The up scenario
In the up scenario, the maximum gain that can be attained is the stock finishing at $10.00 or higher.
At $10.00, you would profit from the full value of the extrinsic value of the option which is $.50 and you would also have $.50 of capital appreciation from the stock for a total of [...]
Back in 2003, (October and November ‘03), the giant biotech Amgen (AMGN) came under some intense pressure, trading down about $12.00 before it found what appeared to be a decent level of support, and began to consolidate. At this level, anyone interested in going long Amgen at a discounted price would be advised to do [...]
Time decay, also known as theta, is defined as the rate by which an options value erodes into expiration. The value of the option over parity to the stock is called extrinsic value.
Since an option is a depreciating asset, meaning it has a limited life, the extrinsic value in the option will wither away daily [...]
Professional traders use the term lean to refer to one’s perception about the directional strength of the stock. When you own a stock and intend to hold it for a period of time, you are aware that you will probably be holding it while it goes up and while it goes down.
This means that at [...]
Clinging on to Fundamental Analysis and stock picking software, only keeps you stuck in trading equities. Trading this way, compounds concentration risk in one asset class and fails to adequately diversify risks across Equities, Bonds, Currencies and Commodities. Thereâs much more to stock option trading, than stock itself.I cite Benjamin F. Kingâs study, quoted repeatedly [...]
Contrast these 2 days. 29 Sep, 2008: Dow down -7.50%, Nasdaq down -10.06% and S&P 500 down -9.63%. Versus 13 Nov, 2008: Dow up +6.25%, Nasdaq up +6.11% and S&P 500 up +6.47%. Many retail option traders would have rushed to get their spreads filled on such big days, either to get short or long. [...]
Larry McMillan is an iconic Hercules of the options world. Few option titans have the depth and range of grounded insights to devote 630+ pages to a publication. Do not be overwhelmed by what initially appears as a titanic chronicle.McMillan commits extensive effort to clarify the proper use of misused trading terms. He rectifies inaccurate [...]
The Reward of Profit and the Risk of Losses for retail option trading needs to be managed at 2 related levels of performance: Portfolio and Trade Specific.At the Portfolio level for online options trading, there are 3 types of Targets that must be set, even before you trade.Maximum Return Target: complete achievement of the âidealâ [...]