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, […]

Options

Options Trading Mistake #9: Failing to use index options for neutral trades

Individual stocks can be quite volatile. For example, if there is major unforeseen news in one particular company, it might well rock the stock for a few days. On the other hand, even serious turmoil in a major company that's part of the S&P 500 probably wouldn't cause that index to fluctuate very much. What's […]

Options

Investing in Options: A Beginner’s Guide (Part 4)

Speaking Greeks For option traders, the Greeks are a series of handy variables that help explain the various factors driving movement in option prices. Although the Greeks collectively indicate how the marketplace expects an option’s price to change, the Greek values are theoretical in nature. There is no guarantee that these forecasts will be correct. […]

Options

Buying a Put Option vs. Short Selling

If you're bearish on a stock, you can try to capitalize on your position in a few ways: Sell the stock, if you own it. Sell the stock, even if you don't own it, by borrowing shares via your brokerage firm. At a later date, you can buy the shares (hopefully at a lower price) […]

Options

Options Trading Mistake #1: Buying out-of-the-money (OTM) call options

It seems like a good place to start: buy a call option and see if you can pick a winner. Buying calls may feel safe because it matches the pattern you're used to following as an equity trader: buy low, sell high. However, buying OTM calls outright is one of the hardest ways to make […]

Options

Options Trading Mistake #2: Using an all-purpose strategy in different market conditions

Option trading is remarkably flexible. It can enable you to trade effectively in all kinds of market conditions. But you can only take advantage of this flexibility if you stay open to learning new strategies. Buying spreads offers a great way to capitalize on different market conditions. When you buy a spread it is also […]

Options

Tips for Writing Successful Covered Calls (Part 1)

What is a covered call? A covered call is an income-producing strategy where you sell or write call options against shares of stock you already own. Typically, you'll sell one contract for every 100 shares of stock. In exchange for selling the call options, you collect an option premium. But that premium comes with an […]

Options

Options Trading Mistake #3: Not having a definite exit plan prior to expiration

You've heard it a million times before. In trading options, just like stocks, it's critical to control your emotions. This doesn't mean swallowing your every fear in a super-human way. It's much simpler than that: have a plan to work, and work your plan. Planning your exit isn't just about minimizing loss on the downside. […]

Options

Tips for Writing Successful Covered Calls (Part 2)

What is assignment? If you sell a covered call, you're accepting an obligation in exchange for the option premium you collect. Your underlying shares of stock might be “called” away from you if the option buyer chooses to exercise. We say “might” here because it's not guaranteed that you'll be asked to honor this obligation. […]