Options

Options Trading Mistake #5: Trading illiquid options

Liquidity is all about how quickly a trader can buy or sell something without causing a significant price movement. A liquid market is one with ready, active buyers and sellers at all times. Here's another, more mathematically elegant way to think about it: Liquidity refers to the probability that the next trade will be executed […]

Options

Tips for Writing Successful Covered Calls (Part 4)

Tip 4: Consider buy-writes. If you're attracted to covered calls as an ongoing income strategy, you can buy the stock and sell the call option in a single transaction. This is called a buy-write. Buy-writes offer more than convenience. For one thing, you reduce your market risk by not legging into the strategy. (When you […]

Options

How to Write Covered Calls: 4 Tips for Success

When writing a covered call, you're selling someone else the right to purchase a stock that you already own, at a specific price, within a specific time frame. Since a single option contract usually represents100 shares, to run this strategy, you must own at least 100 shares for every call contract you plan to sell. […]

Options

Options Trading Mistake #6: Waiting too long to buy back your short options

This mistake can be boiled down to one piece of advice: Always be ready and willing to buy back short options early. Far too often, traders will wait too long to buy back the options they've sold. There are a million reasons why: You don't want to pay the commission; you're betting the contract will […]

Options

How to Avoid the Top 10 Mistakes New Option Traders Make

Option trading is a way for savvy investors to leverage assets and control some of the risks associated with playing the market. With options, it's possible to profit whether stocks or going up, down, or sideways. You can use options to cut losses, protect gains, and control large chunks of stock with a relatively small […]

Options

Investing in Options: A Beginner’s Guide (Part 1)

Options are a versatile financial instrument for investors. They are also complex and somewhat risky. It's important that you understand the basics of option trading strategy before diving in. What is an option? Options are contracts that give you the right to buy or sell an asset at a fixed price (strike price) for a […]

Options

Options Trading Mistake #7: Failing to factor earnings and dividend dates into your strategy

It pays to keep track of earnings and dividends dates for your underlying stock. For example, if you've sold calls and there's a dividend approaching, it increases the probability you may be assigned early. This is especially true if the dividend is expected to be large. That's because option owners have no rights to a […]

Options

Investing in Options: A Beginner’s Guide (Part 2)

Options traders deploy plenty of jargon, so it pays to get your terminology straight. Here are some of the more common terms you'll run into in the options world. Calls and Puts There are only two different varieties of standard options: call options and put options. Understanding the difference between the two is crucial to […]

Options

Options Trading Mistake #8: Not knowing what to do if you’re assigned early

If you sell options, just remind yourself occasionally that you can be assigned. Lots of new options traders never think about assignment as a possibility until it actually happens to them. It can be jarring if you haven't factored in assignment, especially if you're running a multi-leg strategy like long or short spreads. For example, […]

Options

Investing in Options: A Beginner’s Guide (Part 3)

In the options world, there are two types of volatility: historical and implied. Historical volatility refers to how much the stock price fluctuated (high price to low price each day) over a one-year period. Since it's historical, this figure refers to past price data. If the number of data points is not stated (for example, […]