Validate Your Life

Also, this guy I think is awesome.  1)He offers a GREAT explanation and 2)He’s a bloody aussie, mate!

Basically a put (pun surprisingly unintended maybe subconsciously intended, yes, definitely) a put option is buying a contract that provides you insurance; insurance to sell something at a price.

In what market is (put and call) option trading?  Options are not in the “Shares Market” (because an option doesn’t exchange shares, it exchanges contracts to buy or sell shares at an exercise price!).  Instead, options are in the “Derivatives Market”!  Yay! Go calculus! (LINK).  I love the word derivative. So technical.  Delicious.  Without getting too technical, futures, forwards, swaps, credit derivatives, and hybrid securities are also part of the derivative market, along with options (oops, I got too technical .  Don’t worry about those 5 other kinds of derivative market trading.  Solidify and possible exercise (again, pun had to be somewhat intended ) your knowledge of put and call option trading first!  That way you can gauge if options are for you.

Before you delve into this excitingly numerical and mathematically exciting rockin world of options trading, you may find value (intrinsic or just numerically comedy ) in acquainting yourself with some factoids of the stock exchanges, especially “What the hell is up with stock exchange trading hours?” from a previous post of mine.  When you’ve graduated yourself from the joys of compound interest and basic stock investing and have skirted the real estate investment “thang”, but still want some advanced high tech investment ideas…you might be ready to get savvy for stock option trading!

In my own words:  In simplest definitions, buying and selling options is buying and selling contracts to buy stocks at certain prices.  There’s only two types of options.  Put options (upon expiration date, I have the the legal nifty awesome stock-trading right to SELL xyz shares at abc exercise price) and call options (you guessed it, upon expiration date, I have the legal nifty awesome stock-trading right to, yep you guessed it, BUY xyz shares at abc exercise price).

For more details, check out this INSANELY well-written, lucid article.

Example:  July $50 call option for Walgreens is $1.66 (1.66/share, always in round lot, so $166)

July = Expiration Month (it’s always the 3rd friday of the month!)

$50 = strike price

When the Option Expires.  Decision Flow

When an option expires, you either sell it (sell the contract), exercise it (buy the call option (or sell, if it’s a put) the shares for the strike price, which shows no regard to the current price!), or do nothing (lose the original investment of the option cost.

———-> Excercise the option   (yes = buy (with calls) or sell shares (with puts); no = Sell the Option || Neither Sell the Option Contract nor Exercise it

———->Sell the option   (yes = sold;  no = lost money)

Also, this guy I think is awesome.  1)He offers a GREAT explanation and 2)He’s a bloody aussie, mate!

Our Friend, Jules Dawson explains how Put options are a congruent to insurance.

This is valuable, true, interesting, and a good analogy to understand puts.

Basically put (pun surprisingly unintended maybe subconsciously intended, yes, definitely), a put option is buying a contract that provides you insurance; insurance to sell something at a price.

Extensions

In what market will you find (put and call) option trading categorized?  Options are not in the “Shares Market” (because an option doesn’t exchange shares, it exchanges contracts to buy or sell shares at an exercise price!).  Instead, options are in the “Derivatives Market”!  Yay! Go calculus!  I love the word derivative. So technical.  Delicious.  Without getting too technical, futures, forwards, swaps, credit derivatives, and hybrid securities are also part of the derivative market, along with options (oops, I got too technical .  Don’t worry about those 5 other kinds of derivative market trading.  Solidify and possibly exercise (again, pun had to be somewhat intended ) your knowledge of put and call option trading first!  That way you can gauge if options are for you.

Is this too high-tech? Is this for me?

That’s up to you.  Check out the articles linked above, this one, and this dude’s 10 Keys to option trading in any market, bull or bear.

Remember, with options, there’s a high risk factor

so do your research and get it done, to reap the reward!

Basically if you effectively purchase puts on a falling market and then exercise them, and/or purcahse calls on a rising market and then exercise them…you’d be a successful options trader, and it’s very safe to say that option trading is for you!  Beautiful!