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I am new to options trading. I would like to know how to understand that we are in profit? i mean like I have purchased a lot of call option at 100 rs per share and strike price is 105 and in a day or intraday it reaches to 106 then can I sell it at 106 price? and what will happen if it comes down to 100 or 99 again ,still I have achieved strike price or not. I mean if stock price goes up to 106 and comes down to 99 can i say i have achieved strike price or I should sell it when it is at 106? Pl explain and help. thanks '
Day trading


You question is confusing because it is often unclear if you are talking about the price of the option or the price of the underlying stock. Here is what I think you meant to say:

Question: "Assume I purchased call options with a strike price of 105 rs when a stock was at 100 rs per share. If the stock goes to 106 rs can I sell the option at that time?"

Answer: Yes. You can sell the option any time prior to expiration. It does not matter if the stock is (or ever has been) above the strike price.

Question: "It the stock goes up to 106 then comes back down to 99 can I say it reached the strike price?"

Answer: Yes, it reached the strike price, but that makes no difference whatsoever. The price of the option depends upon several factors, one of which is the current price of the stock. Any previous price at which the stock traded is not a factor.

Question: "Should I have sold the option when the stock was at 106 rs?"

Answer: You would get more money by selling the option when the stock was at the higher price, but at the time the stock was at 106 rs you had no way of knowing if the stock would keep going up or if it would go down. Consequently, when the stock was at 106 rs you had no way of knowing that it would be better to sell it at that time.

————-

From your question I strongly encourage you to learn more about options trading before investing any real money in options.

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Day trading


Be aware that 90% of day-traders lose money. The odds are way against you. I recommend trying swing-trading (a few days to a few months time frame) first. The pressure is less and the timing not so quick. The exact same principles that apply to swing trading will prepare you for trading on shorter time frames. Or … you might decide you were making enough money in swing trading to stick with it.

As for sources, check with your brokerage. Many of them make learning tools available to their clients.

Best of success.

Is there a website out there that lets you interact with those trading screens and lets you play with practice accounts?

Options trading is preferential, but I am open to any ideas.
I know websites like Interactive Brokers lets you have practice accounts, but you need to already have an existing real account.

Day trading


Here's a free site which i use from time-to-time:

http://888options.com

You can also find out a lot more info about trading and options on these free sites which are recognized by Y! A as "Knowledge Contributors"

http://investopedia.com

AND

http://yahoofinance.com

As far as "day trading" is concerned:

THE BIGGEST challenge is having $25,000 CASH on-hand in a trading account at all times. This does not include any trades or positions. This is cold, hard cash.

Once the balance goes below this, certain restrictions are instituted.

Thanks for asking your Q! I enjoyed answering it!

VTY,
Ron Berue
Yes, that is my real last name!

Example: (Hypothetical) I created a position on a stock or commodity options market, and have a position of (bought) 20 Call Options with strike price of 100 USD and I paid the premium of 10 USD. If the next day the premium fell to 8 USD and the underlying price fell to 95 USD, how much Loss/Gain did i make?
Day trading


(10-8) * 20 = 40. The other data is just for figuring out how much the options worth.
I’ve been trading stocks for the last 2yrs and now i think its time i find out how options really work

Buy 40 Contract(s) of the 20.00 Call on SOLF (QFG ID) at Market Open price

At a premium of $2.45 per share (100 per contract), the value of of this transaction is estimated at $9,800.00, plus commissions of 89.99, for a total of 9889.99. This value may however change with MarketOpen Price when exchange opens on next business day.

so does this mean my break even point is $22.45?

how do i make money with options… if it goes to $25 what percentage gain would that be?

this is just an example… i will study & use a practice account for the next 6-12 months before i rally take a go at it

Day trading


<<>>

Yes, if

(1) you hold the position until expiration and
(2) you ignore commissions.

<<>>

If you hold it until expiration and the stock is at $25 at expiration your options will be worth $5.00 per share, giving you a profit of $2.55 per share, or a little over 100%.

<< >>

You should study and use a practice account, but do not commit yourself to starting at a set time unless you are comfortable that you understand options at that time.

————–

In my answers I specified “at expiration” because prior to expiration the option premium consists of two parts, the intrinsic value and the extrinisic value. (The extrinsic value is also sometimes called the time value.) At expiration the extrinsic value will be zero and the exact value of the option is known. Prior to expiration the extrinsic value will be greater than zero, but exactly how much greater depends on the implied volatility of the option. (The implied volatility of the option is essentially the amount of volatility expected in the stock price.) So, prior to expiration your breakeven price will be less than $22.45.

———-

I strongly encourage you to read at least one or two good books about options as part of your course of study. There are some excellent web resources, such as

http://www.cboe.com/LearnCenter/default.aspx

and

http://www.optionseducation.org/

I suggest you check if you haven’t already, but they do not teach you as much as a good book will. They may, however, teach you enough to pick out a good book.

