option contracts in which the underlying value is based on the level of the Russell 1000, a stock market index that measures the performance of the large-cap segment of the U.S. equity market and its membership includes approximately 1000 of the largest securities representing about 92% of the U.S. market. The Russell 1000 index option contract has an underlying value that is equal to the full value of the level of the Russell 1000 index. The Russell 1000 index option trades under the symbol of RUI and has a contract multiplier of $100. The RUI index option is an european style option and may only be exercised on the last business day before expiration.
What are Russell 2000 Index Options?
Russell 2000 index options are option contracts in which the underlying value is based on the level of the Russell 2000, the market index most widely quoted when measuring the overall performance of the small to mid-cap common stocks traded in the United States. The Russell 2000 index option contract has an underlying value that is equal to the full value of the level of the Russell 2000 index. The Russell 2000 index option trades under the symbol of RUT and has a contract multiplier of $100. The RUT index option is an european style option and may only be exercised on the last business day before expiration. Mini-sized Russell 2000 Index Option Contracts To meet the needs of retail investors, smaller sized contracts with a reduced notional value are also available and goes by the name of Mini-Russell 2000.The Mini-Russell 2000 index option trades under the symbol RMN and its underlying value is scaled down to 1/10th of the Russell 2000.The contract multiplier for the Mini-Russell 2000 remains the same at $100.
What are Dow Jones Transportation Average Index Options?
DJTA index options are option contracts in which the underlying value is based on the level of the DJTA, a price-weighted equity index of 20 of the largest, most liquid transportation companies listed on the NYSE and the Nasdaq stock exchange. The Dow Jones Transportation Average index option contract has an underlying value that is equal to 1/10th of the level of the DJTA index. The Dow Jones Transportation Average index option trades under the symbol of DTX and has a contract multiplier of $100. The DTX index option is an european style option and may only be exercised on the last business day before expiration.
What are Dow Jones Utility Average Index Options?
DJUA index options are option contracts in which the underlying value is based on the level of the DJUA, is a price-weighted index of 15 of the largest, most liquid utility stocks listed on the New York Stock Exchange (NYSE). The Dow Jones Utility Average index option contract has an underlying value that is equal to the full value of the level of the DJUA index. The Dow Jones Utility Average index option trades under the symbol of DUX and has a contract multiplier of $100. The DUX index option is an european style option and may only be exercised on the last business day before expiration.
What are FTSE 250 Index Options?
FTSE 250 index options are option contracts in which the underlying value is based on the level of the FTSE 250, a capitalisation-weighted index of 250 UK companies listed on the London Stock Exchange (LSE). Component stocks of the FTSE 250 index constitute the 101st to the 350th largest companies that are listed on the exchange, based on market capitalization. The Mini FTSE 250 index option contract has an underlying value that is equal to 1/10th of the level of the FTSE 250 index. The Mini FTSE 250 index option trades under the symbol of FTZ and has a contract multiplier of $100. The FTZ index option is an european style option and may only be exercised on the last business day before expiration.
What are FTSE 100 Index Options?
FTSE 100 index options are option contracts in which the underlying value is based on the level of the FTSE 100, the UK equivalent of the Dow Jones Industrial Average and tracks the performance of the top 100 largest companies by market capitalization listed on the London Stock Exchange.
The Mini FTSE 100 index option contract has an underlying value that is equal to 1/10th of the level of the FTSE 100 index. The Mini FTSE 100 index option trades under the symbol of UKX and has a contract multiplier of $100. The UKX index option is an european style option and may only be exercised on the last business day before expiration.
What is an Index ETF?
