Protective Put Secrets » FOREX

The Joy of Options

admin — Mon, 25 Jan 2010 08:26:06 +0000

Owning stock has only two, maybe three, possibilities. The stock goes up. Or the stock goes down. Or, as a third possibility, it does a little of both. If you buy a stock, all you want it to do is go up.
If you sell a stock short or close a position (or consider buying it and then decide not to , all you want it to do is go down. I call this one-dimensional trading. You’re long, you’re short, or you’re flat. Your gains and losses travel up and down the number line you may remember from elementary school in lock step with the movement of the stock. Not only that, but it takes a big move to make a big profit. And a big move against you can mean a big loss. Potentially all the way down to zero.
You need to add a second dimension to your trading. You need more choices than picking a direction and hoping you are right. You need to limit your losses, improve your returns, and increase your flexibility. You need options.
For many people, options are something to avoid, being dangerous, complex, and scary. I would like to introduce you to the joy of options. Any time you think you want to buy a stock, I’d like to get you in the habit of first looking at how you could do more with less using options.
In the stock and commodities markets, the type of option we just described would be known as a call. A call typically represents 100 shares of a stock. In the commodities markets, a single option contract represents a single futures contract. (For simplicity, from this point forward, I will talk about options on stock. Just remember that the same discussion applies to options on futures.)
Owning a call gives the owner the right to buy 100 shares (usually) of the underlying stock at the agreed upon strike price at or before the expiration date. (I say “usually” 100 shares because, due to splits or acquisitions, there are times when an options contract may represent something other than 100 shares.) Selling a call gives the seller the obligation to sell, if asked, 100 shares of the underlying stock at the agreed upon strike price any time up until the expiration date.
The other kind of option is called a put, and it is exactly the same as a call with one simple difference. A put gives the owner the right to sell 100 shares (again, usually) of the underlying stock at the agreed upon strike price at or before the expiration date. You can think of a put as insurance. No matter how badly the stock price crashes, having a put means that you can sell your stock for the strike price. On the flip side, selling that put means you may be obliged to buy stock at far more than its current market price.
An important distinction to always keep in mind: Buying an option gives you rights. Selling an option gives you obligations. Buying an option cannot cost you more than what you pay for the option. Selling an option can cost you far more than what you receive for selling the option.
Let’s examine the terminology of calls and puts. The underlying is the actual instrument such as a stock or commodity that is being represented by the options contract. In the real estate example, the house would be the underlying. Options are said to be derivatives because their value is directly tied to or derived from that of the underlying. An option has no meaning without an actual asset underlying it. It is the right to buy or sell that underlying asset that gives the option a reason for being and some value.
The strike price is the agreed upon price for which the underlying can be bought or sold under the terms of the option contract. In the real estate example, the strike price was $100,000. The expiration date, obviously, is the date when the option expires. The day after expiration, an option is worthless. This is the single most important fact about options that you must remember. This is why your friends think you are crazy for your interest in options. Unlike a stock, which you can hold forever, an option has a clearly defined shelf life.
One term remains, and that is the premium. The premium is what you pay for the option, when you are the buyer. Or what you receive for an option, when you are the seller. In our real estate example, the premium was $500. That’s what it cost you to hold the right to buy the house any time in that thirty-day period. The last day of the thirty-day period would, again, be the expiration date.
We have barely scratched the surface. I say that not to intimidate you, but to make you realize that you only have enough knowledge to be dangerous to yourself. Please do not think that you are ready to go out and buy calls or place spread trades. You are not. You don’t know how an option moves relative to moves in the price of the underlying. You don’t know what time does to the value of an option. You don’t know what volatility is or how it plays into option prices. You don’t know the types of spreads or what they are used for.
Please, please get yourself better educated before you start putting money into option trades. Resist the temptation to buy some cheap options, just to try it out. This is expensive education. There are plenty of advantages to trading options, but it’s still a ruthless market, happy to take your money, your wallet, and your hand if you give it an opportunity. Learn the rules of the game before you put money on the line.
Trading options can be satisfying, rewarding, stimulating, and fun. I invite you to add another dimension to your trading by including options to your repertoire.

