Learning to Trade OptionsComments?

Option trading has many advantages over other investment vehicles. Trading in option contracts can give an investor the flexibility to place bets on very specific market outcomes; up, down, sideways between price $A and $B, volatile and so on. They can be a complex topic to understand at first - calls, puts, delta, hedging etc. But trust me, many a newbie have started this path just like you. Starting slowly, a few concepts at a time and before you know it you'll be placing your first option trade.

Every Body's Doing it!

You might think options are a finance novelty. If so, you might want to take a good look at this volume graph taken the US Options Clearing Corporation;

US Volume Statistics from the OCC

At the end of 2014 US equity options are at an all time high of 292 million contracts traded - a 7% increase on 2013 volumes.

The explosion and continued growth of the option market proves its' every increasing popularity amongst the retail trading segment. Retail traders are loving the leverage, available asset selection and variety of trades possible with options and combinations of options. Traders can now choose options, not only on stocks, but on indicies, commodities, foreign exchange and exchange traded funds (ETFs).

A big factor in moving traders from traditional stock trading over to options is the leverage options can provide over the underlying instrument; and depending how you structure a trade, your entire risk per trade can be capped at a per-determined amount. Meaning, you can know in advance what your worst case loss is if the trade goes completely against you - something traditional stock trading lacks.

As a retail trader, you can outlay $20 on a stock option where the play is for a market rally in the next two weeks. Even if the stock tanks and goes to zero, your loss will be capped at $20. However, let's say the stock rallies hard on an earnings report, takeover or some other significant event (maybe a tip from a friend) and ends up 15% higher over the two weeks - your net gain could be $150! Risking $20 to make $150.

Everything you need to get started with your first trade you will find on this site. You're welcome to ask questions either via the comments box at the bottom of most pages or via FaceBook and Twitter. Please shout out if you have any questions or suggestions for the site!

Comments (102)

PeterSeptember 1st, 2015 at 7:25pm

Hi Dave,

Sorry for the late reply here...I missed the notification of the comment.

1) The right strike to buy really depends on your view of the stock and how fast you think it might move. If you want to play it safe, you should buy the next strike down e.g. $13 if possible. However, if the stock is already dropping the premium paid might exceed what you received in selling the $14 strike. Either way, with this there is still no guarantee that you will not be assigned on the short $14 strike.

2) You can close out the transactions buy trading the opposite sides of both strikes e.g. if you sold the $14 strike, simply buy the $14 strike for 10 contracts to close it out. Then you will no longer have a position to be assigned on.

You cannot, however, have one strike cancel out the other as they are different strike prices. If you buy back the $14 strike you will no longer have any risk of being assigned a long stock position. If you bought the $13 strike then it is you that has the "right" to exercise or not, so no unexpected risk there either.

Let me know if it's not clear.

DaveAugust 27th, 2015 at 7:23pm

I have sold a naked put option for 10 contracts. The Strike price is $14. The stock is at $16.89. I want to protect against it dropping through the Strike price and having a margin call or being assigned. I understand that I can protect against that by buying a put on the stock.

1) I understand that I need to buy a put that is for the number of contracts I sold - 10 and that I should not pay more than my sale price. Otherwise what do I consider in picking the right put to buy?
2) Lets assume that after I buy my put, the price drops below $14. How do I close out these transactions? How do I get my obligation to buy the stock cancelled? In other words, how do I get the one stock option to cancel out the other?

Dave

PeterJune 30th, 2014 at 7:47pm

Hi Nathan,

Deep in the money call options will have a delta of 1, meaning that the price of the option will move 1 to 1 with the price of the stock. So instead of thinking that you are long 10 calls think of your position as being long 1,000 shares @ $70.

With 1,000 shares I would look to a covered call and lock in gains on the total position by selling 10 of the $85 calls.

NathanJune 30th, 2014 at 1:51pm

I purchased an in the money call option that is now deep in the money. I want to lock in my gains. The options expire in Sept.

I am not getting much time premium. The option is for 70 and the stock is trading at 83. I am only being offered 13.30. The premium seems low but that is not my question.

