1. What are options?
Options are contracts used primarily to reduce risk, giving the holder the right but not the obligation to buy a certain stock for a certain price by a certain date. Options expecting prices to rise are ‘call’ options; those expecting prices to drop are ‘put’ options. Key components of an option are the premium, strike price and expiration date.
2. What are call options?
Call options are contracts whereby the holder expects the value of the underlying stock to rise, thereby increasing the value of the option. Key components that make up the value of an option include intrinsic, which is the difference between the underlying stock’s price and the strike price. Extrinsic is the other main component, which is primarily the time value.
3. What are put options?
Put options are the mirror image of call options, whereby the holder expects the price to drop. As the underlying stock value drops, the put options increase in value, enabling in theory for the holder to sell the underlying stock first, then buy them back at the lower price. In reality, the idea is to trade the option rather than exercise them for the underlying stock.
4. Is option trading liquid enough to trade?
Absolutely, but that said, much depends upon the underlying stock and its options. Not all stocks have options and even some with options do not carry enough liquidity to ensure that you can sell your holding, should you be looking to sell. It is incumbent upon the options holder to trade intelligently, much of which comes from proper training.
5. How are options and stocks similar/different?
They both trade on the same broker platforms. Options are based on underlying stocks but unlike a stock, which you could buy and hold, options require a different approach. Options are contracts and include a time element, similar to ice cubes: they melt over time. The closer they are to expiration, the faster they melt. Profitable options trading requires a clear understanding of risks and rewards.
6. Is training really necessary for trading?
Some brokers now require you to pass an oral test of your comprehension of options before enabling your account. While I cannot guarantee you will make money trading options, I can confidently guarantee that you will lose your money if you do not know what you are doing. Options trading is inherently risky and the risk of loss can be substantial. The decision is ultimately yours.
7. Can you lose more than your investment?
Yes and no. If you purchase straight calls and puts, you can only lose your investment in that purchase, should the options expire worthless. If you erroneously ‘sell naked’, you could lose your entire account balance and more, if called upon to inject more funds into your trading account to cover a short position. These scenarios are covered in proper training.
8. Options compare to other instruments how?
Options are the fastest growing financial instrument. Once available only to the pro institutional traders as a way to hedge their trades, options trading is now at the street level fueled by individual or retail traders. It continues to grow exponentially from its inception in 1973, when it was first introduced by the Chicago Board Options Exchange.
What is an Underlying Asset?
- A commodity, index, stock, currency pair or any other financial asset that constitutes the basis for creating an option.
10. Do I really need to know about spreads?
You could if you want but it’s really not necessary. To just make money on the market, master one great strategy on one great stock. Learn its nuances and behavior to reap the benefits every day. Some folks, including myself, now only trade one stock, every day, for amazing returns. Keeping it simple is the easiest way for long-term growth on the market.
11. What experience do you have, Hugh?
I have many years in trading and life experience. Successful traders understand the two are intertwined as attitude and a grounded approach to trading is 90% of success, maybe more. Anyone can learn the other technical stuff. Like the market itself, it’s all about harnessing expectations and controlling emotions.
12. What about the $25k rule?
The Securities and Exchange Commission, in an effort to protect traders against themselves, instituted a rule that says you can only take 3 round trip trades in a 5 day period if you have less than $25k in your trading account. A violation of this may result in a suspension in your trading. You can bypass this ruling by opening up a cash account. Check with your broker. This rule does not apply to non-U.S. account holders.
13. What are the hidden costs/surprises?
The costs are what you will lose if you do not learn how to trade. This is serious business and there are traders ready, willing and able to take your money without even thanking you for it. There are no hidden costs to my training…. what you see is all there.
14. Do you ever suffer losses?
Absolutely. Anyone who tells you otherwise is lying. Losses are a part of trading and should be factored in to your money management techniques.
15. If this is so easy, why isn’t everyone doing it?
A question I hear a lot… truth is, my technique, while simple, is not that easy. The emotional control, discipline and patience must be mastered. The actual technique can be learned fairly easily but to put it in practice can take some time and certainly some effort. I guide you throughout the process.
16. Where can I view the precise trading hours of each asset?
A detailed list of all our available assets, their description, expiry times, symbol and trading hours is presented in the Asset Index .
17. Do options pay dividends?
No. Dividends are not paid on un-exercised stock options.
18. What is the expiration time?
The expiration time is the time and date at which an option expires.