Category Archives: Binary Options
An option provides the owner the right to buy or sell an asset at a pre-determined price before or on a certain date. Trading Options can be very profitable for the owners. However, it is important to gain a proper knowledge and understanding of the terms used in the options market.
Options are very different from stocks. This article presents 10 very basic facts about options that every options trader should know. Don’t start trading of you don’t understand them.
- Right to Buy or Sell
Options are contracts giving the owner the right to buy or sell an asset at a fixed price (called the “strike price”) for a specific period of time.The seller of the option contract is obligated to take the opposite side of the trade if and when the owner exercises the right to buy or sell the underlying asset. Options are available on a variety of different underlying assets including stocks, futures, indices, commodities, Forex, Bonds etc. Today most assets have options.
- Calls and Puts
There are two types of Options: Calls and Puts. Understanding the difference between the two is absolutely crucial to getting started.
For each call contract you buy, you have the right (but not the obligation) to purchase 100 shares of a specific security at a specific price within a specific time frame. A good way to remember this is: You have the right to “call” stock away from somebody.
For each put contract you buy, you have the right (but not the obligation) to sell 100 shares of a specific security at a specific price within a specific time frame. A good way to remember this is: You have the right to “put” stock to somebody.
Generally speaking, you buy Call Option because you have Bullish Outlook and you buy Put Option when you have bearish outlook.
Though there are only two types of options, when you factor in other characteristics of options, there are endless trading possibilities.
- The Strike Price
That’s the pre-agreed price per share at which stock may be bought or sold under the terms of an option contract. Some traders call this the “exercise” price. You can choose any price at which you would like to buy or sell underlying instrument. These prices are called Strike Price and Options are available in several Strike Prices at, far or near the current market price of the underlying instrument.
Options can be In-The-Money (ITM), Out-of-The-Money (OTM) and At-The-Money (ATM).
- Options Symbols
The OCC option symbol consists of 4 parts:
- Root symbol of the underlying stock or ETF, padded with spaces to 6 characters
- Expiration date, 6 digits in the format yymmdd
- Option type, either P or C, for put or call
- Strike price, as the price x 1000, front padded with 0s to 8 digits
- SPX 141122P00019500: This symbol represents a put on SPX, expiring on 11/22/2014, with a strike price of $19.50.
- LAMR 150117C00052500: This symbol represents a call on LAMR, expiring on 1/17/2015, with a strike price of $52.50.
- Buying vs. Selling Options
If you buy an option, you are not obligated to buy the underlying instrument; you simply have the right to exercise the option. When you buy a Call Option, you have the right to BUY stocks at your option’s strike price.
Similarly, when you buy a Put Option, you have the right to SELL stocks at your Option’s price.
If you sell a Call Option, you are obligated to deliver the underlying asset at the strike price at which the Call Option was sold if the buyer exercises his or her right to take delivery. If you sell a Put Option, you have to buy the underlying if exercised.
Generally speaking, if you don’t take any action, your friendly broker will most likely do it for you if your Options are eligible for exercise.
- Options Strategies
There are about 72 options trading strategies. There are three most commonly used options strategies: bullish, bearish and neutral or non-directional. The top 10 options strategies: Covered Call, Protective Put, Long Call, Long Call Spread, Long Put, Long Put Spread, Long Straddle, Long Strangle, Collar and Iron Condor.
Options are good for a specified period of time after which they expire and the option holder loses the right to buy or sell the underlying instrument at the specified price. This specified period is called “Expiration”.The expiration date for listed stock options in the United States is normally the third Friday of the contract month, which is the month when the contract expires. However, when that Friday falls on a holiday, the expiration date is on the Thursday immediately before the third Friday.
Options are available for variety of expiration timings such as Weekly, Monthly, Quarterly and much longer durations (known as LEAPs).
- The Option Price
The price reflects a variety of factors including the option’s volatility, time left until expiration, and the price of the underlying asset. There are several Options Pricing Models that you can use to calculate theoretical Option Price by modeling various parameters.
There is no fixed price for an Options. It is dynamic and will keep on changing with respect to time to expiration and other variables.
- Debit vs. Credit
Options when BOUGHT are purchased at a DEBIT to the buyer. That is, the money is debited from your brokerage account. It’s exactly like buying a stock.
You can sell an Option, without owning the shares. Options when SOLD are sold at a CREDIT to the seller. Money is added to the brokerage account. You can’t withdraw this money until the trade has been closed. Usually, this money is used to offset the margin required for selling the options.
- What You Can Do With an Option
You have three choices when you own an option. And that’s true whether you own a call or a put. Each choice has its pros and cons. Each choice might lead to different profit outcome.
The choices are:
- Sell it. You do it by entering a sell order to close (eliminate) your position.
- Exercise it. Notify your broker that you want to do what the contract allows.
- Allow it to expire worthless.
Kim Klaiman is a full time Options Trader and founder of steadyoptions.com – options education and trade ideas, earnings trades and non-directional options strategies.
