Posts Tagged ‘basic’

Q&A: Options Trading: Valuation and basic questions?

Question by RoastGoose: Options Trading: Valuation and basic questions?
Hi

1. Am I correct to say that the only determinants to what strategy to use are the expected Trend and Volatility of the underlying?

2. Besides Black Scholes, are there any other option valuation models commonly used? How are they used practically?

Thanks

Best answer:

Answer by Barry789
The second part is easy.

Cox, Ross and Rubinstein came up with the binomial pricing model. See the link for a brief discussion.

Their book is the second link. It may be old, but it’s still good.

There are a lot of options books on the market.

I’m not sure exactly what you mean by the first part, but those are good things to consider.

There are other things to consider, however.

What are you trying to do? Speculate, protect a position, earn income, create a synthetic security or derivative, etc. There are many things that affect the choice of a strategy beyond trend and volatility. Trend and volatility might be considerations in pricing an option more than strategies or tactics..

Add your own answer in the comments!

What are Stock Options? A basic and easily understood review of Options!

An energetic fun introduction to options in a very simple format that can be understood by just about anyone from soccer moms to IT professionals. The speaker is Carlyle Gordon who started working on Wall Street around 1998. Production Data: 2:23:10:14:05:4989 3:28:10:09:52:6060 11:19:10:11:06.14480
Video Rating: 4 / 5

A Basic Options Trading Glossary – The Term You Need To Know When Trading Options Successfully

Options trading is a complex form of investment. It is at the sharp end of the financial market so to help you understand the subject we have provided you with a basic options trading glossary.

When you buy an option you are purchasing the right to buy an underlying asset within a certain time period. If you decide not to buy the asset within that time period the option will “expire” and your investment is lost.

Beware When Options Trading

Options trading is not for the faint-heated or for those with little experience of financial markets. It is a way to lose a lot of money very quickly. The reason people do opt for this form of investment however is that there is a good chance to make bundles of money very quickly.

Trading options has many permutations and I would advise against this form of investment unless you have a proper understanding of the subject. To help you get a basic grasp of the subject I have provided here a basic options trading glossary to get you started.

Our Options Trading Glossary To Get You Started

Strike Price – This is the term for the underlying price which the stock may be bought and sold at.

Exercised – This is the term used to describe how before a position can be exercised it must go below (for puts) or above (for calls) the strike price otherwise the position cannot be exercised.

Expiration Date – The term used to describe the time limit which is agreed upon by both the holder and the writer within which action can be taken reliant of course on the strike price being reached so that the option can be exercised.

Options Exchange - There exist national exchanges like the Chicago Board Options Exchange (CBOE) where trades take place. If a deal is done through these exchanges then they are called a listed exchange.

Contract – There are fixed price and expiration dates when a trade is done through an options exchange. When a deal is agreed within this framework every listed exchange represents 100 shares of a stock which is given the term contract.

In-The-Money - An investor is deemed “in-the-money” with a call option when the price goes above the strike price. The same goes for a person with a put option if the price falls below the strike price they too are considered “in-the-money”.

Intrinsic Value - Any profit you can make on an option is called its intrinsic value.

Premium – This is the overall price (cost) of an option

Time Value – This is the term used to describe the amount of time left before the option reaches its expiration date.

Volatility – A term used to describe roughly how high risk an option is. This isn’t a true quantifiable number but just an indicator.

Options Trading A Conclusion

This options trading glossary will allow you to understand all the main terms associated with this form of investment. You can use it to do further research on the subject which is advisable before dipping you toe into options trading investment.

Basic tutorial of the Forex MetaTrader 4 Platform (Part 1)—The very beginning-Part 1

forex12.zulutrade.com This is a basic informal tutorial on the MetaTrader 4 platform. Its basically the beginning stages if you are about to demo the MT4. order, stop loss, trailing stop, etc. TIP FOR ALL FOREX TRADERS: Get FREE forex signals from reputable traders with proven, “legitimate” track records. Read more here: forex12.zulutrade.com If you are a successful Forex Trader and don’t want the headaches of being a money manager, you can sign up as a signal provider and get paid as long as you have folks that want your signals: forex12.zulutrade.com If you have any questions or would like for me to go over something, shoot me a message…Cheers…Virgil This is a demo live recording for informational purpose only.

Forex Bid And Ask Price – Basic Guide For Understanding Forex Trading

Forex Bid And Ask Price

Foreign Exchange or Forex, for short refers to the currency of foreign countries. There is a demand for the currencies of other countries due to reasons like international trade in goods and services, economy strength, and other factors. The demand and supply requirements of the different currencies worldwide is the chief reason which affects their prices vis-à-vis other currencies. To regulate the prices better and centralize market (demand and supply) action, there are Forex exchanges where people can do Forex trading.