If I'm working full time and can't be watching the computer all day, can I still do these trades safely? What happens if there is a rapid adverse change in stock price? Can I set a point for the brokerage to unravel the whole trade?
Day trading


You should be using limit orders on every trade anyway. Selling covered called is fine. The only downside to that is if the option is called, you may miss a big upswing in your stock. Thats about the only truly safe option play. Other options trades can be lucrative, but come with a lot more risk. 85% of options contracts expire worthless.
I just don't get it. If things are so bad, why isn't the floor dropping out? Is it the hedge funds keeping them up enough to bounce them between 300 point fluctuations and feel comfortable with the options trading in those ranges?
Day trading


Hi,Well for a start there are 1000's of investors who when indices drop jump on board to take advantage of fluctuating markets.10% is not going to happen across markets unless massive disaster affecting world…
Big brokers also along with fundmanagers buy n sell etc etc so ,whilst we are going through a correction from the bull run it will settle and steadily rise ,just be patient.
Hedge funds don't control the market it's way too big,they might think they can LOL…Cheers ♥
I know "day-trading stocks for a living" is kind of a joke nowadays (although, yes, I'm sure 1 out of 50 daytraders are able to make a living out of it), but what about options trading?

I have a fairly solid background in financial markets, but I've never explored options. Can I, with no more than $20,000 really make great money selling and buying options?

The stock market alone could earn me 11% on average. What kind of year-end returns could I expect trading options?

Please no links to advertisements! Thank you!

Day trading


I'm actually a fan of selling options on stock I already own. Basically if you're the guy selling the contract to buy 100 shares of x stock at y price, you:

1) Get cash up front.
2) Will make money beyond the cash you get up front if the option is actually excercised (assuming the strike price of the option you sell is greater than the current price of the stock your selling.)
3) Aren't taking any big risks that you wouldn't be taking anyway by holding the stock.

Of course you risk making less money that you'd otherwise make if you simply held the stock and it goes well above the strike price. But most options expire worthless, and quite a few of the ones that don't probably still don't make enough to cover the contract price (ie your still better off).

How much you can make doing this depends on the stocks you invest in and the manner in which you do it. Not shockingly people are willing to pay more for options on a hot growth stock like Apple (a Sept 140 call contract trades for $420, slightly more than a 3% yield) than they are for a value stock like Walmart (a Sept 45 trades at $45, a 1% yield). Also the closer the strike price is to the stock's current price the more its worth but the more likely it is that the contract will be excercised (an Apple Sept 140 contract is worth $420, a 150 is worth $140, a 160 $45, etc). I generally sell contracts that are short term and fairly far out of the money (as far as I can go while still making a decent return).

Okay, that was a lot…

Buying calls or puts is obviously far riskier. My advice would be that you should only buy options rarely, if at all, and look for options that don't expire for at least a year (more time is relatively cheap when buying options–the first month is the most expensive, as is the first year, etc).

And to answer your originial question– unless you are VERY lucky (and have taken a huge amount of risk) I doubt you could make a living in the short term off of options. But you should be able to augment your returns by selling calls and over the long term that can help the 20k grow.

Good luck.

I've never heard of this until a few days ago. what is options trading btw? how can i do well?
Day trading


An option is a financial instrument you can buy or sell to generate additional income on the stocks you already own or to speculate on stock price movement.

Here's how it works:

Before you can trade options, you have to apply for options trading.

Most applications are reviewed and approved within 5 business days.

After being approved, decide whether you want to write a covered call, or trade calls or puts.

Options Strategies

* Covered Calls
Sell a covered call to generate income on a stock position you already own. This strategy is designed for conservative investors who are neutral to moderately bullish on a stock currently owned and are willing to sell the stock at a pre-determined price in exchange for receiving a premium for selling the call option.
* Trading Calls & Puts
Buy calls and puts to speculate on the price of a stock. Investors can buy long call options when they feel the price of the underlying stock will increase, or buy long put options when they feel the price will decrease.

What I need to know is, and this needs to be answered with somebody that actually trades options for a living. The other day i was watching this stock in pre market trading it was up by 5 dallars or 5 points in pre market. i wanted to catch that move using options, i have been paper trading with option express. so i purchased deep in the money calls. and the last bid and ask, the price of the option was like 8.20 – 8.50 the last trading day, i put a limit order in for 8.60 before the market opened, i was up tremendous that day because of the price discrepancy. So my anserwer is, is this a flaw with option express, or can you put in a order in using options if you see a stock up or down significantly in pre market trading. to capture the move in within the intraday.

THANK YOU

Day trading


You are asking a very important question. The fact that you are asking it shows a greater than average understanding of the markets. That said, I'm sorry to have to say that is impossible to answer for sure. Any type of paper trading does have a limitation in that a computer or person is deciding if and when an order gets filled and this might not be totally realistic. When you are ready to move on, start with real money in tiny amounts and watch what happens with real orders getting filled.

Back to your example. Please consider another theory. You didn't capture the 5 point "discrepancy". You might have been profitable because there was a big follow thru when the primary market opened and you caught some of that move. I have done this, and when it works, it works well, but sometimes there is no follow thru, or worse, there is a backlash, so being ready to exit promptly when the trade is not forming is crucial to success.