I own 10 contracts. What do you think about locking in gains by selling a July 85 for 1.50 for 5 of my contracts?

What is another play that I can do with these in the money options?

Nathan

FaisalJune 27th, 2014 at 2:49am

Dear Sir,
I am trading in Indian market my doubt is follows

I have a query on Option delta.

I was checking delta for OTM Put and call option strikes. Then I have observed that on puts, strikes are nearer compared to Call strikes with same delta.( this is 60 days away from expiry)

I.e. When Nifty ( market )at 7580, 8200 CE delta is .21 and 7300 PE delta is -.21.
But the difference from 7580 to 8200 is 619 and from 7580 to 7300 is 280.

Why this much difference is in price distance.

Thanking you in advance.

Regards,

Faisal

AnuApril 7th, 2014 at 12:35am

Hi Peter Sir,
I am new in option (Intra day) trading..Please tell me how to use the option trading calculator (Intra day trading) and how i get the information about "how much call/put it gives today?" means how much points market gives call or put.
If you have another strategy then please tell me..
Thank you,
Anu (India).

PeterApril 3rd, 2013 at 5:02am

Hi Steve,

Regarding replication - do you mean synthetic relationships? You can mix up calls, puts and stock to make different kinds of payoffs based on the Put Call Parity relationship (C - P = S - X).

So a short call position can be replicated using a short stock and short put.

And a short put can be replicated with a covered call.

PeterApril 3rd, 2013 at 5:02am

Hi Karen,

I'm really not sure how this relates to the Black Scholes option model, sorry! Can you share a little more about your calculations i.e what inputs you used to the BS model to generate the 90.45 put price? Just so I can try and understand more about the question.

Btw - what is this course you are doing? Sounds tough for a beginner class ;-)

SteveApril 2nd, 2013 at 11:55pm

Hi Peter,

You are super.. most people in my class got it on the sudden drop in implied volatility but not on the decrease in interest rates.
Btw, i also got confuse on the option replication. Am i right to say to replicate a short call, you lend out money and short call shares of stock? For replicating a short put, you actually borrow money and buy put shares of stock? However, for replicating a long call, you lend out money and buy call shares of stock while for replicating a long put, you borrow money and short put shares of stock.
Is my concept and understanding correct?

KarenApril 2nd, 2013 at 11:45pm

Hi everyone, I'm taking an option trading beginner class and got this question related to deposit insurance in today's lecture.

Suppose Bank A has a total asset value equal to $10 billion and deposits equal to %9 billion. Bank A has no other forms of debt. Bank A's assets have an annual standard deviation of 10%. The current interest rate (continuously compounded ) for one-year maturity is 2%. The deposit insurance coverage is for 1 year and the fixed premium rate is at 50 basis points per dollar insured deposit. The question is how much is the total dollar value of this subsidy by using the BS formula. And why the level of the interest rate does not have any effect on the answer?

I have attempted to solve it and the calculation on put option price is 90.45. And if i change the interest rate, then the put option price also change subsequently.. not sure why???

PeterApril 1st, 2013 at 8:20pm

Hi Steve,

The most likely candidate is a drop in implied volatility - a decrease in interest rates will also cause a drop in the price of an option although the effect is minimal compared to IV.

PeterApril 1st, 2013 at 8:18pm

Hi Joe,

I would say that the answer is A - assuming that the option in question for the stock and the future is the same i.e. it is a call in both examples or a put.

As there are no dividends paying on the stock the one year forward price for the stock will equal the one year future price.

SteveMarch 29th, 2013 at 10:52pm

Hi all,

I just wonder what would cost the price of a stock decreases significantly while the price of tis put option also decrease. Is this due to sudden decrease in the hedge ratio? or sudden decrease in investor's perceived future volatility? or the risk-free rate must have decreased significantly?

