TRADING PUTS AND CALLS!

Option 4 Calls and Puts

Leveraged Put and Call Option Stock Investing Information & Ideas

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Stock Investing for Buying Puts and Calls, Trading Puts and Calls, Stock Puts, Calls and Puts, Trading Puts, Call Option, Put, Puts, or Put Options-   (General Online Investing Information, Education and Ideas)

 

Why the Call Option or Call Options?  Profit in Bull Market Stock Investing!

• Investor has a Bull Market, Stock Investing environment.
• Investor's advantage in Stock Market Investing is to leverage Call Options with limited Stock Investing risk.
• Investor increases Stock Investing value without committing the investing capital to purchase shares.

 

Trading the Call Option is simple, yet a very popular strategy for Bull Market, Stock Investing.   Call Options allow investors to profit from Stock Market Investing in an upward move in the price of the underlying stock, while risking less Stock Investing Capital than with the outright purchase of an equivalent number of underlying shares, usually 100 shares per Call Option contract.

           
Call Option Example:   Stock Investing in ABC stock  is trading @ $31.00 per share.

Outlook: Bull Market- anticipate good earnings in ABC stock and would like to take advantage of a potential increase in the stock market investing environment.

Call Option Trading Strategy:

Buy 30 Contracts ABC December 35 strike call options at $1.00 per contract.    (Equals 100 shares per contract)

 

Cost of Call Option Trade:          30 x 100 x $1.00 = $3,000.00

                                           (30 Contracts Controls 3,000 shares)

 

Cost of Stock Trade:                  1,000 shares x $31 = $31,000.00

 

*All values shown are at the time of expiration.  Commissions and other trading fees not included.

 

Stock Per Share	Call Option Contracts	Stock Trade (1,000 Shares) Net Profit/(Loss)	Call Option Net Profit/(Loss)
$25	30 @ 100 Shares Ea.	($6,000.00) Loss on Stock	($3,000.00) Max Loss
$30	30 @ 100 Shares Ea.	($1,000.00)	($3,000.00) Max Loss
$36	30 @ 100 Shares Ea.	$5,000.00 Profit	$0.00 (Breakeven)
$40	30 @ 100 Shares Ea.	$9,000.00	$12,000.00 Profit
$45	30 @ 100 Shares Ea.	$14,000.00	$27,000.00 Profit

 

Other Example Earnings Outcomes:

            A) Bought 30 ABC December 35 strike call option at $1.00.

            Sell the call option before expiration:

            ABC Stock goes from $31 to $34.
            Earnings out and volatility drops from 50% to 35%.
            December 35 strike call option goes from $1.00 to $1.40.

            (Equals 40% profit)

            Even though the stock advanced $3, a 15% decrease in volatility

            has suppressed the value of the call option.

 

            B) Bought 30 ABC December 35 strike call options at $1.00.

            Sell call options before expiration:

            ABC Stock goes from $31 to $34.
            Earnings out and volatility drops from 50% to 48%.
            December 35 strike call option goes from $1.00 to $3.10.

            (Equals 210% profit)

            The stock advanced $3 and volatility decreased by only 2%.

            The call option increased in value by $2.10 with the upward move

            in the stock.

In Summary: When planning trades it is important to understand the Vega component of the call option.  Remember, Vega is the change in an options theoretical value for every one-point change in volatility.  Volatility up, Call and Put prices up. Volatility down, Call and Put prices down. ( FOR SAFETY USE THE VIRTUAL STOCK EXCHANGE )

 

Why buy Put, buy Puts, or Put Options?

• Investor is in a Bear Market and bearish on Stock Investing.
• Investor's advantage in Stock Market Investing is to leverage put options with limited stock investing risk.
• Investor wants to buy puts in anticipation of a decrease in stock investing value but,
• Does not want the unlimited upside risk of committing stock investing capital for a short sale of the shares.

 

Many factors affect values of stock market investing.  These Stock Investing factors help develop a successful online investing portfolio of put trades! 

 

Example:

On October 26, 2009, BAIDU, Inc. (BIDU) reported earnings that beat consensus estimates by 9.78%.  But, BIDU offered lower than expected Q4 guidance, citing its efforts to transition advertisers to its new "Phoenix Nest" platform.  This sent the stock on a “Free-Fall”.   BIDU opened on 10/27 and immediately fell from $432.97/share to $353.03/share.  This represented a drop of $79.94/share (18.46%).    A BIDU NOV-09 430 PUT (BPJWF) exploded from $18.50/contract up to $47.60/contract representing a gain over 157% in one day.  Stocks can fall in one day an amount that took them many days to achieve.  BIDU took 320 days to go up from $100.50/Share to a high of $439.90/share averaging $1.06/day.

Trading Puts, Stock Puts, Put, Puts, or Put Options are simple, yet very popular strategies for Bear Market, Stock Investing.  A Put option allows investors to profit from a downward move in stock market investing, while risking less stock investing capital compared to greater initial margin requirements needed for a short sale of an equivalent number of underlying shares, usually 100 shares per put contract.  In addition, a long put holder is not subject to margin calls with an increasing underlying stock price as are investors in a short stock position.

           
Put, Puts, Put Options, Trading Puts Example:  ABC stock is trading @ $36.

Outlook: Bear Market- Would like to profit on bear market outlook for ABC stock with limited risk.

Put Option Trading Strategy:

Buy 10 Contracts ABC August 35 strike Puts at $2.25 per contract.

                      (Equals 100 shares per put contract)

Cost of Put Option Trade:         10 x 100 x $2.25 = $2,250.00

                                               (Controls 1,000 shares)

*All values shown are at the time of expiration.  Commissions and other trading fees not included.

Stock Per Share	35 Put Option Value	35 Put Option (10 x 100 = 1000 shares) Initial Cost	Put Option Net Profit/(Loss)
$45	$0.00	($2,250.00)	($2,250.00)
$40	$0.00	($2,250.00)	($2,250.00)
$35	$0.00	($2,250.00)	($2,250.00)
$30	$5.00 x 1000 shares	($2,250.00)	$2,750.00
$25	$10.00 x 1000 shares	($2,250.00)	$7,750.00

 At Expiration of Put:

Maximum Profit = Price of underlying stock reaches $0.00

Breakeven = Strike Price – Premium Paid = $35.00 - $2.25 = $32.75 per share stock price

Maximum Loss = Total Premium Paid = $2.25 per share x 10 x 100 = ($2,250.00)

In Summary: Purchase an ABC put if you anticipate a significant decline in the stock and you have a timeframe in mind to realize your forecast.  Risk is limited to the total premium paid for the Put.  Profit is theoretically limited.

 

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• Call Option– Profit from Bull Market trends with general information and ideas on call option analysis and call option trading to cover each trend.

 

• Call Options on selected ETF’s.

 

• Call Option + out of the money puts for downside protection.

 

• Put Options – Profit from Bear Market trends with general information and ideas, put option analysis and put trading to cover each trend.

 

• Puts on selected ETF’s.

 

• Put + out of the money calls for upside protection.

 

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Option 4 Calls and Puts

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Leveraged Calls and Puts, Option Trading Information & Ideas

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