• news
  • Six Options Trading Strategies

    Trading Strategies

    When you are first starting out, it is easy to get too eager and caught up in the want to start trading right away. However, it is best that you get a good foundation before you begin trading so you are able to fully understand how options work as well as how they are going to be able to help you achieve the goals that you have set. You will learn some strategies that are going to be easier for you to understand. Not only that but they will be less risky than owning stock. Many of the strategies involve limited risk.

    1. Covered call writing: you can either use stock that you own or buy new
      stock so that you can sell to someone else a call option that will give the buyer the ability to buy stock at a price that was previously agreed upon. This will limit your profits.

    However, you will be collecting a premium that will be yours to keep despite what happens. The cash will then reduce your cost. So, if the stock happens to decline, you may risk a loss, but this will be better than if you had owned the shares.

    Example: you buy 100 shares of IBM

    You will then sell one of those IBMs Jan 110 call

    1. Cash secured naked put writing: you are going to sell a put option that
      you want to win. In choosing the strike price that will represent the amount that you willing to pay for that stock, you then will collect a premium that is an obligation to buy the stock at the strike price.

    If you change your mind and do not want to purchase the stock, you are going to keep the cash as a consolation prize. But, if you keep enough money in your account to buy shares, then you are
    going to be considered cash secure.

    Example: You sell AMZN Jul 50 put and keep $6,000 in your account

    1. Collar: a collar is what a covered call position is, but it also includes a put. The put will act as an insurance policy therefore limiting the loss to a minimal

    The profits will end up being limited, however, a conservative investor is
    going to find that it will be a good trade off. The limited profits will mean that there will be a limited amount of losses.

    Example: you buy 100 shares of IBM. However, you sell one IBM Jan 115 call, and you end up buying one IBM Jan 90 put.

    1. Credit spread: when you purchase one call options and sell another or if you purchase one put option while selling another. These options are going to have the same expiration. This is called a credit spread being that the investor will collect cash for any trade that happens.

    So, if the higher priced option is bought, then the less expensive one is going to be purchased as well. This strategy will be a bit market bias, but it will have limited profits with limited losses.

    Example: you buy 5 JNJ Jul 60 calls and sell 5 JNJ Jul 55 calls.

    Or, you buy 5 SPY Apr 78 puts while selling 5 SPY Apr 80 puts

    1. Iron condor: this is a position that will consist of having one call credit spread as well as one put credit spread. Once again your losses and gains are going to be

    Example: sell 2 SPX May 960 calls and buy 2 SPX May 880 calls

    As well as, sell 2 SPX May 760 puts and buy 2 SPX May 540 puts

    1. Diagonal spread: these spreads are options are going to have different strike prices as well as different expiration dates. When the option bought expires, then the option will be sold.

    Example: buy 3 XOM Nov 78 puts while selling 9 XOM Oct 100 puts. This is a diagonal spread.

    Or, sell 6 XOM Nov 75 calls and buy 7 OXM Nov 54 calls. This is also a diagonal spread.

    Either way, if you hold both positions in the same period of time, then it will be considered a double diagonal spread.…

  • news
  • How to Redesign your Investment Portfolio

    Investment Portfolio

    When you are looking to redesign your portfolio, it will help you to fix any mistakes that you may have made that have harmed your investments. If you do not fix the problems with your portfolio, you can end up fracturing your strategy and will cause you to lose profits.

    It is best to try and fix your portfolio before it gets too late. If you wait for too long, then you are going to find yourself having to restart your portfolio possibly. Here is where you will learn some ways that you can redesign your portfolio.

    1. Create a plan.

    Before you can fully redesign your portfolio, be sure that you
    have a clear objective in mind of what you want to accomplish. Where do you want to see your portfolio going? This may be the best time for you to look at the strategies that you have been using and find a better one that will work best for you.

    When you are looking at options trading, you are looking at contracts that you are signing that will either expire or will result in you paying for the asset that you are wanting. Perhaps there is a possibility that you are looking at the wrong options, if that is the case, then you are going to need to take a step back and assess everything before you decide if you should buy or sell an option.

    1. Diversify your assets.

    Before you go deciding which stocks you should get, look at
    the investment that you will be making in the long run. Is it going to be beneficial to you or is it going to end up forcing you to take a loss because the stock ended up falling further than you thought?

    When you have an extreme diversification at your security level, then you are going to be allowed to achieve a certain amount of exposure to each asset without having a holdings overlap.

    Do you have a structured settlement from a previous personal injury? If so, it could be one of the best ways to do asset diversity as you can sell your structured settlement for cash and acquire more assets, such as a new home, improvements to your current home, a new car, or invest it in going back to school to get that promotion you have been wanting for years. According to this website there are many structured settlement companies that specialize in helping you with the legal work and also representing you in court to get a judge to approve of the sale and get you the funds as quickly as possible.

    1. Analyze the risks. Look at the risk that you will be taking with every option that you are considering purchasing or selling. If you want to buy an option, make sure that you are not going to be making too big of a risk. However, if the risks are not going to cripple you, then it is okay to take a few risks.

    When you are looking at the risks, do not just look at the profits that you could be making or missing out on. While the profits are something that you should check, you should also consider what it is going to do for your investment portfolio in the long run.

    1. Look beneath the surface. Some investors believe that their portfolio is diversified because they have a variety of mutual funds. But, if you look past the top holdings, then you will be surprised at what you find.

    Using a proper asset allocation strategy will help to rebalance your portfolio. With some accounts, you will have the ability to add an automatic rebalancing to keep the
    distribution in line.

    1. Ease up on company stock. It is not uncommon to find a company that will offer their employees some stock in their business or some other incentive to make taking stock seem like an attractive investment.

    When you are looking at options, it is important that you pay attention to the percentage of the employee stock before you decide if you should buy or sell any stock. If the proportion of the employee stock goes down, then you are going to find that the company will go broke possibly unexpectedly.

    1. Think long term. When it comes to options, is what you are
      buying worth it? Or is selling it going to help you in the long run? As we have mentioned before, several factors will contribute to if you are going to sell or buy an option.

    When looking at the long term of any stock, is the company trending upwards or downwards? It is best for you to have all the answers before you decide if you want to buy the stock or sell it for profit.

    So, when you are redesigning your portfolio, think back to when you first started out. What did you do to start your portfolio? Now that you have some more experience, you know the things that you can improve on and the others that are not so good to continue using.

    Use the knowledge that you have gained and make your portfolio better than it was before. Fix all the cracks that have been placed in it by purchasing or selling stock that you did not know the full potential of. And, next time you go to make an investment, look at the percentage of the stock before you make your decision. You do not want to end up with stock for a bankrupt company.…