JoeMarch 29th, 2013 at 9:55pm

Anyone know how to deal with this question?
The 1 year risk-free rate 5% per annum (compounded continuously). ABC is a non-dividend paying stock and is currently selling at $100. A one-year futures contract on ABC is selling at Sxexp(rT) = 100xexp(0.05) = $105.13. A 1 year European call on the stock with the exercise price of $100 is selling at $X, while the 1 year European option on the futures (which also has a maturity of one year) with the exercise price of $100 is selling at $Y. Use the Black and Scholes option pricing model to make judgement on the following statements. Assume that there are no trnsaction costs or other cost. everything being equal, which of the following is correct?
A: X = Y
B: 1.05 x Y >$X >Y
B: Y is exactly equal to 1.0513 x X
D: X<Y<1.05x X
E: the information is insufficient to determine the relation between X and Y

PeterMarch 26th, 2013 at 9:08pm

Correct - you're bullish on the stock when short a put.

Owning the stock doesn't negate your obligation to deliver when assigned on an option contract. In the same way as not owning the stock when short a call won't stop your obligation to provide stock to the buyer if you are exercised.

In the even of a short call assignment your broker will borrow stock on your behalf, which will be sold to the option buyer upon exercise. You will then have a short position in the stock (until you buy stock to cover) and pay borrow costs (aka stock borrow).

OptionRookieMarch 26th, 2013 at 10:30am

Peter,

You are correct sir. I was thinking about buying a put. If I'm the seller of a put, I'd want the underlying security to at least remains at the strike price if not go higher at expiration, correct?

One area that I don't understand is why do I have to purchase a stock if I get assigned when I already own it?

PeterMarch 25th, 2013 at 9:35pm

Hi OptionRookie,

I think you've mistaken calls and puts here...if you are short a put and are assigned you buy the stock, not sell it.

So at expiration if you are assigned you will by long 2,000 shares at an average price of $4.93.

Unless I misunderstood your post?

OptionRookieMarch 22nd, 2013 at 2:17pm

Hello Peter

I have another senario for you if you don't mind. I have 1000 Nok shares. My average cost is $3.86. I'm thinking about writing 10 covered puts for $6 strike May13 $2.65 premium. I almost forget, Nok doesn't pay dividends anymore. Right off the bat, I collect $2650 of premium. Let's say at expiration I get assign. So I sell 1000 shares @ $6/share which yields $6000. The grand total I would collect is $8650 ($2650 premium + $6000 sell of stock).

So my final net profit would be $4790 ($8650 profit - $3860 cost). I'm leaving commission out for ease of discussion. But wait, it only costs me an average of $3860 for 1000 shares.

What's the catch here? Are my calculations correct or I'm whipping up a fantasy strategy? Why are many investors go this route if it's so profitable?

Thanks again and have a nice weekend.

NickMarch 21st, 2013 at 9:58am

Thanks Peter. I really appreciate the explanation and the spreadsheet is great. Just what I needed.

PeterMarch 14th, 2013 at 9:46pm

If you are short (naked) the call and it expires worthless (stock below the strike) then there is no action to take - the premium received when you sold it is your profit.

However, if the stock is above the strike price at expiration then you will be "called" upon by the buyer of the option who will exercise his/her right to buy the stock at $3.5. You will then have to provide 100 shares of Nokia to the buyer at $3.5 a share. If you don't own the stock then your broker may borrow stock on your behalf to sell to the buyer. You will then have a "short" position in the stock until you buy back the stock to cover (while paying interest on the borrowed stock).

Also, if the options are American style then you may be "called" before the option's expiration date to sell the stock at the strike price.

OptionRookieMarch 13th, 2013 at 2:52pm

Peter,

I'm currently selling 10 Nok 3.5 strike Arp13 call. Do I have to do anything to close it out or just leave it there until it expires?

As always, thanks for your expertise.
Cheers.

PeterMarch 8th, 2013 at 4:20pm

Nope - you can buy to open the same contract in the same month straight away. The same as if you were trading a stock; you can buy to open, sell to close and repeat as much as you want - or until you run out of funds ;-)

OptionsRookieMarch 8th, 2013 at 11:04am

So if I sell to close a contract and made a profit, do I have to wait one calendar month if I want to purchase the same contract again?

Thanks again.

PeterMarch 8th, 2013 at 12:17am

Yep - a wash sale can apply to any financial security.

