Options Valuations compose of,
1) Intrinsic Value
2) Time Value
Intrinsic Value = Stock Price - Exercise Price
Time Value = Call Premium - Call Intrinsic Value
Minimum Intrinsic Value = 0 (i.e. total loss of capital/premium paid)
Intrinsic Value = ITM (In The Money)
No Intrinsic Value = OTM (Out of The Money)
Strike Price = ATM (At The Money)
Under Call Options (Buy),
ITM - Underlying Asset > Strike Price
OTM - Underlying Asset < Strike Price
ATM - Underlying Asset = Strike Price
Under Put Options (Sell)
ITM - Underlying Asset < Strike Price
OTM - Underlying Asset > Strike Price
ATM - Underlying Asset = Strike Price
Basically,
ITM = Profit
OTM = Loss
ATM = Breakeven
Saturday, September 1, 2007
Research 3 - What is Options? Why Options?
Option is,
1) The right
2) Not the obligation
3) To buy/sell an asset
4) At a fixed price (Strike/Exercise price)
5) Before a predetermined date
Risk in option = Premium paid, nothing more
Options is either Call(Buy) or Put(Sell)
Options provide,
1) Excellent leverage - Small amount of money control large amount of stock
2) Portfolio hedging
3) Flexibility
1) The right
2) Not the obligation
3) To buy/sell an asset
4) At a fixed price (Strike/Exercise price)
5) Before a predetermined date
Risk in option = Premium paid, nothing more
Options is either Call(Buy) or Put(Sell)
Options provide,
1) Excellent leverage - Small amount of money control large amount of stock
2) Portfolio hedging
3) Flexibility
Sunday, May 27, 2007
Strategy
The following is the strategy I will employ.
1) Filter good stocks (look at EPS, Debt, etc)
2) Apply one to two technical analysis on the selected stocks (likely to be Fibonacci and retracement)
3) Review and record earnings/losses
1) Filter good stocks (look at EPS, Debt, etc)
2) Apply one to two technical analysis on the selected stocks (likely to be Fibonacci and retracement)
3) Review and record earnings/losses
Saturday, May 26, 2007
Thursday, May 24, 2007
Research 2 - Basic Economics
GDP
Measure of the economy's performance within its own territory.
1 to 5 percent is healthy. Negative is unhealthy. Two consecutive negative quarters are defined as recession.
GNP
Abroad income added to GDP.
Inflation
Measure of how much each unit of currency is diminishing in its buying power. In a country with a high inflation rate, its currency value will drop. Reason is because nobody will want to pay for that currency as its buying power is low. Governments and Central Banks normally will manipulate interest rate and money supply to solve inflation.
Interest Rates
High interest rates retard the economy. High interest rates equate to high borrowing interest thus reducing investments by companies due to high borrowing charges. Also for mortgage holders, their buying power will reduce due to the high interest rate. This causes low demand which causes supply flow to stall and accumulate. Resulting in lowering of prices to eliminate the high inventories. Also people will tend to put their money in banks to earn interest thus reducing the buying power of the people.
Measure of the economy's performance within its own territory.
1 to 5 percent is healthy. Negative is unhealthy. Two consecutive negative quarters are defined as recession.
GNP
Abroad income added to GDP.
Inflation
Measure of how much each unit of currency is diminishing in its buying power. In a country with a high inflation rate, its currency value will drop. Reason is because nobody will want to pay for that currency as its buying power is low. Governments and Central Banks normally will manipulate interest rate and money supply to solve inflation.
Interest Rates
High interest rates retard the economy. High interest rates equate to high borrowing interest thus reducing investments by companies due to high borrowing charges. Also for mortgage holders, their buying power will reduce due to the high interest rate. This causes low demand which causes supply flow to stall and accumulate. Resulting in lowering of prices to eliminate the high inventories. Also people will tend to put their money in banks to earn interest thus reducing the buying power of the people.
Tuesday, May 22, 2007
Quote - "Risks come from not knowing what you are doing"
1) Always know what you are doing.
2) Always take calculated risk.
3) Never lose money.
2) Always take calculated risk.
3) Never lose money.
Research 1 - Criteria for Successful Investing
1) Have one or two trading strategy. Not too much.
2) Patience. Start with virtual trading first.
3) Perseverance.
4) Knowledge accumulation through experience in trading.
5) Pre-Planning.
Know your, Max Risk, Max Reward, Breakeven points, Entry point, Exit point on profit taking or cut losses. Use Risk Profile Chart.
6) Discipline. Do pre-plan and stick to it. Be mechanical in trading. No emotions.
2) Patience. Start with virtual trading first.
3) Perseverance.
4) Knowledge accumulation through experience in trading.
5) Pre-Planning.
Know your, Max Risk, Max Reward, Breakeven points, Entry point, Exit point on profit taking or cut losses. Use Risk Profile Chart.
6) Discipline. Do pre-plan and stick to it. Be mechanical in trading. No emotions.
AIM & GOAL!!!
This blog will record all my research and strategy on Options Trading.
Why Options Trading?
Reason is because one can use a small amount of money to control a large amount of stock. This is a form of Leveraging.
It will also record my trading profit and loss for tracking purposes.
Ultimately, I'll retire at the age of 35 (financially independent) and become a full time Options Trader.
Why Options Trading?
Reason is because one can use a small amount of money to control a large amount of stock. This is a form of Leveraging.
It will also record my trading profit and loss for tracking purposes.
Ultimately, I'll retire at the age of 35 (financially independent) and become a full time Options Trader.
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