The best time to place option trades
Owen O’Malley
Building Investment Clubs * Providing Investment Education * Shares * Share Options * 200 Active Mastermind Groups * Investment Workshops *Operating in 50 countries worldwide since 1998
Options are financial derivatives that grant purchasers the option, but not the duty, to purchase or sell an underlying asset at a predetermined price and date. With tactics ranging from straightforward to intricate, options trading can be utilized for both hedging and speculating. Options offer many chances for profit, however, investors should carefully consider the risks. Options are extremely dangerous to trade as you can lose 100% of the amount you invest in them if the share price goes in the opposite direction to that which you previously had anticipated.
An option is like an ice cube that is made up of two parts. The first part is the real value of the option if it were to be used and the second part is the time value.
The real value is a measure of much the option is in the money. For example, if the share price is trading at $10.50 in the market and you have the option to buy the share for $10 then you could use your option to buy the share for $10 and then sell your share to the market for $10.50 and make a profit of $0.50. So the real value of the option for you as a holder of that option is $0.50 and the option is in the money by $0.50.
If the option price is trading at $0.75 you deduct the real value of $0.50 from the option price and conclude that the time value of the option is ($0.75 - $0.50 = $0.25).
The best time to open and place a specific option trade is as follows:
●????Share price at support and about to start rising again then buy calls.
●????Share price at support and about to start rising again then sell puts.
●????Share price at resistance and about to start falling then sell calls.
●????Share price at resistance and about to start falling then buy puts.
The best time to close the above four option trades is as follows:
●????Share price at resistance and about to start falling again then sell the calls.
●????Share price at resistance and about to start falling again then buy back the put.
●????Share price at support and about to start rising again then buy back the call.
●????Share price at support and about to start rising then sell the puts.
It is much riskier to buy options than to sell options and so to greatly reduce the risk of buying options you can take one-third of your income from selling your options and use this income to buy the options. This way you are not risking your money but merely speculating with 1/3 of the money you have already collected from the market.
Managing Director at Onyx Accountants Ltd
2 年a great resource, thank you
Quick, Easy & Fun Study Skills - Memory & Learning Training to Pass Every Professional Certification Exam First Time | BA, PGCE, NLP
2 年Looks like very useful information here, Owen O’Malley. Thank you.
Founder & Fractional CRO @ KORE Strategies | Sales Leadership, Strategy, and Sales Operational Efficiency
2 年There was a lot of great information in the newsletter. A great resource!
Founder/CEO at Let's Reset and Exec Dir Xeim/Oystercatchers
2 年A fascinating newsletter - covering some areas I definitely need to learn more about myself. Thanks for sharing with us all Owen O’Malley.