OptionRookieMarch 7th, 2013 at 1:55pm

Hello Peter,
Quick question for you. Does the wash sale apply to options?

Thanks.

PeterNovember 4th, 2012 at 4:07pm

Hi Bill,

I'm not familiar with TradersHelpDesk - what does their strategy involve? I understand you can't give too much away but a basic overview would help.

BillNovember 4th, 2012 at 9:10am

I am currently using TradersHelpDesk trading method to trade options. I am happy with it...does this stand alone method or do I need to do complicated things?

PeterOctober 29th, 2012 at 4:29am

Hi Sally,

"Buy to open" is when you establish a new position in a security. In your case, you would have initially been flat (no position) and after "bought to open" would be long a put option.

SallyOctober 26th, 2012 at 5:29am

Hi,

I'm new to option trading. Someone please explain What is Bought to Open Put?

PeterAugust 14th, 2012 at 10:52pm

Hi James,

Mmm...this is just a spread bet between two stocks. So, you would want to go long Total and short Shell?

Using options to do this (instead of the stocks outright) would be to use synthetics. I.e. long synthetic on Total and short synthetic on Shell.

E.g. long call + short put (same strike) on Total and short call + long put on Shell (same strike).

Not sure if there are any other strategies suited for this?

jamesAugust 14th, 2012 at 3:50pm

please can you explain to me the right strategy to use if I know that the market will move in favor of one stock. eg if I know that Total plc will outperform Shell by December. Thanks you are great.

PeterJuly 30th, 2012 at 5:28am

Hi Satish,

1. Yes
2. Most likely - it depends on the broker. Interactive Brokers, for example, allows you define your account in another currency. You can also perform foreign currency transactions within your account for other countries that they support.

For your other questions, you will need to read up on the relevant tax treaties between India and the US;

India and US Tax Treaty

SatishJuly 29th, 2012 at 8:58pm

Hi,

Iam a Resident of the India -Bangalore.I have few queries before
investing in US Stock Market Equities.

1.Can I invest Indian money for US Options Trading or in US Stocks ?
2.Once the Indian money is funded to the Brokerage account,will it be
appeared as US dollars ?
3.IF I pay Tax on US Stocks and Options thru online Brokerage
Account ,who located at US,
Do again I have to Pay Tax in India ?
4.When is the Declaration of Income Tax is done at India for April
2012-Marxh 2013 year ???
5.How do Tax regulations apply at India for US stocks and Options ?

Would be greatful if u get me this information.

VenkateshJuly 7th, 2012 at 4:07am

Hi Peter, Your tutorials and the excel files you have given are immensely useful. And you do all this for free. God bless you. :)

JBApril 15th, 2012 at 3:21pm

Thanks for the fantastic site. I never click banner ads but I do on this page with the hopes that it helps maintain this great resource.

PeterMarch 29th, 2012 at 11:43pm

Hi Wayne,

If you sell the option back before the expiration date then it is a manual transaction - i.e. you decide to execute it and place the order yourself (or have a broker do it).

If the option expires and it is in-the-money then the sale of the option is automatic.

WayneMarch 29th, 2012 at 7:01pm

Hi Peter, Thx for the last answer, When you sell back a call early, is it an automatic sale, like mutaul funds or when a buyer buys it?

PeterMarch 28th, 2012 at 6:12pm

Hi Wayne,

Your net profit in both cases should be the same. The difference is that in the second example, you will need more capital to take delivery of the stock once it has been exercised.

At the expiration date, the option will be worth the intrinsic value, which will be the stock price minus the strike price. So if you exercise the option, you essentially sell the option at zero to close it and then take delivery of the stock at the strike price. Then you sell the stock back in the market to make the profit.

wayneMarch 28th, 2012 at 1:03am

great site, thx, my question is that I want to purchase 5 call contracts @ $1.20 for May 25 @ $3.00. Let say that in the first week of May, the price is $8.00 and I wish to sell these contracts. What would my net be approximately? or then if I were to outright buy the stock on May 25, still at $8.00 and sell the same day, what would my net be then. I'm trying to validate my thought process.
thanks again.