Majors, Exotics And Crosses

The currencies are represented by their symbols as C1/C2, where C1 and C2 are the currencies. For example, USD/EUR will mean the rate of 1 USD in terms of “n” Euros. The pairs of currencies are called by various names like majors, crosses and exotics. “Majors” are the currency pairs of Euro, Yen, Pound, Swiss Franc, Canadian dollar and Australian dollar with US dollar. “Crosses” are those currencies of the developed world which are not pitted against the dollar. “Exotics” are the currency pairs of developing economies with those of other developing or developed economies. Forex Bid And Ask Price

Ask, Bid And Spread

In FX trading jargon, the “ask” price is the selling price of the currency by the broker and the “bid” price is the buying rate by that broker. Whenever you go to a bank, you will find two rates of currencies on digital board. The higher one is the selling rate for the bank, meaning that you will be required to pay higher amount for buying that currency. The lower amount is the buying rate, meaning that the bank will buy at a lower rate than selling rate. In currency trading, the spread is the difference between ask and bid rate.

Spot, Forward And Contracts For Difference (Cfds)

Spot price of a currency is the current Forex trading rate. If you place the spot order, the currency will be bought or sold at the rate prevailing at the time of placing the order. If you think that the currency trading rate will change in the future and you want security against fluctuation, then you fix a rate and promise to buy or sell the currency on a future date at that very price. This is a forward contract. Forex CFDs are different to buying currencies at a bank, where you don’t physically own the currency you buy. Rather, they anticipate future movements and take a position in CFD trading accordingly so as to make profit from the difference of the current and future exchange rate on their booked position. Apart from the CFDs, there are other derivatives of different types which are meant for hedging or risk covering purposes like the futures and options. These are based on underlying security or assets called derivatives.

Forex trading platforms are generally provided online by a number of duly registered and licensed companies using special software. They allow ease and convenience of trading, enlarges the customer base and volume of business and also makes the market more liquid. The customers use a number of charts to analyze the market movements and accordingly take their positions and enter into different types of contracts. Forex Bid And Ask Price

Introduction To Forex – Basic Introduction To Forex Trading

Introduction To Forex

The FOREX or Foreign Exchange market is not a “place”. Rather, it is the collection of currency traders around the world. One of the primary concerns of any traveler is money. Currency is required to pay for goods and services anywhere in the world. But this doesn’t mean just any currency. Travelers are required in most cases to exchange the currency of their country for the currency of the country in which they are travelling. The same principle occurs on a larger scale between international businesses.

This need to exchange currencies forms the basis of the Forex market, and makes it the biggest financial market in the world (trading the equivalent of around 2 trillion US dollars every day). The exciting thing about the Forex market is that there really is no one central trading location. All transactions occur electronically across the globe at all hours of the day. Introduction To Forex

Forex Trading Methods:

The spot market. In the spot market, currencies are bought and sold. The price of any given foreign currency depends upon many factors, but is essentially dependent upon supply and demand. Supply and demand are affected by political and economic conditions, interest rates, and speculation on future performance of a particular currency. An actual spot deal is a transaction in which one party hands over a specific amount of one currency, and in return receives a quantity of another currency at an exchange-rate value that both parties agree upon. The idea being that one party or another feels that the currency they are holding will be worth more in a future trade.

Spot trading is the most common form of forex trading, and is the focus of most articles discussing forex trading tactics. Larger entities will also deal in the forwards and futures markets as a way to hedge risks. Forwards and futures are trades that involve contracts with settlement dates… not actual currency.

For investors looking to delve into the world of forex trading, it would be wise to note that the spot market has matured on the back of modern technology. Trades are computerized which makes this a very fast-paced venture. Because of the pace and complexity of this market, the savvy forex traders all use some form of software to manage and maintain their transactions. Introduction To Forex

Basic Forex Strategies

Technical analysis and fundamental analysis are the two basic areas of strategy to use when it comes to the FOREX market which is the exact same as in the equity markets. The difference however, is that the technical analysis is by far the most common strategy that is used by individual FOREX traders. Here is a brief overview of both forms of analysis and how they directly apply to forex trading:

Fundamental Analysis
If you think it’s hard enough to value one company over another, you should try valuing a whole country instead. Fundamental analysis in the forex market is an extremely difficult one, and it’s usually used only as a means to predict long-term trends. But it is important to mention that some traders do trade short term strictly on news releases. There are a lot of different indicators of the currency values that are released at many different times in the day. Here are a few of them to get you started:

Non-farm Payrolls
Purchasing Managers Index (PMI)
Consumer Price Index (CPI)
Retail Sales
Durable Goods

You need to know that these reports are not the only factors that you have to watch out for either. There are also quite a few different meetings where you can get some quotes and commentary that can affect markets just as much as any report. These meetings are often brought out to discuss any interest rates, inflation, and other issues that have the ability to affect currency values.