Online Forex Trading System Training: How To Make A Forex Trade

admin — Sun, 24 Jan 2010 19:43:12 +0000

Forex is an abbreviated name for foreign exchange. The Forex market is a non-stop cash market where the currencies of nations are bought and sold, typically via brokers. For example, you buy Euros, paying with U.S. Dollars, or you sell Euros for Japanese Yen. The value of your Forex investment increases or decreases because of changes in the currency exchange rate or Forex rate. These changes can occur at any time, and often result from economic and political factors, such as the price of oil or political unrest. This article discusses the various steps in making a Forex trade.
Before we proceed, let us review the basics of Forex analysis. Currency market players typically use Forex analysis as a means of predicting currency price movements. Forex analysis is divided into two types: fundamental and technical. A fundamental analysis uses economic and political factors as a means of predicting currency movements. A technical analysis uses reliable historical data as a means of forecasting these movements. The technical analyst believes that history repeats itself over and over again. Some Forex traders depend on fundamental analysis while others depend on technical analysis. However, many successful Forex traders use a combination of both strategies. The important point to remember here is that no one strategy or combination of strategies is ever 100% certain.
Now we can proceed to discussing the various steps in making a Forex trade.
Through a combination of fundamental and technical analysis, you believe that the Euro will go up against the U.S. Dollar because of economic events. To activate the Forex deal, you need to buy Euros with U.S. Dollars. Therefore, your pair of currencies in this Forex transaction are the Euro and the U.S. Dollar.
Next, you determine the volume or the amount of the Forex deal you wish to make. You decide to buy 1 lot of Euros with U.S. Dollars. 1 lot is equal to 100,000 units of the base. Likewise, 2 lots are equal to 200,000 units of the base, 3 lots are equal to 300,000 units of the base, and so on.
You then check the bid price and ask price of EUR/USD. Like the stock market, the Forex market has a bid price and ask price. The bid is the price you can sell at. The ask is the price you can buy at. The bid/ask spread or simply spread is the distance between the bid and ask prices. In Forex trading, this spread is usually expressed in pips.
For this Forex trade, let’s suppose that the bid price is 1.2362 and that the ask price is 1.2365. This means that you can you can sell 1 lot (100,000 units) of Euros for $123,620 or you can buy 1 lot of Euros for $123,650. In this example, the spread between the bid and ask prices is 3 pips wide (1.2365 – 1.2362 = 3 pips).
As stated above, you have decided to buy 1 lot of Euros for $123,650. However, you don’t have to come up with $123,650 in order to buy 100,000 Euros. You can buy 1 lot of Euros with a 1% margin at the price of 1.2365 and wait for the price to increase.
Margin is referred to as the collateral needed to facilitate the Forex deal. Usually, this is a very small portion of the entire deal, say 1% or 1:100. For this example, your margin would be $1,236.50. Please note that margin is a double-edged sword. Without the proper use of risk management tools that are discussed below, you can experience substantial losses as well as gains.
You determine stop-loss and take-profit rates. A stop-loss order is a market order to close a Forex position if or when losses reach a pre-set threshold. A take-profit order is a market order to close a Forex position if or when profits reach a pre-set threshold. We strongly suggest that you take advantage of stop-loss and take-profit options in your Forex trading. By using the take-profit and stop-loss options, your deal closes automatically, when and if such rates occur in the market.
Let’s suppose that you have a pre-set take-profit rate of 1.3575. Three days later, the Euro rises in relation to the U.S. Dollar. Your deal closes automatically when profits reach your pre-set threshold. You now have $135,750, which is $12,100 more than what you started out with three days earlier.
Let’s look at another scenario as well. Suppose that you have a pre-set stop-loss rate of 1.2165. Two days later, the Euro falls in relation to the U.S. Dollar. Your deal closes automatically when losses reach your pre-set threshold. In this example, you now have $121,650, which is $2,000 less than what you started out with two days earlier.
Trading Forex on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose.