PeterFebruary 26th, 2012 at 4:20pm

Hi Raghavendra, the historical volatility spreadsheet downloads the data from Yahoo only. Currently Yahoo isn't supporting historical for NIFTY futures, however, you can download the index historical data by entering in ^NSEI into the ticker field.

RaghavendraFebruary 25th, 2012 at 6:09am

In the historical-Volatility calculator, how can I import Nifty Futures. The Excel gives spot prices. But I want it for Nifty futures, which I want to import from NSE site, from the link link
Please let me, how to do it.

PeterJanuary 23rd, 2012 at 3:54pm

Try Interactive Brokers.

tomJanuary 21st, 2012 at 10:30am

Hi,

Ive been learning to trade options and futures for over a year and im ready to begin.
However ive found that with my current broker im not allowed to trade futures at all and they only want to allowed covered options strategys. I want to trade independantly online and be allowed to sell naked puts and/or calls. any advice you could offer on how to achieve this would be appreciated.
thanks

PeterJanuary 2nd, 2012 at 5:38pm

Hi Patrick, no worries about the questions, I'm happy to help!

It's impossible to say exactly what the market price of the option at that time, however, you can be certain that the price of the option will be at least its' intrinsic value - i.e. for a call option this will be the stock price minus the exercise price. Check out the page on option value for a deeper explanation.

PatrickJanuary 1st, 2012 at 8:46pm

Hi Peter,

Thanks for all the great info - you're very patient and clear. Very helpful. I'm pretty sure I'm clear on the call options - which I'm hoping to purchase soon...but something you just mentioned confuses me; time decay. What is this? The reason I ask is this:

I plan to buy a fairly ridiculous number of call option contracts - pretty cheap. I wouldn't have the cash on hand to exercise the contract so, I'm clear on the fact that I can just unload (sell) back the contracts if, in fact, they are in the money, correct? I guess my question is, how do I know what sort of profit I'm getting? For example, for simplicity in numbers sake, let's say I'm buying Jan '14 call options at a strike price of $4 at a premium of $.10. Let's say I buy 100 contracts ($1000 for 10,000 shares). Let's say that in December of '13 the shares are at $5. I can sell the contracts back, yes? At what profit?

Thanks in advance - hope my questions isn't too moronic.

Patrick

PeterDecember 27th, 2011 at 6:29pm

Hi Kanchan, a pricing model depends on the style of option (e.g. American/European) - not the country.

Index options (i.e. NIFTY) are European style and stock options are generally American style. For European options you can use a Black Scholes Modeland for American options you can use a Binomial Model.

kanchanDecember 23rd, 2011 at 12:22am

do u have any excel pricing model for Indian options ?

PeterDecember 20th, 2011 at 5:09pm

Hi Danielyee,

When to enter the market all depends on your view of the stock.

danielyeeDecember 19th, 2011 at 5:03am

Hi

I'm Daniel from Malaysia

I'm very new in option trading. Can some one please guide me where I can learn when time to enter the trading? Thanks.

Adil SiddiquiOctober 27th, 2011 at 3:07pm

Great information on options, what kind of strategies can be used in this volatile climate especially on instruments like Gold

PeterOctober 4th, 2011 at 12:21am

Yes, take a look at the article on the Binomial Model.

BruceOctober 3rd, 2011 at 11:34pm

Do you have any excel pricing model for American options?

PeterSeptember 11th, 2011 at 7:05pm

Possibly...options lose value as expiration approaches (time decay) and the amount lost increases the closer the option is to expiration.

Any potential gains due to movements in the underlying price need to be enough to outweigh the effects of time value and changes in implied volatility.

Having said that, however, if the price movement you mentioned occurred very quickly, say, over one day then you will most likely still make money on that option.

shailSeptember 11th, 2011 at 7:04am

Hi Peter,

I'm just getting to know options and had few question if you can help me understand.

Say I have bought a call option contract with strike 5000 at a premium of 15 and qty 100 on 03rd Sept, 2011 whereas the current index level is 4500.

