Options trading presentation
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The document discusses options trading compared to stock trading. It explains that options allow for higher returns with less capital than purchasing equivalent shares but have expiration dates. The document defines put and call options and bullish and bearish strategies. It also covers concepts like time erosion, portfolio management, and resources for learning options trading.
Options trading presentation
- 1. Options Trading BRIAN HYDE
- 2. How Do I Make Money?
- 3. Options vs. Stocks Cost of Purchasing 100 shares of $AAPL $400 * 100 shares = $40,000 ROI = ($425 - $400) / $400 = 6.25% Cost of Purchasing 1 call contract of $AAPL $25 * 100 multiple = $2,500 ROI = ($40 - $25) / $25 = 60%
- 4. What is an Option? PUTS CALLS Long – right to sell stock Long – right to buy stock Short – obligation to buy Short – obligation to sell Options are derivatives of the value of 100 shares of a given stock. Unlike a stock, options prices fluctuate without any buying or selling.
- 5. Bearish Put Transaction: You buy the right to SELL a stock to someone else at the option’s strike price Insurance/hedge against decline in stock price Maximum risk is equal to premium paid You make money if the stock goes down Will most likely become worthless
- 6. Bullish Put Transaction: You sell someone the right to SELL a stock to you at the option’s strike price Similar underwriting an insurance policy Profit is capped at the amount of premium collected Risk is the same as purchasing stock – premiums You make money if the stock goes up Will most likely become worthless
- 7. Bullish Call Transaction: You buy the right to BUY a stock from someone else at the option’s strike price Allows you more leverage than a stock purchase Profit potential is unlimited Risk is limited to amount you pay in premiums You make money if the stock goes up Will most likely become worthless
- 8. Bearish Call Transaction: You sell someone the right to BUY a stock from you at the option’s strike price Profit is capped at the amount of premium collected Risk is infinite You make money if the stock goes down Will most likely become worthless
- 9. Time Erosion
- 10. Time Erosion 85 % of all traded options expire worthless Options trading requires a rational, mathematical approach to be successful Concept of In-The-Money is crucial Erosion gives option writers the advantage
- 11. Scenarios Declining Stock Buy Puts Sell/Write Calls Rising Stock Buy Calls Sell/Write Puts Flat Stock Write Puts and Calls Simultaneously (strangle)
- 12. Portfolio Management Be a Good Accountant FIFO vs. LIFO vs. Max Loss Brokerage Tools: Trading Platform Watch Lists Research http://finance.yahoo.com http://cnbc.com http://investopedia.com http://stocktwits.com
- 13. Investats.com Integrated Portfolio Management http://investats.com
- 14. Tips: Trade on math not emotion Develop a system that tells you what to do Don’t bet more than 2% of your capital on one trade Make decisions based on facts and rationale
- 15. Books to Read The Compete Guide to Option Selling Cordier and Gross Trend Commandments Michael W. Covel
- 16. Contact Brian http://twitter.com/Brian_Hyde http://financenerd.net brian@investats.com