Naked Options

admin — Sat, 23 Jan 2010 08:39:55 +0000

Options are one of the oldest trading vehicles man has ever used. Around a 1000 B.C Aristotle Thales predicted by the stars that there would be a bumper olive harvest and bought options on the use of olive presses.
When the harvest did in fact prove to be a great harvest Thales was able to rent the presses at a significant profit.
When you buy an option you have the right but not the obligation to buy (call) or sell (put) a specific underlying asset at a prearranged price on or before a given date.
Similar to futures, options can give the holder protection against adverse price moves.
Call options when bought allow you to buy an asset at a fixed price (strike price) on or before a specific exercise date.
Exercise date: some options can only be exercised on a particular date and they are commonly know as European options. Options that can be exercised on or before the due date are commonly known as American options).
A Put options is the reverse of the call option. When you buy a put option it gives you the right but not the obligation to sell an underlying asset at a predetermined date.
Now let’s look briefly at the result of selling naked calls. In this scenario, the call writer simply sells the call and does not own any of the underlying stock to cover the short call. If the stock plummets, the call writer is very happy and relieved.
The premium of $400 is his to keep, and no one will be knocking on his door asking to buy the stock for $100 per share, since it is available on the open market for $50. It’s his ideal scenario. Actually, any stock price at or below the strike price will be in his favor.
However, here’s a very bad scenario. The call writer sells short a naked call. And the stock leaps 50%. He’s got big problems. Somebody’s going to want to buy XYZ from him for $100 per share, just as the option contract states.
But he doesn’t own any shares of XYZ. So he now has to go to the open market and buy 100 shares at the current market price, which is $150 per share. He took in $400 of premium and now has to cover is with a $15,000 stock purchase, for which he will only receive $10,000. He loses $4600 ($10,000 – $15,000 + $400). Not a happy ending.
Do NOT even consider selling naked calls. Your broker probably would not allow you to anyway. However, until you really know what you are doing, don’t sell naked puts either. When the bottom drops out of a market, naked put holders get very, very badly hurt. They are forced to pay high prices for low priced stock. You do NOT want to be in this position!
An option gives you something called leverage. Leverage is when you are able to control a large amount of money with a small investment. Each option contract lets you control 100 shares of stock for far less than the cost of buying those shares. But leverage is not the best reason to trade with options.
True, with the leverage that options afford you, you stand to risk less and make more, assuming things move in your favor AND in your time frame. Remember the expiration date! You have traded leverage for limited shelf life. If things don’t move your way soon enough, you lose. So, what is the main reason to trade options? Spreads!

Forex Trading Online

admin — Fri, 22 Jan 2010 20:39:53 +0000

You can make Up to 145% monthly or 2.55% daily profit on your online investment!2. E-gold, E-bullion, Bank Wire options available3. DDOS protected Dedicated server, 24/7 Support + Live Support Chat4. Safe Real and Stable Forex Trading Results – Our forex traders earn Real risk free profit using our special unique forex trading strategy (read Strategy and our monthly forex trading reports):5. Privacy Protection and Offshore based business – minimizing business expenses and taxes. All personal data is safe and secureWHAT IS FOREX CURRENCY TRADING?If you read about investing, you’ve seen the word forex trading. But because forex doesn’t get much publicity in the major publications and websites, many investors don’t know that forex is just short for “foreign exchange”. So trading the forex market is simply trading foreign currencies.. Transfer/withdraw your profit to any bank account.As recently as ten years ago, currency trading had high barriers to entry, so only large banking and institutional firms had access to the tools and systems required to play in the forex trading game. Recently, however, technology has developed to the point that any individual investor can hop right in and trade with one of the many online platforms.When buying and selling in the forex currency trading system market, you’ll see that there are four “currency pairs” that dominate the percentage of trades. Those four are the Euro vs U.S. Dollar, US Dollar vs Japanese Yen, US Dollar vs Swiss Franc, and US Dollar vs British Pound.The goal when investing in currency is to be holding a currency that appreciates in value in relation to the other currencies. To use an overly simplistic example, if you bought 50 British Pounds for 100 US Dollars, held the Pounds for 1 week, and in that period the value of Pounds increased in relation to US Dollars, you could then convert those Pounds back into dollars for, say, $120.Unlike the domestic stock markets, the forex currency trading is open for trades 24 hours a day. Much like the phrase “it’s always noon somewhere,” it’s always business hours at some region of the globe. Since every country trades on the FX market, and it’s open all day, the daily volume is roughly $1.2 trillion, which dwarfs that of the NYSE. Another comparison to make in order to truly realize the magnitude of the forex market is with the currency futures market (which has around 1% of the daily volume).One other important distinction to make is that forex currency trading is not centered on an exchange like the NYSE or NASDAQ. There is no central body or organization required to act as middleman. Trading circulates between major banking centers around the world.Until recently, there were strict financial requirements and massive minimum transaction sizes which prevented individual investors from trading. But with the advent of the internet came the FX brokers. A forex currency broker is similar to an online stock trading account such as etrade.Anybody can open an account and buy and sell in any quantity. Because the brokers have thousands of investors placing orders through them, they are able to meet the large minimum transaction size by purchasing in large blocks and distributing currency amongst the purchasing investors.Although it is now easy to start trading forex, it is a complicated and complex market. While it offers fantastic opportunity for wealth, it is also very easy to lose your shirt in a hurry. Before trading forex, do your homework and read as much as you can find before investing your hard earned money.

