Download PDF by Thomas A. McCafferty: All About Options

By Thomas A. McCafferty

ISBN-10: 0070455430

ISBN-13: 9780070455436

ISBN-10: 0071368477

ISBN-13: 9780071368476

To lessen hazard and enormously elevate go back, lightning-fast ideas buying and selling instincts are serious. All approximately concepts, moment variation is the fitting first step to constructing those instincts. With its in-depth assurance of the fundamentals of strategies and alternative buying and selling, this new version is ideal for novices in addition to investors going to the subsequent level.It offers: * evidence and figures up-to-date from the 1st variation, with extra on inventory ideas * up to the moment fabric on adjustments available on the market and expertise * In-depth reasons of innovations buying and selling thoughts from uncomplicated to complicated * a professional ideas buying and selling is a key portion of any potent technique All approximately techniques is the clearest, easiest-to-follow guidebook this present day at the execs, cons, hazards, and rewards of utilizing innovations.

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Example text

When supplies are scarce, the price skyrockets. When supplies are plentiful, the price plummets. When supplies are adequate, the price moves sideways. This year you think one of two things is going to happen— either there will be plenty of rain or there will be a drought. A full measure of rain will wash out prices. A drought will fire prices to new highs. How do you trade these fundamentals? 00 per bushel, you might decide to use a long straddle. 40. See Table 2–1. As you can see, the money is made with this strategy on the extremes.

A little added advantage of this spread is that the premium is usually lower than the sum of the premium costs of both a put and a call purchased separately. A put-call spread purchased at the same time at the same strike price is called a “special double,” and it will be discussed as a separate strategy later. TIME OPTIONS Another popular option spread is the time spread. It involves options with the same strike price but different expiration dates. The prime objective of a time spread is to take advantage of the tendency of the time value of an option to decline at a very rapid rate before finally disappearing just prior to expiration.

It is because of this possibility that the downside risk of selling options is considered unlimited. The upside or profit is limited to the amount of the premium, less transaction costs. Why would anyone enter an investment where the profit potential is limited and the risk of loss is unlimited? This will be covered when I discuss selling options as a strategy. You’ll also learn why you may have a better chance of making money in the long run selling than buying options. Your first clue is this: Most options expire worthless!

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All About Options by Thomas A. McCafferty

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