Course options stocks trading 2016
Options are like bonds , in that they are simply contracts. As with any other contracts, they can be as simple or as complicated as desired. Fundamentally, options can be split into two broad categories; call options and put options. These two types of options are the exact opposite of each other, similar to buy vs sell orders, as we will see. If you were to open up any finance textbook, you would pretty much be faced with the same definition regardless of the book:.
Options are also divided into two broad categories based on when they can be exercised. The first group is called the American option. What distinguishes American-style options is that they can be exercised on their expiry date, or they can be exercised at any time prior to their expiry date. This is in contrast to the other type of options, called European options.
These can only be exercised on their expiry dates, not before. For the most part, stock options are only traded on a short-term basis. Typically expiration times include 3-month, 6-month, 9-month, and month expiration dates. However, not all stocks trade in the same month. When stock options first began circulating, options were assigned to either the January cycle, the February cycle, or the March cycle.
These were assigned at random, not due to any underlying factor of the options themselves. Longer-term option contracts also exist, and may be more suitable for the investor who seeks to use a buy-and-hold investment strategy. These LEAPS typically have expiration dates every January, for the next two years or sometimes three for more popular stocks. Remember my Big Short book review? Cornwall Capital, a company from the book, made extensive use of LEAPs in their investment strategies.
However, many other types of stock options exist, and they are usually more complex than vanilla options. These options, called exotic options, are usually not traded on public exchanges due to their complexity.
We will describe a few types of them here before we later describe how we can use them in various hedging strategies. Of particular interest will be barrier options, Asian options, Chooser options, Compound options, and Bermuda options. This is perhaps best illustrated by an example. Another type of exotic stock option is the Asian option. Asian options derive their value from an underlying asset, just like any other type of asset. However, in contrast to vanilla options, the cash value of an Asian option is determined by the average value of the underlying security over the length of the contract.
It should be noted that Asian options are always a special case of European options; that is, they are only exercised at their expiry date, and not at any time before. One issue that analysts have with Asian stock options is how to calculate the average price of the underlying security. There are two methods that have become generally accepted for this.
This first is the discrete arithmetic average, where the average price of the security is found using the following formula:. For more quantitative-minded traders, they may compute a continuous arithmetic average. However, it is interesting nonetheless! A third type of exotic stock option that we will consider here is called the Chooser option. These options have two expiry dates. At the first expiry date, the contract holder must decide whether he wants the option to become a put option or a call option.
Before the second expiry date or on the second expiry date for a European Chooser option , the contract holder must decide whether they wish to exercise the option or not. These options give the trader a lot of flexibility in the strategies they can use. A fourth type of option is called a compound option. In short, these options are simply options of options.
There are four main types of compound options:. Valuing these compound options can be rather tricky and beyond the scope of this post. The fifth and last type of stock option that will be discussed here is the Bermuda option. Similar to how Bermuda is located between America and Europe, Bermuda options form a middle ground between American-style stock options and European-style stock options.
These options are exercisable at their expiry date, or on a number of predetermined dates beforehand. For example, a Bermuda option on the Toronto-Dominion Bank might be exercisable on September 1, October 1, or November 1, but not otherwise. A collar is a strategy where a trader purchases a put while simultaneously writing a call.
On the surface, there might not be any intrinsic benefit to doing this, since the call option that you have written limits the upside on your stocks. However, since you have also purchased put options, you know that there is a limit as to how much money you can lose. This limits your profits, but for many people the peace of mind makes this worthwhile. Vertical spreads are a well-known technique in options trading that are often used when the volatility of the underlying security and thus the option premium are very high.
Simply put, this strategy involves buying one option and selling another option that are identical in all aspects, except they have a different strike price. The next five strategies for trading stock options are vertical spreads, so a brief introduction to the terminology was appropriate.
A few other terms that should be defined before continuing are credit spread , debit spread , and wingspread. These are again all strategies for trading stock options. A credit spread is a vertical spread where the investor receives money when entering the position, typically from selling stock options.
A recent study found the number one thing that keeps people from trading right behind lack of money is lack of knowledge. In other words, knowledge is key. We next developed an innovative approach to teaching our students these Modules by breaking them down and delivering them in bite-sized video lessons via email 3 days per week over the course of days along with making these videos available on-demand like a trading version of Netflix.
This format allows our program to accommodate any schedule and enables you watch and re-visit these lessons at your convenience. But what makes this program really special and one of the things that our students enjoy the most is the Accountability aspect.
Besides having the ability to see if students are actually watching the lessons, we also provide the discipline many people need by keeping in touch throughout the program to make sure students are staying on track and understanding the material. Students are given a short online test at the end of each Module which they must turn in and pass before moving on to the next Module.
Innovative modular format with video lessons via email and on-demand to meet your schedule 2. Bite-sized yet comprehensive approach to learning 12 key areas of trading 3. Accelerated learning track to teach trading stocks, options, and futures in just days 4.
Small group learning with classes limited to approximately 20 students for personalized attention 5. Accountability and oversight all along the way to help you get the most out of the program. Market Fundamentals [Click here to watch a short video about this module.
Trading the Hour Global Market [Click here to watch a short video about this module. Key Numbers [Click here to watch a short video about this module. Technical and Fundamental Analysis [Click here to watch a short video about this module. Charts and Tape Reading [Click here to watch a short video about this module. Identifying Trends in Stocks [Click here to watch a short video about this module. Trading the First Hour of the Market [Click here to watch a short video about this module.
Trading the Afternoon Market [Click here to watch a short video about this module. Trade Management [Click here to watch a short video about this module. Mastering Your Trading Platform [Click here to watch a short video about this module. Psychology and Emotions [Click here to watch a short video about this module. Click Here to Get Started. Zero to Graduation Class August 23, Westfield, NJ August The class has filled in holes in my stock education.
Canyon, TX August Austin, TX August This comprehensive course helped congeal what I previously learned. Dallas, TX August Worth time and effort. Now I need to go back and review. Lots of material to absorb…. For me working full time it was tough but would do it allover.