The objective of the Option Sleuth is educate the investor on how a managed option strategy as part of a diversified portfolio can generate additional income and boost returns.

There are two basic types of options: the call and the put.

A call is an option contract that gives the holder the right to buy the underlying security at a specified price for a certain, fixed period of time.

A put is an option contract that gives the holder the right to sell the underlying security at a specified price for a certain, fixed period of time.

Option contracts may be opened as a buy (long positions) or a write (short positions).

The following common option strategies are defined in terms of a net long position, however each strategy may also be opened as a net short position.

• Buy a call
Outlook on the underlying equity: Positive
Potential gain: Unlimited
Potential loss: Limited to price paid for call

• Buy a put
Outlook on the underlying equity: Negative
Potential gain: Limited to the value of the equity
Potential loss: Limited to price paid for put

• Buy a call spread (buy a call and sell a higher strike call)
Outlook on the underlying equity: Positive
Potential gain: Limited to spread value less price paid
Potential loss: Limited to price paid for spread

• Buy a put spread (buy a put and sell a lower strike put)
Outlook on the underlying equity: Negative
Potential gain: Limited to spread value less price paid
Potential loss: Limited to price paid for spread

• Covered call (buy equity, sell higher strike call)
Outlook on the underlying equity: Positive
Potential gain: Varies
Potential loss: Limited to value of equity less price received for call

 
 
 
 

Sunday, April 12, 2009

Trade Options Online by George A. Fontanills

This week's featured book on options trading:

Trade Options Online by George A. Fontanills

Trade Options Online
by George A. Fontanills
Wiley (March 2009)

From the publisher: Since the first edition of Trade Options Online was published nearly eight years ago, much has changed in this fast-moving field. The ease of electronic trading combined with a variety of new products—including new indexes and ways to trade volatility—has spurred the ongoing growth of the options market and created profitable new opportunities in the process.

As advances in technology allow online options traders to become more independent, understanding the intricacies of this marketplace and making good trading decisions have become more important than ever. That's why options trading innovator George Fontanills has written a fully revised and updated second edition of his best-selling book.

Filled with in-depth insights and practical advice, this accessible guide provides you with a working knowledge of essential options strategies and the computer savvy to enhance your online trading endeavors. While the first few chapters outline the basics of online options trading, this book quickly moves on to address how you can integrate proven options-based trading techniques into a comprehensive plan that fits your personal preferences.

Fontanills details various managed-risk option strategies—from vertical spreads to ratio backspreads—that are designed to take advantage of everyday market opportunities, and walks you through a series of hypothetical trades that demonstrate how to compute the maximum risk, maximum profit, breakevens, and exit alternatives for each strategy. Along the way, Fontanills also takes the time to discuss other essential elements of this discipline, including trading futures options, streamlining your trading approach, and mastering the inner workings of the order process, to name a few.

In addition to this information, several appendices offer guidance that will help you maintain a competitive online edge, including a short list of options trading software; reviews of more than 200 financial resource sites broken down by specific categories; surveys of online brokerages as they compare to one another in services, commissions, and resources; and much more.

While it's rewarding to build wealth from the comfort of your computer, it takes time to learn how financial markets function as well as develop effective trading strategies to operate within them. The Second Edition of Trade Options Online will show you how to do this, and much more, whether you're looking to boost returns by using leverage or protect your investments by hedging.

Also available: Trade Options Online (Kindle edition). Learn more about the Amazon Kindle, a wireless reading device.

Posted by Your Community Resource Guide to Wine, Style, and Finance. at 9:19 AM

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