Even changes in how things are worded when they are addressing certain issues such as the Federal Reserve chairman’s comments on interest rates; can cause the market to get very volatile. Two important meetings that you have to watch out for are the Federal Open Market Committee and Humphrey Hawkins Hearings.

Just by reading the reports and examining the commentary, it can help FOREX fundamental analysts to get a better understanding of any and all long-term market trends and also to allow short-term traders to be able to profit from important happenings. If you do decide to follow a fundamental strategy, you will want to be sure to keep an economic calendar around you at all times so you know when these reports are released. Your broker may also be able to provide you with real-time access to this kind of information via the internet.

Technical Analysis
Technical analysts of the FOREX trading market analyze price trends. The only real difference between technical analysis in FOREX and technical analysis in equities is the general time frame that is involved in that FOREX markets are open 24 hours a day.

Because of this, some forms of technical analysis that factor in time have to be modified so that they can work directly with the 24 hour FOREX market. Some of the most common forms of technical analysis used in FOREX are:

The Elliott Waves
Fibonacci studies
Parabolic SAR
Pivot points

This is the point where you will actually choose your basic strategy. Basically it is best to simply choose whichever that you are the most comfortable with. Your broker can help you in making the right choice here.

There are a lot of forex trading software online available which can make you a lot money. Take just the right one.

A Basic Technical Analysis Course for Pattern Analysis

What is pattern analysis? It is basically the reading of charts. It is said oftentimes that chart reading is not as easy as the simple memorizing of patterns and recalling what they mean. This is true, because any stock chart is a combination of different patterns, and that is why accurate analysis relies on consistent study, experience and personal knowledge of elements both technical and fundamental, and, in some ways and in some measure, the ability to weigh various opposing indications, to appraise patterns in view of their minute, composite details and in the recognition of fixed, memorized formulae.

What are the reasons why market participants buy and sell securities in the market? Knowing those reasons will help us make better informed decisions about buying and selling securities, and knowing those reasons is a key part of technical analysis in pattern analysis. There are thousands of market participants at any point selling and buying securities for many reasons, motives and from different financial positions and information/ knowledge positions: for instance, a wide spectrum might have a love of return and a concomitant hope of gain, an aggressive optimism, hedging, with stop loss triggers, with price target triggers, using perhaps fundamental analysis, or perhaps utilising technical analysis, basing decisions on broker recommendations, and many more. Trying to figure out why participants are buying and selling can therefore be challenging. Chart patterns thus place buying and selling into perspective by combining supply and demand into a kind of concise picture. As a visual and complete record of trading and prices, chart patterns provide a framework to analyze bulls and bears in stock price movements. Hence, chart patterns and technical analysis can help us determine the true, bigger picture.

What might pattern analysis do? Pattern analysis can be utilised to make short term or long term forecasts about stock prices. Data can be intraday, daily, weekly or monthly, and patterns can be as short as one day or as long as many, many years. Furthermore, for example, gaps and outside reversals may form very quickly in one single trading session, while, broadening tops and dormant bottoms may take months to be established.

Yet it should be said that technical analysis can be science and, then again at other times, art. In addition, pattern recognition is open to interpretation, subject to personal bias. To defend against bias and confirm pattern interpretations, other aspects of technical analysis should be used to verify or refute conclusions. While price patterns may seem similar, no two patterns are alike. False breakouts and exceptions are all part of the game. Hence, careful constant study is required for successful chart analysis. In addition, it is important to know that two basic tenets of technical analysis are that prices trend and that history repeats itself. An uptrend indicates that demand is in control, and a downtrend, that supply is in control. As the balance shifts, a pattern emerges. The majority of patterns fall into two main groups: reversal and continuation. Reversal patterns indicate a change of trend. Continuation patterns indicate a pause in trend, suggesting that the previous direction will resume later. However, just because a pattern forms after a significant advance or decline does not mean necessarily that it is a reversal pattern. Much depends on previous price actions, volume and more as the pattern evolves. This is where technical analysis becomes an art.

To conclude: pattern analysis is the reading of charts, but it’s not that simple. The various motives that motivate and actuate people in the market are part of charts and patterns, and discerning the charts and patterns requires some insight into such behaviour. Yet at the same time, chart analysis and pattern recognition are not science, but art, meaning that good technical analysis is always hard to do accurately. Hence, to give some key important suggestions to budding new technical analysts, the keys to successful chart pattern analysis are dedication, a persistent dedication to learn, focus, by limiting charts, indicators and methods, and consistency, where one should maintain charts regularly and study patterns often.

Options Trading Strategies, Basic Concepts

When venturing into the options market, the best way to get the lay of the land is to be acquainted with at least some of the more elementary concepts. These will aid the new investor in successfully executing basic trading strategies.

