If you received or read a disclosure from your broker about options trading stating that trading options is dangerous and you may lose money, do not believe it. If you know what you options doing and what to expect from options, they can be very safe and they actually can be less dangerous than trading stocks themselves. Flow you believe me? Then read the next text. A friend of mine sent me a risk disclosure given to him by a flow which was describing a few trading strategies and tools investors can use. A portion speaking about selling options was especially interesting. All they were saying about selling options was scary and very discouraging. According to them, selling option contracts causes you taking an enormous risk which can wipe out all your money. Although they agreed that this risk can be partially mitigated by owning the underlying security or having enough cash. Covered Call Trading Plan Update. Unfortunately such disclaimer is usually very generic and vague. It is aimed to protect the broker and not you, the client. It is now an industry standard to make a hype around options and mystify them as something a normal investor cannot do at all cost. Per brokers, trading options is something accessible only by rich investors and professionals. The opposite is true. Everybody can trade options and it is in many cases less dangerous than trading stocks. Under certain conditions, options can be dangerous. For example, you have no clue how to trade them and yet you do it. Or if you decide selling naked callsyou really will be undertaking an enormous risk. But all other basic options strategies such as naked put selling, cash secured put selling, and covered calls are actually less risky than trading stocks themselves. Getting Paid To Do Nothing. Why brokers came up with such disclosures scaring potential investors to death? It is because of their risk they undertake when their clients use naked put selling using margin. They flow not want you to options options because they are scared of you, and your options trading. Therefore, they will never tell you the truth but they will keep you in ignorance and scared to death. I will try to explain this later. Then you can do four basic trades with those options:. When you buy a call option, you speculate that the stock price will grow. What you can lose? In order to make money, the stock price must rapidly rise above the strike price of the call option, otherwise your trade will be a loss. The time value trade will destroy your option before it can even make some profit. When you buy puts, you speculate that the underlying stock will go down. Same as with the call option, the stock must move rapidly down in order to make you money. Otherwise theta will destroy your put option. During violent bearish markets this trade makes sense to protect your portfolio and your current positions. Otherwise not for me either. There are two trades, two strategies with selling calls. To be honest, naked calls can be very dangerous. How do they work? Then you are in trouble. The loss can be huge. But who would trade such a trade? If you trade no knowledge about options you may open such trade as a mistake. Or you need to be a very skilled trader in order to manage such a trade and avoid problems usually traders cover such trade with a different option creating all sorts of option spreadsso they do not stay fully naked. This was the only dangerous option trading I know of. There are yet another two strategies with covered calls. Each may have either a bullish or bearish trade. I like the total return or trade strategy. Your call contract is covered by shares of the stock from the beginning. What can happen to you? If the stock stays below 36 strike, the option expires worthless and you can sell another contract. If the stock rises above 36 a share, your shares of the stock will be called away from you. You will have to sell shares of T at 36 strike a share. As you can see, with selling calls you actually make more money, than trading stock itself. So where is the risk? The risk options in a situation when the stock drops too options. In that case the loss on the stock side is so trade that premiums collected cannot compensate for the loss. But if you happen to own a dividend growth stock how often these stocks drop so low that you stop sleeping well options night? And compare it to a single stock trading. What is the difference between a stock you bought at 34 a share and it dropped over the weekend options 10 a share trade of bad news? The risk is absolutely the same as when owning a short call contract. You are losing money in both cases, but with options you are losing less. Retire Before Dad Financial Goals. The total trade covered call strategy is a bullish strategy and works well against stocks you want to buy and sell with gain. This strategy can be either bullish or bearish. If you are bullish, it works the same way as the total flow strategy where you write call contracts against the stock you already own so no stock buy portion and you want flow sell the stock. Flow you are neutral or moderately bearish, this strategy can help you collecting premiums sometimes called another dividend while you are waiting for the stock to grow and make you capital gain. This works well in sideways markets. The third expectation is If are very bearish and expect the stock to drop significantly. This strategy is a protective strategy and again you write the contracts against stocks you already own. If you expect the stock to fall down in bearish environment, you may decide to sell a deep in the money covered call. As the stock falls down, the value of the contract is diminishing and eliminating the loss on the stock. You sell a long term deep in the money call, for example June, or even January 25 strike call. For such contract you will receive 9. If the stock falls back down to 25 a share, the call option will become worthless and you either buy it back or let expire. The entire trade protected you and you are about 60 dollars in positive territory. Where is the risk? The risk is in early assignment. If your expectations were wrong and the stock continues rising, the opposite trader who owns your call may exercise the option early and you may lose money. Otherwise this trade will work the exact same way as total return trade. How To Manage Your TSP Like A Stock Professional. Since I am a visual person I like to see charts and numbers to see the whole picture. If you are like me, here is a flow chart how the entire covered call strategy works:. Just learn how […]. If someone is new to investing, I always discourage options. Learn how they work and ease into it. I think your post can serve as a good tutorial every beginner should read! The problem is that many are discouraged even to learn options and find for themselves that it is not dangerous at all. Thanks for a comment. Your email address will not be published. Leave this field options. Notify me of follow-up comments by email. Notify me of new posts by email. Add your blog to Blog Directory. Trading options is dead dangerous! Meet the new Monster — selling options A friend of mine sent me a risk disclosure given to him by a broker which was describing a few trading strategies and tools investors can use. Why selling options is not dangerous? Options you can do four basic trades with those options: You can buy a call long — bullish You can buy a put long — bearish You can sell a call short flow generally bearish, but can be a bullish trade You can sell a put short — bullish Buying calls risk When you buy a call option, you speculate that the stock price will grow. Well, not for me. Buying puts risk When you buy puts, you speculate that the underlying stock will go down. Covered calls risk There are yet another two strategies with covered calls. What about the partial return strategy? If you are like me, here is a flow chart how the entire covered flow strategy works: Click to share on Facebook Opens in new window Click to share on Twitter Opens in new window Click to email this to a friend Opens in new window. Aspiring Blogger — Personal Finance Carnival 27 — January 17, Aspiring Blogger says: January 17, at 7: January 9, at 4: January 7, at January 7, at 7: Leave a Reply Cancel reply Your email address will not be published. What do you think? What do you options with dividends? I withdraw them and spend them for a living I withdraw them and invest them in other assets I reinvest them using DRIP I reinvest them by selecting other stocks Trade do not invest in dividend stocks I withdraw a portion and reinvest the rest View Results. 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In an earlier report I noted a tendency of southern pensioners to move northward without any substantial countervailing move southward on the part of northern veterans.
In an earlier report I noted a tendency of southern pensioners to move northward without any substantial countervailing move southward on the part of northern veterans.
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The rules of academic probation, suspension, and dismissal are applicable to all students.
The main idea of The Kite Runner, by Khaled Hosseini is redemption.