free report options basics

7/29/2019 Free Report Options Basics

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The Secret Blue Print of Options Trading

Tang 2009 www.OptionsLearn.comAll Rights Reserved

1

Stock Up, Buy Calls!

Stock Down, Buy Puts!
http://offto.net/io1


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From: Tang

Congratulations for Taking Action!

In this report, we will be covering the topic of How to Make Money by Trading

Options in Up or Down Markets!.

The information that is disclosed here are fundamental knowledge of all

professional option traders. This information is taken from Chapter 10 of The

Secret Blue Print of Options Trading.

The philosophy here is to know your instruments that you are trading with.

My goal is that when you do own The Secret Blue Print of Options Trading, you

will have the complete roadmap to show you how you can achieve success by

trading options in a simple and conservative manner.

For now, here is the chapter on option basics so that you can see what an easy

read this would be for you, meaning that you will be able to take clear action to

get results very quickly.

Warmest Regards

Tang

PS: A List of Very Important References is at page 18


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You may use this report as you wish as long as it

remains unaltered and all l inks are left intact resell,

distr ibution, bonus, giveaway rights are all included

Copyright Tang 2009 www.OptionsLearn.com

IDSCLAIMER AND/OR LEGAL NOTICES:The information presented herein represents the view of the author as of the date of publi cation.Because of the rate at which conditions change, the author reserves the right to alter and update hisopinion based on the new conditions. This report is for inf ormational purposes only. While everyattempt has been made to verify the information provided in this report, neither the author no r hisaffiliates/partners assume any responsibilit y for errors, inaccuracies or omissions.

Any sl ights of people or organizations are unintent ional . If adv ice concerning legal , financial orrelated matters is needed in any way connected w ith this publication, the services of a ful ly qualifiedprofessional should be sought. This report is not intended for use as a source of l egal, financial oraccounting advice in any way. You should be aware of any laws which govern business transactionsin your country and/or state. Any reference to any person or business whether living or dead ispurely coincidental.

U.S. Government Required Disclaimer- Options trading has large potential rewards,

but also large potential risk. You must be aware of the risks and be willing to accept

them in order to invest in the options markets. Don't trade with money you can't afford to

lose. This article and/or website is neither a solicitation nor an offer to Buy/Sell options.

No representation is being made that any account will or is likely to achieve profits or

losses similar to those discussed on this article / website. The past performance of any

trading system or methodology is not necessarily indicative of future results.
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10. OPTIONS BASICS

To date, we have covered the most important details in their proper sequence.

In the first few chapters, we covered the most important item: money

management. Without proper money management, we are just gambling in the

stock options market.

We also introduced the road map to our first million, the Secret Blue Print.

Next, we elaborated on how options are merely derivative instruments whose

value were subset to the underlying stock price.

To this end, we went into detail on how to evaluate stock price movement using

technical analysis.

Then we saw an example of how for the same stock price movement, trading

options could have given us a better return on investment than trading stocks.

Now, there are options contracts on many products, for example, options on

composite index and options on forex.

Here, we will be limiting our study to stock options.


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10.1 Stock Options

Stock Options are:

1. Standardized Contracts based on

2. An Underlying Stock. It is

3. A Derivative Product with

4. a Limited Life (all stock options have an expiration date)

Holding stock options is not the same as holding shares.

Stocks represent an investment in a real corporate entity. The value of the

shares is backed up by the assets of a real company. These shares have and

indefinite lifespan and they exist as long as the company exists.

Stock options are merely contracts. The value of these stock options depends on

the price of the underlying stock. As such, we can say that stock options are

derivative products.

Stock options have a limited life. This makes them depreciating assets. They

have to be exercised before a specific date (called the expiration date) after

which they cease to exist.

Options are also standardized contracts. Every stock option is standardized to

control 100 shares of stock. This gives the stock option a leveraging effect.

Thus, when we buy four option contracts at $10.00 each, we have to invest a

sum of $4,000 (4 contracts x $10 per share x 100 shares per contract) due to this

leveraging effect.


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In usual everyday business practice, every contract usually involves a buyer and

a seller. This is not the case in an options standardized contract.

In an options standardized contract, a third party called the O.C.C. (Options

Clearing Corporation) steps in:

The buyer buys from the OCC, while ...

The seller sells to the OCC:

The buyer and the seller does not deal directly with one another since

the OCC is their point of contact and contract.

The OCC is also the regulatory body which manages the options expiration date

(the expiration date is usually set to expire on the third Friday of the month).

10.2 Call Options and Put Options

There are only two types of options:

(a) The Call Option

(b) The Put Option

As a trader, we can only do two things with these options:

(a) Buy an Option, or

(b) Sell an Option.

As such, for every option contract, there are only 4 basic combinations:(a) Buy a Call Option

(b) Sell a Call Option

(c) Buy a Put Option

(d) Sell a Put Option


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Sample Option Table for Apple (nc (AAPL)Source: Optionsxpress


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10.3 Call Options

We Can:1. Buy a call option (long the call) or

2. Sell a call option (short the call).

When we buy a call option:

The buyerpays a premium to own the call option.

The buyer of the call has the right, but not the obligation, to buy the stock at

the agreed strike price

The buyer has only got this right until the expiration date

The buyer loses this right after the expiration date

When we sell a call option:

The writer (seller) of the call option collects the buyers premium.

The writer (seller) of the call option has an obligation to sell the shares of the

underlying stock at the agreed price

The writer (seller) owes this obligation to the buyer only until the expiration

date

After this expiration date, the writer does not have this obligation anymore.

Exercise and Assignment:

The buyer of the call has the right to buy the stock at the agreed price.

When the call buyerexercises his right to buy the stock, we say that the call

writher (seller) has been assigned.