Two basic terms, the call and the put, are the epicenter of the trading strategies. To buy a call confers the right, not the obligation, to buy at a price that is pre set. Conversely, puts give the buyer the right to sell at a pre set price. Options are both sold and bought, meaning that the seller grants the buyer the right and takes on an obligation to fulfill the other side of the trade.

The variations to this maneuver include:

Long Calls

The long call is the easiest to understand and is the most basic concept. MSFT (Microsoft) traded at $28 with June 31 options that were to expire on the third Friday of June. The strike price was $31, meaning that it was pre set so if exercised it had to be bought at that price.

Short (Naked) Calls

When the writer, the person selling the option, does not own the underlying stock and the option is exercised, then he or she is obligated to sell. Under those circumstances, that action is considered a naked call. Because the person is on the selling side of the contract, his position is considered to be short.

The short call status incurs the most profit by the amount of the premium if the market price of the underlying asset decreases. When the price exceeds the strike price by more than the premium, then the short position takes a loss.

Long Put

When a trader anticipates that the future market price of an asset, such as a stock, will fall before the expiration date is able to sell the stock at a fixed price. The buyer, put buyer, is not obligated to sell the stock, but he or she does have the right.

If the market price does drop below the strike price before the option expires and the decrease is more than the premium paid, then the seller profits. If the price increases or fails to drop enough to cover the premium then the trader will allow the contract to expire worthless.

Short Put

When a trader speculates that the future market price will rise, they can sell the right to sell an asset at the predetermined price.

If the asset’s market price increases, the short put position incurs a profit that is equal to the amount of the premium. This amount excludes any transaction costs and commissions. However, if the price drops below the strike price by more than the premium amount then the writer loses the money.

There are several trading strategies that are basic to the market. These strategies employ the characteristics of four basic trading positions. These strategies have one of several outcomes: pure profit plays, speculating on gaining a profit or creating a combination of speculation and hedging.

When positions move in opposite directions, it is called hedging. Hedging bears a profit less that sheer speculation, but they do compensate by offloading a certain degree of the risk.

Bull spreads and bear spreads are common strategies that can help the trader manipulate the market, depending on the market emotion. Bull spreads utilize a long call with a low strike price and combine it with a short call at a higher strike price and a short put with a higher strike price. On the other hand, bear spreads use a short call with a low strike price and a long call with a high strike price. Alternatively, the short put can be used with a low strike price and a long put can be used with a higher strike price.

There is a great deal of software on the market that can aid in these types of trades. Options trading software can offer users concrete demonstrations of the how these strategies work. They show how they behave under different assumptions regarding future prices, volume and other factors, combined with various expiration dates and strike prices to show how these different scenarios can result in a profit or a loss.

Basic Tips to Start Trading in the Forex Market

If you are new to the currency trading, practicing with a demo account will help you in the direction of winning: Losing is a part of currency trading and there is no doubt about that. When trading currencies online you get the benefit of staying in contact with the currency market so long as you are logged online.

Fundamental analysis takes a broad look at political impacts world events natural disasters and other factors to determine a good investment. It is only natural that the majority of experienced currency traders will doubt and even disgrace the best and most popular Forex trading systems on the market. Net this site is excellent with a ton of awesome information for free as well as many links to sites that require that you pay a fee for the ongoing information they will give you. Not only do these programs take the learning curve out of currency trading but they work to effectively trade for you without your slightest intervention required around the clock which is a major bonus which no other human trader can touch given the 24/5 nature of the market. Some public investors jump into Forex as they see the opportunity like the bright lights of the Vegas strip.

The two currency trading software systems I believe are the best available and the ones I use everyday are called FAP Turbo and Forex MegaDroid. More recently the foreign exchange programs market has seen a new breed of a select couple of automated programs, which focus entirely on investing in solely lower risk/reward trades. See more on Forex Country Interest Charts. Understanding foreign exchange trading also means you have to be prepared to work around the clock. In order to provide conversions for billing many companies opt to use the rate of exchange as of the day that the goods and services are actually billed even if the actual usage took place earlier in the month. These programs are often called robots and there are some advantages to using them instead of trading yourself.

If it doesn’t I will simply acquire the new leader. It puts you in the driver’s seat and makes you feel like you are more in control. The author suggests that before you invest into this you should first be sure that the information you are using is credible. Why? Because in the exchange rate a trader will know if it is the right time to sell or buy a stock to gain the most.

People will always be taken in by sure fire trading systems and artificial intelligence systems for a couple of hundred of dollars is yet another but trade them and you will lose money. 5 % of daily volumes consist of Government and commercial currency conversions the other 95% is made up of speculation and trading. See more on Canadian Currency Exchange Locations. Working with another professional is always a great way to expand your horizons. This means each transaction carried out between 2 parties is negotiated at that time. In simplest terms an arbitrager may sell when the carry cost he or she can collect is at a premium to the actual carry cost of the contract sold.