Showing posts with the label options-trading


THE OPTIONS COURSE LONG CALL In the long call strategy, you are purchasing the right, but not the obliga tion, to buy the underlying shares at a specific price until the expiration  date. This strategy is used when you anticipate an increase in the price of  the underlying stock. A long call strategy offers unlimited profit potential  with limited downside risk. It is often used to get high leverage on an  underlying security that you expect to increase in price. When the underlying security price rises, you make money;  when it falls, you lose money. This strategy provides unlimited profit po tential with limited risk. It is often used to get high leverage on an underly ing security that you expect to increase in price. Zero margin borrowing is  allowed. That means that you don’t have to hold any margin in your ac count to place the trade. You pay a premium (cost of the call), and this  expenditure is your maximum risk. Perhaps the only drawback is that opt


ADVANCED OPTION PRICE MOVEMENTS The concepts outlined in this chapter form the basis for the option strategies in Part Two. These concepts expand on the basics in Chapter 3. They are not necessary for most traders who are mainly looking at option strategies to hold to expiration. The first topic in this chapter will be a quick introduction to option pricing models, particularly the Black-Scholes Model. Also discussed will be the greeks and how they affect the price of an option; probability distributions and how they affect options; option pricing models and their advantages, disadvantages, and foibles and using them. The final major topic will be the concept of delta neutral. which is a key concept for many of the advanced strategies in this book. Which option should you buy? What if you are looking for the price of Widget futures to move from 50 to 60 over the next four months? Do you buy the option that expires in three months and roll it over near expiration? Or d