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THE OPTIONS COURSE- The Big Picture

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THE OPTIONS COURSE The Big Picture OPTIONS Options are probably the most versatile trading instrument ever invented.  They provide a high-leverage approach to trading that can significantly  limit the overall risk of a trade, especially when combined with stock or  futures. As a result, understanding how to develop profitable strategies  using options can be extremely rewarding, both personally and finan cially. The key is to develop an appreciation about how these investment  vehicles work, what risks are involved, and the vast reward potential that  can be unleashed with well-conceived and time-tested trading strategies. First, it is important to differentiate between futures and options. A  futures contract is a legally binding agreement that gives the holder the  right to actually buy (and take delivery of) or sell (be obligated to de liver) a commodity or financial instrument at a specific price. In contrast,  purchasing an option is the right, but not the ob

THE OPTIONS COURSE- The Big Picture

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THE OPTIONS COURSE The Big Picture FUTURES To the novice, futures contracts can be quite confusing; yet they offer a unique opportunity to make money in today’s volatile markets. Futures markets consist of a variety of commodities (e.g., gold, oil, soybeans, etc.); financial trading instruments (e.g., bonds, currencies); indexes (e.g, S&P 500, Nasdaq 100); and most recently, single stock futures (Microsoft, Intel, Citigroup). A futures contract is the agreement to buy or sell a uniform quantity and quality of physical or financial commodities at a designated time in the future at a specific price. The contracts themselves are traded on the futures market. Futures markets gave rise to two distinct types of traders: hedgers and speculators. Hedgers consist primarily of farmers and manufacturers. Futures contracts were initially used by farmers and manufacturers to protect themselves or lock in prices for a certain crop or product cycle.  Hence, hedgers are primar