Now if the index moves till 4900 do I still make money? Considering that the index has not cross the strike level of 5000 (buy level)?

PeterAugust 11th, 2011 at 6:57pm

Buy to open = to establish a new long position
Buy to close = to exit/close out an existing short position
Sell to open = to establish a new short position
Sell to close = to exit/close out an existing long position
Exercise = if you are long an option and you want to exercise the option to take delivery of the underlying or sell the underlying (depending on whether it is a call or put option)

Yeah, I'm not sure why some brokers use that terminology in their platforms - it is confusing. I think a simple "buy" and "sell" is enough. I mean, if you own 100 shares in MSFT and you want to get rid of them I think it is clear enough that you would "sell" 100 MSFT.

GabeAugust 11th, 2011 at 3:13pm

So when I sell the contract it doesn't mean i'm writing it i'm just selling a already written contract correct? Also when I go to buy a contract/option thru my broker (tdameritrade) I chose what leg of the symbol [what contract I want] aka GE, etc....but I have to chose one of the four options
---------------
Buy to open
Buy to close
Sell to open
Sell to close
Exercise
----------------
Can you explain what each one means? What one would I chose to just buy, say I wanted a *call option* which is what confuses me. Whats the difference between Buy to open and Buy to close and all the rest....

Thanks,

PeterJuly 31st, 2011 at 7:06pm

Kind of - but you don't "have" to buy the stock. You have the "option" to buy it. If the option contract is worth more in the market than what you paid for it, then you can simply sell it back and make the same profit then you would if you went and "exercised" the option and purchased and sold the stock.

GabeJuly 30th, 2011 at 5:17pm

Hi, I'm very new to options (have been trading stocks for some time, and i'm self taught about everything, i'm only 16) and i'm having some trouble understanding them....when I buy a options contract and everything goes smooth and it hits above the strike price in the allotted time I then have to pay the contract price for the stock (I then own the stock and can sell it [if I please] and the contract is now mute?)

If it doesn't hit above the strike price then I lose all my money that I paid for the *contract*, correct? I don't have to buy any stocks? Obviously we area talking about *call options* here.

Thanks,

VigneshJuly 29th, 2011 at 6:06am

Hey..I downloaded your Option trading worksheet. Good work. It is very useful. Thanks for your effort.

PeterJune 16th, 2011 at 5:16am

Thanks for the feedback Jean, much appreciated!

jeanJune 15th, 2011 at 11:27pm

Hi Peter

I am interested to learn options trading but I am a total newbie in this area, and I really am lousy on charts and calculations..

So far I have touched on your introductory notes on 'What, Why and Who Trade Options", you have made it very easy to understand, thank you.

- Jean

NitinMay 14th, 2011 at 12:14am

Thanxxx a Lot Peter For your Help ..Really u r doing a G8 Job....

PeterMay 10th, 2011 at 7:06pm

Hi Jason, I've never come across this firm before. They are Australian based so the information would be focused on ASX listed stocks I would imagine. I've never participated in any options course like this so I cannot comment directly - but would like to hear about your experience if you attend. Let me know.

JasonMay 10th, 2011 at 1:31am

Hi Peter,

have been looking at doing an options trading course that covers in details charting techniques. Have spoken to several training providers however one of them can be found at http://globaltradingedge.com what are your thoughts are their courses?

Have spoken to past students who have had some good success with writing covered calls. Their strategy involves Elliott Wave, Swing Trading and Fibonacci any thoughts would be greatly appreciated

thanks

Jason

PeterApril 7th, 2011 at 8:43pm

Hi Harry, your best bet would be to try option market making firms, however, you'd be hard to find them in India. Both NSE and BSE are order driven markets where there is no official recognition of a market maker. There are firms making markets on options in India, however, their details may be hard to find. I checked the NSE website just now and couldn't find any such firms.

You might want to contact the NSE directly and ask them. Alternatively, you could reach out to your local broker.

Good Luck!

HarryApril 6th, 2011 at 1:52pm

I am from India, I did my MBA in finance.In final semister I took Option Strategies as my Project.Now I want to work in this field so what to do now and which companies I should try,can any one help me in this matter?