Exchange-traded funds that follow a specific benchmark index as closely as possible. Index ETFs are much like index mutual funds, but whereas the mutual fund shares can only be redeemed at one price daily, the closing net asset value (NAV), index ETFs can be bought and sold throughout the day on exchanges. Through an index ETF, investors get exposure to a large number of securities in a single transaction. Index ETFs can cover U.S. and foreign markets, specific sectors, or a specific class of stock (i.e. small-caps, ADRs, etc.) but all incorporate a passive investment strategy, only making portfolio changes when changes occur in the underlying index. Index ETFs may occasionally trade at slight premiums or discounts to the fund's NAV, but any differences will quickly be ferreted out through arbitrage by institutional investors. In most cases, even the intraday prices will correlate rather precisely to the actual value of the underlying securities. Additional options are available such as leveraged ETFs or short ETFs, which will have a compound or inverse response, respectively, to the underlying index. Index ETFs can be found based on most of the major indexes such as the Dow Jones Industrial Average, the S&P 500 and the Russell 2000. Costs are comparable to the cheapest no-load index mutual funds as measured by the expense ratio, but investors will typically have to pay standard commission rates for ETF trades. Mutual fund commission rates are typically lower than for exchange-traded securities. Index ETFs can be set up as either grantor trusts, unit investment trusts (UITs) or open-ended mutual funds, and will have slightly different regulatory guidelines as a result. Most index ETF shares can be traded with limit orders, sold short and purchased on margin.
Do you have the complete ETF List?
The list of Index ETF are too numerous to list however a complete list can be found here: https://en.wikipedia.org/wiki/List_of_American_exchange-traded_funds
There are a few ETF that are "favorites" and can be found in the Member Area.
What are Common ETF (Exchange Traded Fund) Types?
Index From an investment strategy standpoint, traditional exchange-traded funds (ETFs) are designed to track indexes. ETFs are available in hundreds of varieties, tracking nearly every index you can imagine; they offer all of the benefits associated with index mutual funds, including low turnover, low cost and broad diversification, plus their expense ratios are significantly lower. Commodity Commodities are a separate asset class from stocks and bonds, so investing in commodity ETFs can provide extra diversification in a portfolio. Because they are hard assets, these ETFs can also provide protection against unexpected inflation. Commodity ETFs can be divided in three types: ETFs that track an individual commodity like gold, oil or soybeans, ETFs that track a basket of different commodities and ETFs that invest in a group of companies that produce a commodity. Commodity ETFs either hold the actual commodity or purchase futures contracts. ETFs that use futures contracts have uninvested cash that is used to purchase interest-bearing government bonds. The interest on the bonds is used to cover the expenses of the ETF and to pay dividends to the holders.
Do you have a shortlist of ETF?
DIA -SPDR® Dow Jones® Industrial Average ETF - NYSE ARCA
IWM - iSh Russ 2000 Shs - NYSE ARCA
QQQ - Pwrsh QQQ SerI Shs - NASDAQ
SPY - SPDR S&P 500 ETF Trust - NYSE ARCA
DBC - PowerShares DB Commodity Index Tracking Fund
GLD - SPDR Gold Trust Shs ETF - AMEX
SLV - iShares Silver Trust Fund
USO - US Oil Fund Partnership Units - NYSEARCA
TECHNICAL INDICATORS AND CHARTING
What is a MACD?
Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between two moving averages of prices. The MACD is calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA. A nine-day EMA of the MACD, called the "signal line", is then plotted on top of the MACD, functioning as a trigger for buy and sell signals.
There are three common methods used to interpret the MACD:
1. Crossovers - As shown in the chart above, when the MACD falls below the signal line, it is a bearish signal, which indicates that it may be time to sell. Conversely, when the MACD rises above the signal line, the indicator gives a bullish signal, which suggests that the price of the asset is likely to experience upward momentum. Many traders wait for a confirmed cross above the signal line before entering into a position to avoid getting getting "faked out" or entering into a position too early, as shown by the first arrow.
2. Divergence - When the security price diverges from the MACD. It signals the end of the current trend.
3. Dramatic rise - When the MACD rises dramatically - that is, the shorter moving average pulls away from the longer-term moving average - it is a signal that the security is overbought and will soon return to normal levels.
Traders also watch for a move above or below the zero line because this signals the position of the short-term average relative to the long-term average. When the MACD is above zero, the short-term average is above the long-term average, which signals upward momentum. The opposite is true when the MACD is below zero. As you can see from the chart above, the zero line often acts as an area of support and resistance for the indicator.
What is an RSI?
A technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset. It is calculated using the following formula:
RSI = 100 - 100/(1 + RS*)
*Where RS = Average of x days' up closes / Average of x days' down closes.