Upon assignment, the call writer (seller) has to sell the stock to the call buyer

at the agreed-upon strike price.


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Buy Call Options Only

In the context of this manual,

we would only be buying call options

We will NOT sell call options (as selling calls incur obligations and our

brokerages have more stringent rule when it comes to taking on obligations)

Limiting ourselves to buying call options also makes our trading practice simpler.

When we buy call options:

If the underlying stock price goes up, we make money.

If the underlying stock price goes down, we lose money.

Say AAPL is trading at $99.27. We buy 90 Strike Call Option at $12. In the next

few days:

If AAPL stock goes up to $120, the 90 Strike Call Option increase in value to

about $32 ($12 initial price + $20 price increase)

But if AAPL goes down to $80, the 90 Strike Call Option will reduce in value

to about $4 (approximate price)

This concept is illustrated below.


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Call Optionincreases in

Value(Make $$$)

X

X

Price

Time

O

Call OptionInitial Value

O

X = Share PriceO = 90 Strike Call Option

90

99.27

120

Buy Call Options

When Stock Price Up, Call Options Make Money

Buy 90 Strike Call Option

110 Share Price


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Call OptionLose Value(Lose $$$)

X

X

Time

OCall OptionInitial Value

O

X = Share PriceO = 90 Strike Call Option

90

99.27

120

Buy Calls Options

When Stock Price Goes Down, Call Options Lose Money

Buy 90 StrikeCall Option

Price

110

80

Share Price


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10.4 Put Options

We Can:

3. Buy a put option (long the put) or

4. Sell a put option (short the put).

When we buy a put option:

The buyerpays a premium to own the put option.

The buyer of the put has the right, but not the obligation, to sell the stock at

the agreed strike price The buyer has only got this right until the expiration date

The buyer loses this right after the expiration date

When we sell a put option:

The writer (seller) of the put option collects the buyers premium.

The writer (seller) of the put option has an obligation to buy the shares of the

underlying stock at the agreed price

The writer (seller) owes this obligation to the buyer only until the expiration

date

After this expiration date, the writer does not have this obligation anymore.

Exercise and Assignment:

The buyer of the put has the right to sell the stock at the agreed price.

When the put buyerexercises his right to sell the stock, we say that the put

writher (seller) has been assigned.

Upon assignment, the putl writer (seller) has to buy the stock from the call

buyer at the agreed-upon strike price.


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Buy Put Options Only

In the context of this manual,

we would only be buying put options

We will NOT sell put options (as selling puts incur obligations and our

brokerages have more stringent rule when it comes to taking on obligations)

Limiting ourselves to buying put options also makes our trading practice simpler.

When we buy put options:

If the underlying stock price goes down, we make money.

If the underlying stock price goes up, we lose money.

Say AAPL is trading at $99.27. We buy 110 Strike Put Option at $10. In the next

few days:

If AAPL stock goes down to $80, the 110 Strike Put Option increase in value

to about $30 ($10 initial price + $20 price decrease)

But if AAPL goes up to $120, the 110 Strike Put Option will reduce in value to

about $4 (approximate price)

This concept is illustrated below.


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X

X

Time

Put OptionInitial Value

X = Share Price= 110 Strike Put Option (option always has a strike price)

90

99.27

120

Buy Put Options

When Stock Price Goes Down, Puts Make Money

Buy 110 StrikePut Option

Price

110

Put Optionincreases in

Value(Make $$$)

80

Share Price


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Put OptionLose Value(Lose $$$)

X

X

Time

Share Price

Put OptionInitial Value

X = Share Price= 110 Strike Put Option (option always has a strike price)

90

99.27

120

Buy Puts Options

When Stock Price Goes Up, Put Lose Money

Buy 110 StrikePut Option

Price

110


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10.5 Conclusion

Wow. You have just covered Chapter 10 of The Secret Blue Print of Options

Trading. I hope that you got tremendous value from it!

Heres what you can expect from The Secret Blue Print of Options Trading:

PART 1: TAKE ACTION FIRST

Chapter 1: Lets Do It!

Chapter 2: Trading Rules

Chapter 3: Setting Goals

PART 2: THE TRADER

Chapter 4: The Core: Return on Investment (ROI)

Chapter 5: The Game Plan

Chapter 6: The Trading Mindset

PART 3: STOCK TRADING

Chapter 7: Trading Basics

Chapter 8: Trading Systems

Chapter 9: Entries and Exits

PART 4: SELECT OPTIONS

Chapter 10: Option Basics

Chapter 11: Option Mechanics

Chapter 12: Option Pricing

Chapter 13: Option Strategies

PART 5: GET READY

Chapter 14: Trading Plan

Chapter 15: Lets Do It Again!

Warmest Regards.

Tang.


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Get Your Copy of The Secret Blue Print of Options Trading

Today from www.OptionsLearn.com

As th is manual is Downloadable, you can be reading it as fast as

5 minutes from now! Act Fast!
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Tang 2009 www.OptionsLearn.com 18All Rights Reserved

LIST OF IMPORTANT REFERENCES

Roboform

Trading Trainer

Trading Trainer Education Center

Trading Trainer Intensive Seminar

Trading Trainer Apprentice Program

Market Mastery

Profits Run

TeleCharts

Options University: Options Mastery Program

Options University -Options 101 Program

www.interactivebrokers.com

www.thinkorswim.com

www.optionsxpress.com

https://us.etrade.com

www.trading-plan.com

www.iitm.com

www.equis.com

www.meta-formula.com

www.optionsclearing.com

www.cboe.com

http://www.optionsxpress.com/tool_center/virtual_trade.aspx

https://www.thinkorswim.com/tos/displayPage.tos?webpage=paperMoney
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