Read more from Kim on his Options Trading Forums.
Due to the continuous change in the economy, the human lifestyle is constantly affected, creating more issues and problems, and hence individuals are not able to get satisfaction and contentment in their life. People are making adjustments in their amenities like food, shelter and other commodities in life to fulfill their needs.
Because of this rapid change in economy, many people are searching for other sources of income. Some of them start their own small business, some opt for a much simpler quest of saving money in banks and financial institutions and others are going for risky ventures like trading. This is all done to improve their lifestyle and have a better living. Out of all these options, trading can provide better and faster income solutions.
Nowadays, many people are opting for binary options. Experts believe that trading is not a hard venture as assumed by many people. If you are using the right tactics and platform, you can get amazing and efficient results.
If you are interested in making more profit in binary options, follow these tips and start your own venture.
- Finding out the perfect trading option – Trading offers many options, like stocks, commodities, money and many more. Individuals should also make sure that they have sufficient background in the option that they are choosing from. This will give you more options and help in making stronger decisions for your trading, without wasting time, effort and finances and not get any results. By finding the right trading option, you can also minimize the risks of having deficits and other loses as you trade.
- Making your goals clearer – While trading, it is important to set your goals so that you are able to make clear and concise decisions. This will also allow you to do a proper planning for your venture. When you have reliable and efficient tools and reports regarding the movement of the trade, you can get accurate readings as you trade.
- Finding reliable platforms and businesses – With the help of good knowledge and years of experience from reliable trading companies, you will get a lot of guidance in your trading. They will also help you in finding a legitimate trading platform so that you don’t fell in the wrong hands and make wonderful profits.
Follow these tips before you go into trading. You can also understand the vital factors that can affect your trade, and strengthen your plans to have a better and bright future.
We know that binary option trading is one of the ways that will enable you to earn quick money. In order to earn the most out of your investment, you will need to select a trading platform that will give you the best returns. But how reliable are the trading platforms or the binary options brokers whom we depend on immensely for our trading needs? This is one question that has not been clearly answered ever. This is because the services, products, assets, and the modus operandi of the trading platforms differ widely and unless you sign up with one, you will not be able to fathom how secured your trade can actually be.
What’s troubling about the trading platforms?
There are many experts and older traders that will be able to help you better with these doubts but you will come across many traders that have been in this business for several years but are not able to ascertain the genuineness of the trading platforms.
Every other day you find that new websites related to binary options trading are mushrooming all over the virtual world. Each one claims to be the perfect broker and in order to impress traders and allure them will keep no stones unturned in proving the same. Not all of them are hoax or fly-by-night trading platforms that extract your money only to disappear but it is difficult to assess their authenticity.
Few experts are of the opinion that these websites will siphon out money from your trading account in such a manner that you will not understand in the guise of penalties, late fees, and fines. It is quite likely that these websites are actually platforms that offer online games where you get to earn quick cash but they will give you the impression that there’s is a trading website. Few traders fall prey to these tricks.
How will you identify these websites that lure investors?
Unlike other websites that will offer their services and products along with their rules and regulations, these seemingly binary options trading websites will have messages blinking like “You can earn 85% of your investment in few minutes”, “Get rich with as little as USD$100”, and the like.
Also, there are a couple of web portals that will give you extensive information about how to trade binary options and how to get started and stuff like that. When you finally sign up, you are promised something else but when it is time to withdraw your profits, these websites have a different story to tell.
Another important aspect that you need to take into account when you are trading binary options is the contract that you sign between you and your trading platform. Make sure you read between the lines prior to signing the contract so that you don’t have to regret later. Oftentimes, it is seen that traders fail to do so and when any dispute arises, they are in for a shock when they come to know what the terms and conditions actually imply.
If you want to be a very good trader in binary option, you need to have a sound knowledge and understanding of the technical aspects and the fundamental view points of it. More importantly you need to be a little advance in understanding the future trends of the market than others. Then only you can be the better trader in the market.
Learning is the best way to be a good trader. Each and every day the world is changing as well as the market. If you are not updated regularly then it will be very difficult for you to catch up the trends of the market, global political scenario and other market influencing facts at a time.
Now it is important to let you know from where you can get all the updated news. For general knowledge of binary option, you can go through the websites like www.10option.com and blogs related to this topic. There are many helpful articles and blog posts available in the internet for your help. There are some good brokers who maintain their websites and blogs where you can get the tips and knowledge of the technical aspects of binary options trading.
There are two types of Binary Options Trading:
- Exchange-traded binary options
- Non exchange-traded binary options
Few concepts which can help you in trading binary options.
Money management is one of the very important concepts in binary options trading. You need to be very much attentive at the time of investing your money. Try to gather information of the field where you are going to invest.
It is also important to have deep knowledge on multiple fields of the market. But be careful that to gather knowledge on various fields, you get only a little. It is very dangerous. A little learning is always a dangerous thing. So it is advised that traders must invest enough time for studying the technical analysis and methodology of binary options to earn good profits.