RSI ranges from 0 to 100. An asset is deemed to be overbought once the RSI approaches the 70 level, meaning that it may be getting overvalued and is a good candidate for a pullback Likewise, if the RSI approaches 30, it is an indication that the asset may be getting oversold and therefore likely to become undervalued.
What is a stochiastic?
A technical momentum indicator that compares a security's closing price to its price range over a given time period. The oscillator's sensitivity to market movements can be reduced by adjusting the time period or by taking a moving average of the result. This indicator is calculated with the following formula:
%K = 100[(C - L14)/(H14 - L14)]
C = the most recent closing price
L14 = the low of the 14 previous trading sessions
H14 = the highest price traded during the same 14-day period.
%D = 3-period moving average of %K
The theory behind this indicator is that in an upward-trending market, prices tend to close near their high, and during a downward-trending market, prices tend to close near their low. Transaction signals occur when the %K crosses through a three-period moving average called the "%D".
There are various applications (Fast, Full, Slow)
What is a Falling Wedge?
The falling wedge is typically a bullish pattern signaling a likely price break upwards through the wedge and move into an uptrend. The trendlines of this pattern converge, with both being slanted in a downward direction as the price is trading in a downtrend.
Price movement typically bounces between the two trendlines, which are bounding the price movement.
Another thing to look at in the falling wedge is that the upper (or resistance) trendline should have a sharper slope than the support level in the wedge construction. When the lower (or support) trendline is clearly flatter as the pattern forms, it signals that selling pressure is waning, as sellers have trouble pushing the price down further each time the security is under pressure.
The price movement in the wedge should at minimum test both the support trendline and the resistance trendline twice during the life of the wedge. The more times it tests each level, especially on the resistance end, the higher quality the wedge pattern is thought to be.
The buy signal is formed when the price breaks through the upper resistance line. This breakout move should be on heavier volume, but due to the longer-term nature of this pattern, it's important that the price has successive closes above the resistance line.
Can you tell me something of fundamentals??
In the broadest terms, fundamental analysis involves looking at any data, besides the trading patterns of the stock itself, which can be expected to impact the price or perceived value of a stock. As the name implies, it means getting down to basics. Unlike its cousin, technical analysis, which focuses only on the trading and price history of a stock, fundamental analysis focuses on creating a portrait of a company, identifying the intrinsic, or fundamental, value of its shares and buying or selling the stock based on that information.
Some of the indicators commonly used to assess company fundamentals include:
return on assets
history of profit retention for funding future growth
soundness of capital management for the maximization of shareholder earnings and returns
Think of the stock market as a shopping mall: stocks are the items for sale in the retail outlets. Technical analysts will ignore the goods for sale. Instead, they will keep an eye on the crowds as a guide for what to buy. So, if a technical analyst notices shoppers congregating inside a computer shop, he or she will try to buy as many PCs as possible, betting that the growing demand will push PC prices higher.
Fundamental analysts have a more staid approach. Their sights are set solely on the products in the mall. Shoppers are dismissed as an unreliable, emotional herd with no inkling of the real value of the goods for sale. Our fundamental analysts move slowly through the stores seeking the best deals. Once the crowd moves on from the PCs, they will take a closer look at the ones that were passed over.
Fundamental analysts might take a stab at determining the scrap value of the PC stripped down to its hard disk, memory cards, monitor and keyboard. In the stock market, this is akin to calculating the book value or liquidation price of a company.
Fundamental analysts will also take a very close look at the quality of the PC. Is it going to last, or will it break down within a year? The fundamental analysts will pore over the specifications, scrutinize the manufacturer's warranty and consult consumer reports. Similarly, equity analysts check a company's balance sheet for financial stability.
Then, the fundamental analysts might try to understand the performance of the PC in terms of, say, processing power, memory or image resolution. These are like the forecast earnings and dividends identified from a company's income statement.
Finally, the fundamental analysts will put together all the data and come up with an intrinsic value, or value independent of the current sale price. If the sale price is less than the calculated intrinsic value, the fundamentalists will buy PCs. If not, they will either sell the PCs they already own or wait for prices to fall before buying more.