How to Make Consistent Profits Futures Trading

admin — Fri, 22 Jan 2010 09:37:39 +0000

The issue of direct access is an important one and it becomes more important the more short term your trading is. The market can change from a state of seeming paralysis to one of shocking volatility and activity in a flash. The length of time it takes between you deciding to enter an order and the order actually being in the market is obviously important.
When I first started trading I used a phone broker and was dismayed that my fills would often be so far from the price the market was trading when I first entered the order.
The first time I visited the trading floor, I discovered why. When I called in an order, first my discount broker would check my account equity, then he would call a phone booth on the floor, the phone broker on the floor would then write the order down and pass it on to a booth next to the appropriate pit, at that booth my order would be written down again and then signaled to a broker in the pit to be executed.
As you can imagine this would take quite a long time, even longer of course if the market was very active, as this would mean that the broker in the pit would be too occupied to take new orders. Compare this to my experience of trading as a pit trader. In the pit I was in the heart of the market and could observe every single order as it was executed (there was no delay in my price feed!).
To initiate a trade, whether it was to buy or sell at the market, or join the bid or the offer, all I had to do was open my mouth. You can start to see the huge advantage that trading on the floor gave me over off floor traders; and that doesn’t take into consideration the fact that my round trip costs fell by 96%.
Now the floor no longer exists, not in Europe at least, so why talk about the advantages of pit trading? Well the level playing field is now open to all, but very few take advantage of it. Trading with an electronic trading platform is exactly the same as trading in the pit, except I can sit down, it is much quieter and there are no crude jokes flying around.
I can trade with the click of a mouse; my order shoots to the exchange, enters in the market and appears back on my screen before I have time to blink. I think the advantages of direct access trading are clear and any futures trader still using a phone broker should move to direct access, they will also find their commissions are less (around $8 for private client traders).
The next question that arises is why trade futures? That is an important consideration given that there are a variety of alternatives vying for your trading capital (spread betting, CFDs and options), but in my opinion, futures are the only option (no pun intended) for successful short term trading.
A lot of traders are trading the stock indexes like the FTSE, the DAX, the S&Ps, NASDAQ and the DOW, but rather than use futures they are using spread betting firms. The reasons for using these firms is that they require very small amounts of capital to get started, a trader can trade very small amounts (like $1 a point on FTSE as opposed to $10 for FTSE futures) and these firms make opening an account so easy.
I understand the lure of being able to open an account with very little money and trading small amounts, but I have some serious considerations about using spread betting as a realistic vehicle for professional trading.
The two biggest selling points are no commissions and no capital gains tax. There are many different costs to trading, commissions are one and the spread is another (especially when you have to trade at the market as you do with spread betting, with futures you have the choice of joining the bid or the offer).
Commissions are important for an active trader and as an active trader you can get them very low, but lets assume they are $8 per round turn for futures and lets assume that the spread in FTSE futures is an average of 2 points. If the spread with a spread betting firm for FTSE is 6 points and assume that we are trading $10 a point we can compare the two trading vehicles.
Last week I made an average of 2.42 points per contract traded and I traded 48 times. That is, for each contract I bought and sold I made $24.20 before commissions, assuming my commission rate is $8, I made a profit of $16.20 per contract traded, which is $777.60 net profit if my average size per trade is one contract.
Had I had the same success trading with a spread-betting firm, with a 6-point spread, I would have lost $1718.40! Now I would rather pay tax on a profit that no tax on a loss.
There is one other very important reason for trading the futures market rather than a non-exchange traded market such as those offered by spread betting firms. The futures markets are exchange traded and this means that they are fully transparent, i.e. everything is visible and above the table, I can see every single trade that happens. Imagine the trading pit, as it used to be when traders stood physically in a ring trading with each other.
When a trade is entered, the order goes into the pit and is represented there, free to be taken by any other market participant. We can all see what is happening, we trade with the same information and with the same advantages/disadvantages.
Now assume you are a trader who can only trade with one broker in the pit, you can trade as much as you like, any size you like, but he sets the spread he is willing to offer you and you have to trade at market (i.e. buy at his offer and sell at his bid). This broker doesn’t want to loose money, naturally, so he always makes his spread wider than the real market spread, he also, naturally, puts his interests before yours, so he won’t always be willing to trade when the market is moving fast and he is uncertain.
Remember whenever you make money he loses, so he is very careful to maintain his advantage at all times. Who wouldn’t want to be in this brokers position (he isn’t really a broker, though he claims to be)? When you trade with a real futures broker, all the broker does is facilitate your trade; he gives you the ability to have you orders represented in the pit. A real brokers concern is that they execute your order as efficiently as possible, that is their job, they do not take positions and they do not take the opposite side to you.
They naturally want you to make money because by making money you become a client who will continue to pay them commissions. Trading with a spread betting firm is absurdly costly, spread betting firms are like amusement arcades, they can be fun, but to imagine you are going to make your living from slot machines is illusory.