PeterMarch 2nd, 2011 at 3:02am

I've not bought the ebook ezy options sells so I cannot comment. A good video options course is the Option Income System - an online video series.

DaveMarch 2nd, 2011 at 2:00am

What is your opinion on www.ezyoptions.com? What are some good cheap options trading courses?

PeterFebruary 15th, 2011 at 10:48pm

You mean like a Long Condor or Short Condor?

janFebruary 15th, 2011 at 2:10pm

thanks peter. one more question. is there such a strategy where you go long and short call and put at the same time? for example when you wait a big move in the price of gold so you buy and sell all four of them for the same trigger price and wait for the outcome?

PeterFebruary 14th, 2011 at 4:15pm

Hi Jan,

Here are some option recommendation services;

Option Sizzle
Index Option Trader
Call Writer

PeterFebruary 7th, 2011 at 6:19pm

Hi Sandy,

Your broker should provide a platform with options functionality. However, if you prefer standalone software for analysis you could try optionvue.com or Omni Trader.

SandyFebruary 3rd, 2011 at 3:07am

Your site is very informative.Thanks. Could you kindly give some advice on cost effective software packages that can be used in stocks/options? I am new at this.

PeterJanuary 31st, 2011 at 10:30pm

Hi Gerry,

If you own the stock and sell a call and a put at the same strike (i.e. a short straddle) the payoff profile is the same as that of a covered call.

JPDJanuary 31st, 2011 at 12:03pm

Gerry:

You may want to go through whatever theoretical courses that you have taken a few more times.

Over time, you will lose your shirt. For example, MSFT was selling for around 28.5 the time of your post. Let's say you sold 29 Feb 2011 options. On 28 Jan MSFT hit 29.45 intraday -- your put options might be called away for a $45 loss per contract. Two days later when the price ratched down to 27.50 intraday -- your call options might be called away for a $150 loss per contract.

GerryDecember 17th, 2010 at 11:29am

Hi , I have some questions relating to options , which I dont seem to find answers to , maybe you could help. If I own stock , say MSFT , and sell a call option for strike price 29 , pocket the premium ( I understand this obliges me to sell the share at 29) . Then if I sell put option for strike price 29 , pocket the premium ( I understand this will oblige me to buy share at 29 ). Is this a viable strategy ? I cannot see a down side but I have only theoratical experience with options. Thanks all

damienDecember 17th, 2010 at 9:03am

Thanks for you quick response, I gone on to the Savi website but they do not appear to provide tutelage in options. My main interest is in options. Thank you

PeterDecember 16th, 2010 at 4:54pm

Hi Damien, if you're after practical training with a prop trading firm, then you could try getting in touch with Savi Trading - they are based in London.

If it's just some conversational type mentoring then you might want to try asking a few of the folks on Trading Coach Directory.

I'm not affiliated with either of the above so cannot comment on the quality of their material. Though if you try any of them let me know and I can pass on the feedback via the site. Good luck!

damienDecember 16th, 2010 at 11:43am

Please admin, I know nothing about share trading, futures and options, but I hold a masters degree in real estate finance and I am most willing to learnin particular options trading so I can make myself a better life, Please can you kindly recommend a good tutelage program or course for me so I can educate myself and make this life I dream about a reality. I am willing to devote total time, energy and al m y resources to tjhis as I have been advised by my sister in Canada to learn about options trading to make my income from there.
I reside in the UK...London to be precise and am really keen to know where to begin and for this knowledge. I know some background knowledge about options, futures and shares but that is all there is to it. Please kindly recommend me good tutelage or good program to educate me to the standard I want, Please. Thank you. My email address is [email protected] should you have further material for me I can use to educate myself on options trading. Please bear in mind I am a novice but a quick learner, I will like some practical and theoretical program to enable get myself this new career.
Many thanks

PeterNovember 29th, 2010 at 6:25pm

Can you please elaborate - is something not clear? I am open to suggestions on how to improve the content.

