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Forex options trading, take advantage of politics and world wide economy in your trading strategy

Forex options trading, take advantage of politics and world wide economy in your trading strategy. Options are not limited to assets listed in the stock market, you can use options with forex trading.

In this economy, where the only direction Europe is headed is down, and despite it’s previous experience with a similar situation, America is stubbornly following, we can expect fluctuations as both race for small dips. We can see this battle of the giants by the ebb and flow of world wide market indexes, and a volatility VIX index that has found stability at higher levels.

Forex trading is highly dependent on politics, if you believe your government’s not doing the right thing in regards to the economy of your country, options is  a great way to Hedge your cash. Indeed, forex options have limited downside risk, that is limited to the premium of the contract, and unlimited profit, it’s a great way to safeguard you from a national recession.

Forex options offer the classic put and call options, as well as SPOT, which are extremely flexible options. SPOT, or single payment options trading, allows you to spell out a scenario, such as “EUR/USD will be at 1.30 in 12 days”, for which you’ll obtain a premium, and get paid out if the scenario takes place.

Many options traders enjoy the flexibility offered by SPOT trading, for bullish traders these days; in this bouncy downhill track of a recession we’re going down, it’s a safety net for when America will decide to cut loose from the European wagon’s decent.

Be careful as in SPOT comports the same time risks as options, even if you get to decide on the expiry dates yourself. Premiums for SPOT options are also higher than the typical options, it’s a considerable trade off.

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Learn options trading – Puts

A put is a contract that gives the holder the right to sell the underlying stock at a predetermined strike price, by a fixed expiration date, for a premium whose value varies depending stock price, and greeks.

The contract is written by the option seller who either owns the underlying, in the case of a covered put, or does not own the underlying, in the case of a naked put.

The buyer of the contract is called the Holder, and has a long position, the seller is called the Writer, and has a short position.

It is important to note the difference between writing and holding a call:

  • Holding a put position has limited profit: if the stock goes to zero the profit is maximum. However the risk is limited to the premium paid for the contract.
  • Writing a limited reward, and writing naked puts has unlimited risk, and covered calls have a very high risk (if a stock rises).
Follow up with:
  1. Writing a put
  2. Holding a put
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Learn options trading – Sell call ( Short call)

Selling, or writing a call creates the obligation to sell a stock at a predetermined strike price. This contract is sold for a premium, and if the stock does not reach the strike price by expiration, the contract will expire worthless, therefore the writer will keep the premium as a profit. However, if the stock does rise beyond the strike price, the writer will be obligated to sell the stock at that strike.

If the call writer does not have the underlying stock on hand, a short position on the stock will be created, this is called a naked call. If the writer does own the underlying stock, the position is called a covered call, and that stock must be sold at the strike price.

Shorting a call is profitable in a bearish market.

This is a preview of “Sell call ( Short call )

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Learn options trading – Buy a call ( long call )

Why buy a call when you can own the underlying, one may ask. This depends on the intentions and predictions of the holder.

Buying a call is a limited risk, unlimited reward scenario. However one needs to be careful when choosing the expiration date for the contract. You might end up out of the money, and lose everything.

Long calls are profitable in a bullish market.

This is a preview of “Buy a call ( long call )

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Learn options trading – Calls

A call is a contract that gives the holder the right to buy the underlying stock at a predetermined strike price, by a fixed expiration date, for a premium whose value varies depending stock price, and greeks.

The contract is written by the option seller who either owns the underlying, in the case of a covered call, or does not own the underlying, in the case of a naked call.

The buyer of the contract is called the Holder, and has a long position, the seller is called the Writer, and has a short position.

It is important to note the difference between writing and holding a call:

  • Holding a call position has limited risk with unlimited reward
  • Writing a limited reward, and writing naked calls has unlimited risk, and covered calls have a very high risk (for a stock that tends to 0).
Follow up with:
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Learn options trading

Options can be intimidating at first, especially for someone who first sees an options chain and all the tables and mathematics associated with options. In reality, options trading requires constant attention, and very careful monitoring, but once the basics are understood, and you know where to get the right tools to do the math for you, they can become a gold mine. Options can be used in various strategies, including strategies that incorporate buying the actual stock (a strategy with several positions is called multi-legged).

Stick around to learn options trading secrets.

You can start right ahead with the basics, or learn more about puts and calls contracts right away.

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Learn options trading secrets – Basics

Tricks and secrets of options trading have the potential to make you a fortune within a day. While minimizing the amount of money you could loose. The options trading market is one of contracts made on an underlying asset, and these contracts are not issued by the company or entity representing that asset. In essence, it’s like an insurance contract, you can use it to protect you from getting wounded, but you might not use it at all even though you did pay the premium. However if you use it the insurance covers you for several times more what you paid as a premium. That’s where it gets interesting.

Whether you’re already a stock trader and want to add options in the soup for protection, or if you’re a neophyte curious about options, I’ll go through the ins and outs of succeeding in this options world.

If you already understand the basics and how options work you can skip to the strategies section where we discuss several mathematical tools and secrets useful to options trading, and tricks to maximize the profit, while minimizing the risk.

This is a preview of “Basics of options trading

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Use options to circumvent the short selling ban in Europe! Deep in the money puts!

In what regulators believe is a strategy to restore confidence through this jittery market, four contries’ financial stocks’ will have a ban on short selling. Backing this hypothesis is that short selling will help reduce the impact of rumors on panic selling, bringing down stocks, and profiting short sellers.

Thursday night, the European Securities Market Authority said Belgium, France, Italy and Spain would bring forth this ban,

However, some of us still want to profit from the ebb and flow of this market, even as it plunges. Options can help you either way the market goes, and you don’t need to be shorting.

Buying puts is a buyer’s way to profit from an asset’s bearish move; Deep in the money puts carry less risk than shorting the stock, as you only pay for the contract, which is often times a fraction of the cost.

This week I profited from buying puts on $RIM, $BAC, and $SPY. I made up to 200% profit per position for moves as little as 10% on the assets price, there again. These were not Deep in the money puts, but to minimize risk for a short seller not used to options, deep in the money puts are the safest way to start.

Alternatively, if you believe the stock will have a bullish movement, deep in the money calls is a safe way to bet on them.

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