What is Options Trading ?

What is Options - a derivative from stock trading. The basic meaning of options is you have the right to buy or sell the stock at specific price at specific time frame, without the obligation.

An example, if you were to buy a house, you need 100K cash to buy it. Alternatively, you may draft out a contract with the owner so that you have the right to buy it any time from now until the contract expired (let's say 6 months). The contract worth 1K. You expect the house price will rise from 100K to 110K within 6 months. Therefore the overall cost you come out with is only 1K compare to 100K if you were really buy the house. If the house rise 10K as you expected, you can sell away the contract to someone at 1K + 10K (11K). On the other side, if the price drop to 90K, your contract will become worthless, and you only loss 1K instead of 10K if you have bought the house. That's call leverage.

How you gauge the market - you need to master both Fundamendal and Technical Analysis, microeconomic as well as macroeconomic to gauge the direction. Of course you will never know what is stock market direction 100%. First, you must know if the market got a trend - either bullish or bearish. Next what is the that particular industry or sector is still bullish or bearish?

Macroeconomic - to understand the US market economic like CPI,PPI, housing start, FOMC meeting, GDP, jobless claim, oil inventory and etc. Oil price is the determine factor for now.

Microeconomic (my way of explanation)- industry and sector which are the most bullish and most bearish at that time. Next to find out the most popular and the least popular company in that particular industry. Buy the rumor, sell the news.

Fundamental analysis - to drill into the company information, important ratios: P/E ratio, P/S ratio, EPS, operating profit margin, revenue and profit growth, EPS growth, book value. Besides, its position in the market like total revenue/profit compare to other company in the same sector. Reading financial report is a must, understand its income statement, balance sheet and cash flow.

Technical analysis - gauge the trend with charting like candlestick chart analysis: bullish engulfing, morning star, bullish harami, piercing line.etc. Moving average, slow stochatic, MACD, william, ROC, RSI, OBV, DI+&-, etc should be sufficient.

Please visit http://taacademy.blogspot.com/ and http://optionstradingacademy.blogspot.com to find out more information ....

What is Options Trading ?