What is a Vertical Spread?

admin — Thu, 21 Jan 2010 19:58:55 +0000

Choose Your Forex Trading Platform Wisely

admin — Sun, 17 Jan 2010 19:39:39 +0000

FOREX – Use Options to Reduce Your Risk

admin — Sat, 16 Jan 2010 19:46:09 +0000

An option is a contract to that gives the holder the right to buy or sell currency at a pre-determined price at a specific price. The holder of the contract has the right to exercise the option but is not obligated to. Options are used as a hedge in FOREX transactions; they are frequently used by companies that trade in oversea goods to reduce their risk.

Options come in two different flavors. Call options give the contract holder the right to buy the currency. Put options give the contract holder the right to sell the currency to someone else.

When the contract expires the actual value of the options is whatever the holder will get by actually exercising the contract. If the holder will gain nothing by exercising the option then the actual value of the option is zero. The value of the option at any other time during the contract is what is called the intrinsic value, that is the value if the holder were to exercise the option at that time.

The intrinsic value is partially based on the set price of the contract, which is also known as the “strike price”. A call option has an intrinsic value if the current price of the currency is higher than the strike price. This would allow the contract holder to buy the currency at less than the current value and then re-sell it for a profit. A put option has an intrinsic value if the current price is less than the strike price of the option.

Any time an option has a positive intrinsic value it is said to be “in the money” if the intrinsic value is negative then the option is considered to be “out of the money”. It can also have a value of zero which means that the current price is the same as the strike price in which case it is considered to be “a the money”. Options should only be exercised when they are “in the money”.

There are complicated formulas used to calculate the intrinsic value of an option, these formulas take into consideration both the current price as well as the time value. The time value is calculated based on the market conditions, including things like interest rates on both currencies as well as the time left in the contract. The pricing of options is delicate; they must be low enough to attract buyers but also high enough to attract the sellers as well.

Options are primarily used to minimize risk in FOREX trades. They help to protect against unexpected fluctuations in the market. When you buy an option your potential loss is limited to the price of the option. When you sell options your potential loss can be significantly higher. The seller gains the premium for selling the option but depending on how the market moves their loss could be unlimited.

As a hedging tool, there are many different types of options available. They are often used to minimize the potential for loss due to fluctuations in the foreign exchange market by companies that trade overseas.

In the FOREX market there is a special option known as a digital option. A digital option pays a specified amount at expiration if certain criteria are met. If the criteria are not met there is no payment.