ARVIND TRIPATHINovember 29th, 2010 at 5:46am

You should provide the basic definition first.

AnkitOctober 20th, 2010 at 7:33am

I don't understand the strategy so, i am not interested but, now I want to understand because of to earn money.

PeterOctober 4th, 2010 at 7:31pm

Have you had any success with such newsletters? I would be interested if you have...let me know.

AROctober 4th, 2010 at 6:20pm

Your option strategies are not creating the doubling or tripling account values as some of your other news letter buddies claim in their sites.
AR

PeterSeptember 6th, 2010 at 11:18pm

Hi Kam, yes, you can do whatever you want to the spreadsheet. The VBA code is not protected, so just open up the VB Editor and change the code all you like.

Implementing a Volatility Skew is a bit trickier though...you would need to be able to query a source of option market prices, download them into the spreadsheet and then calculate the Implied Volatilites for each. (You can use the Implied Volatility functions in the workbook for that).

Then, you would have to implement your own fitting logic to define a curve around these points. Once you have that, you can use each discrete point as your volatility input for your option model.

KamSeptember 6th, 2010 at 7:31pm

Hi, I just downloaded the excel spreadsheet. Excellent job! I have 2 questions: 1. Is it possible to modify the model from Black Scholes to Whaley (American Futures options)? 2. How can I give a skew to the volatility for OTM options and be able to manually shift it and modify the slope? -Thanks

PeterAugust 19th, 2010 at 6:05pm

Hi Tony, most would say to start off trading stocks and "work" your way up just so you become familiar with the risks associated with trading. It's up to you though.

When I opened up my first brokerage account my first trades were in orange juice and lean hog futures. Then I traded stock options on US equities before I actually did any electronic trades in stocks.

TonyAugust 19th, 2010 at 12:41am

Hi,

I want to get into stock trading, can I start by going into option trading right away? or just start with the basic stock trading?

PeterMarch 18th, 2010 at 6:41pm

From their website it seems as though MetaTrader only supports Futures, FOREX and CFDs.

milindMarch 18th, 2010 at 4:27am

i am trading currencies on metatrader.is it possible to trade options simultaneously on metatrader

venika sharmaMarch 12th, 2010 at 11:49pm

Very good information.

mdDecember 30th, 2009 at 11:01am

Good day -we trade in indian stock mkt,if your strategies suits Indian mkt then we too want to learn more on option trading,please Guide me,Ty

sudheeshAugust 25th, 2009 at 4:50am

u can add DEMOs in the Tutorials .

hedgexAugust 8th, 2009 at 7:26pm

I'd like to say thanks for the contents here in general and the spreadsheet in particular -- it is the most wonderful learning tool one can find. Especially the Tips tab. When I check Natenberg's book (Option Volatility), Page 454, that has the strategy table, I was so confused -- I couldn't believe the book got the market direction reversed. Thanks for getting it right.

ShawnaMay 17th, 2009 at 11:44am

Great information, thank you.

JeremyApril 10th, 2009 at 11:10pm

I love the spreadsheet. Im still needing a U.S. currency formula (or spreadsheet) Thank you for this free advice, and i look forward to studying your sheets more.

AdminMarch 22nd, 2009 at 6:40am

Not yet Greg. I will add a Binomial option pricing model soon.

GregMarch 20th, 2009 at 10:25am

Do you have a spreadsheet that price American-style options?

AdminFebruary 23rd, 2009 at 3:53am

Hi Jim,

Unfortunately I've no experience with their program/offering. If you do try it out, let me know your findings.

jimFebruary 22nd, 2009 at 12:43pm

what is your opinion of cashflow heaven subscri`ption service, looks very good and seems to have several years track record, have you heard anything on it?

AdminSeptember 30th, 2008 at 8:09pm

Hi Marie,

Hard to say. Possible sure, but difficult to say without knowing more about their strategy. Could you elaborate a little more on how they expect to achieve this? Or provide the web address of the said company?

MarieSeptember 29th, 2008 at 11:36am

One company offers to double your money in three months investment in otions trading, they say that their risk is very mininal. Is this possible, or could they be legitimate?

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