To us a digital option the trader must first decide which way the market is moving. They then decide on a payoff amount if the market moves as expected within a certain time frame. Using this information they can then calculate the price of the digital option.

For example:

The price of the euro is currently trading at about 1.2400 and you expect it to rise to 1.2800 within 3 months. You decide to buy a put digital option with a payoff of $5000. The cost of the option is $800.

If at the end of the 3 months the euro is more than 1.2800 you get $5000. If the price is less, you lose $800.

Options can be a valuable trading tool for all FOREX traders.

Forex Trading – Calm and Collected Risk Taking

admin — Thu, 14 Jan 2010 08:04:16 +0000

There are absolutely no guarantees in forex trading. About the only thing that is guaranteed is that nobody knows for sure how the market will move. Sure there are indicators and trend lines to read, but these are really not fool proof. The successful forex trader should be able to accept at the onset of his forex options trading and currency trading career that there are risks involved in forex trading. It is your ability to stay cool in the face of these risks that will spell your performance in the forex options trading and currency trading business.

When you see entry signals, you have to be quick on your feet to think whether this is a trade that you want to get into or not considering the risks vis-a-vis your forex trading strategy. Taking on the risks sans emotions and sticking to your strategy is often the best way to make forex options trading and currency trading decisions. Do not be too emotional about the way you are trading. Assume the worst but hope for the best is a good tenet to follow. If you believe in your trading strategy, give it a chance to work for you.

Start with low-risk trades to get a feel of the forex market if you are a novice. Sometimes, running after bigger pips can result in missed opportunities and great losses for the forex trade. By keeping your emotions under control you will be able to develop your own trading strategy of spreading out risks, enjoying small pips in the short-term, and planning for long-term pips.

One of the Easiest and Most Profitable Strategies to Trade Forex That You May not Know

admin — Thu, 14 Jan 2010 08:04:15 +0000

Its not a joke that forex trading is one of the easiest ways to make HUGE profit online.

Is the largest financial market in the world, with a turnover volume of about $2 trillion a day.A forex trader is like a cameleon; he has no permanent side but permanent interest and that is to make profits.Success has been limited to a very small percentage of traders.Ninety percent of traders lose money, largely due to lack of planning, impatience,limited training,no good strategies or too much confusing robots or overcrowed templates.This article will reveal some of our simple but powerful strategies used to have between 200-1500 pips per each trade on each currency pair.we trade specially between 1HR TF and weekly TF as day traders or intraday traders but still have other very simple methods to scalp the market.

1.In technical trading, we say “the trend is your friend’, so always go with the trend.how do you determine your trend very fast? use the powerful CCI settings that picks easily on the movement of trend up to 80% accuracy either as a scalper or day trading.

2. The use of another powerful trend determiner ,PSAR found on most platforms.Many people dont know the power of this indicator. With the combination of other powerful softwares and custom indicators,it is a winning trade.

3. the power of LSMA with alarm generator that tells you accurately when you should prepare to buy or sell.I know many traders that use this with price action to make huge profits in forex. Many programmers have developed many accurate linear LSMA ,without repainting.this is a very boost to generate accurate signal and trend and also makes your platform to look simple.

4.what of AC/AO. This is another powerful indicators that many ignores,this protects your trading from loss and help to pick signal and trend very fast if you know how to use this very well with other indicators mentioned above.

5.additional indicators that ,with experience, will recommend is turbo cci that works well with cci and PSAR.They make you trade as a guru and sophisticated trader, because they reduce your loss if you know how to implement them.

6.Personally, i dont trade with the robot.robot performance depend on the progrmmers experience in forex trading.so if you dont trust the source, stay off or else you can blow your account away easily.

7.Millions of pips are generated up and down on the platform every week.wait for your time and stick to the rule of the game.do not gamble.even when you are loosing,stay aback and see where you miss it. forex is just like a game that needs constant practice.to achieve very tangible results.

7.watch your leverage.

8.The trick is that when you have up to three powerful trend determiner,with the assistance of other indicators,then know that you are moving on the winning side.If you can get all this into action, i promise you that you can sky rocket your account within 3 months.