A good stock options trading systems represents a very nice alternate possibility to trade the market. It requires only a small amount of money and the leverage is very high.
Of course the risk is much higher but using a stock option trading system can be a very rewarding investment style especially if you gain the knowledge or find a good stock option trading service with a high success rate. This way you can turn a few thousands of dollars into a very nice monthly revenue. In this page we will examine what is a stock option trading system and how you can quickly tap into this fascinating trading style.
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Stock options trading systems basics
Stock Option trading is more complex than trading stocks directly. When we trade an option we have to specify a strike price, an expiration month, which type of option trading you want (CALL or PUT) and on which side your initial position will be.
Let's first discuss the strike price. For each stock option we have a strike price at every 2.5 points for stocks between 5$ and 25$ and at every 5 points above that. For example if the IBM stock is at 92 you then have the choice to take 90 or 95 strike price. You could also use 85 or 100 if you want. The difference with each strike price is the premium. If we take our example and you decide to buy an IBM stock option with 90 strike price when the market is at 92 you would pay about $5 depending on how much days remains before the option expires. If you would choose 95 instead your option would cost a bit less for a CALL.
Let's now discuss the stock option expiration month. An stock option expires every third Friday of each month. So the maximum time it can last is about 5 weeks. Of course you can choose expiration month much further in the future but your premium will also be much higher. At the beginning the premium is high and declines as we get towards the expiration. This is a very important factor to consider if you choose to use this type of trading tool. It forces you to take a very short term approach instead of a more mid term approach. When an index option expires it is worthless.
Let's now discuss the type of stock option you can choose. If you decide to trade the market on the UP side you would pick a CALL. If on the other hand you would want to play the market on the DOWN side you would pick a PUT. So yes you can bet on a market decline to make money if you have the nerves to do so. There are many more complex option stock trading strategies discussed briefly later in this page.
Let's now discuss the initial position side. When we initiate a trade with a stock option we can buy an option from someone or we can sell an option to someone. There is a big difference between the two. If you buy an option from someone else your risk is limited to the price you paid, you cannot lose more than that and your profit potential is unlimited. On the other hand if you sell an option to someone else as the opening position your loss potential is unlimited and your profit is limited to the price you received on the transaction. This is what we call a naked PUT. It also takes a bit of margin to initiate a naked PUT (20% of the value of the underlying stock). So if you are betting on the market to go up, you can buy a CALL or sell a PUT.
Option trading analysis tools
If you want to learn a lot more on several stock options trading strategies as well as all the terms related to stock options trading, we suggest this excellent book
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Stock Options Trading systems
We will now discuss two different approaches to get yourself involved in stock options trading systems. We will briefly describe three services specialized in that area.
Optionsmart service
Optionsmart is a very interesting stock options trading systems service if you want to get involved in stock options trading systems. This firm only offer services. You don't have to select trading opportunities, it is all technicaly analyzed for you.
They suggest 3 basics stock options trading systems strategy. The first one is buy calls(bullish) or puts(bearish). The second one is trading what we call a bullish or bearish spread. The thrid one is trading what we call a straddle. No matter what strategy they suggest their success rate is 80% or more. Their % average win is much higher than % average loss. You receive an email before the market opens describing exactly what to do no matter which stock options trading systems strategy they suggest. The average olding period for each position is between 1 and 20 days. The average number of suggested trades over 3 months is about 30.
They also offer another service called QQQQ trading service which suggest QQQQ trading using either similar option strategies or using the QQQQ stock itself related to the Nasdaq 100 index. Their success rate is 90%. You won't see a lot of trades during a year but most of them are profitables.
There is one more interesting point to discuss. If you don't want to make the trades yourself from the email suggestions, you can choose at no extra cost to open an account at OptionXpress and they will make the trades for you according to your trading style that you specify.
Of course we do suggest you paper trade what they suggest for a month or two before committing yourself but this service is very interesting. It is a bit expensive and very much worthed.
They offer a 10 day free trial period.
Click here to learn more about Optionsmart stock option trading services
Click here to see Optionsmart QQQQ option trading services
Onlineoption service
Onlineoption is another interesting stock options trading systems service which is a bit different from the previous ones. This one offers a lot of information on how Dr Cooper makes his trading decisions. He offers books, videos and even forums. He also offers a montly membership where you can receive trade alerts. EACH DAY THE ENTIRE NEW YORK STOCK AND NASDAQ EXCHANGES ARE SCANNED USING A SEVEN-POINT SYSTEM. RESULTS ARE THEN E-MAILED TO YOU EACH TRADING DAY. You can see with the members forums how different members are doing with their trades. You can post your own and then see how profitable you are. With this stock options trading system you are not left alone and can share your experience with other members.
Click here to learn more about Onlineoption services!
1stocktrading
1stocktradingandinvestingsecrets favors two basic stock options trading systems strategies to trade stock options. First you can buy calls as a bullish stand or buy a put for a bearish stand towards a stock. This is recommended for people with little money to commit into a stock options trading system. Second you can sell what we call naked PUTs as a bullish stand. This method requires margin but it is much more safe and an easy way to build a montly revenue. With their stock options trading system they suggest to find your trading opportunities by checking every day the top % gainers and top % losers on the Yahoo sites and then they explain how to select a stock and prepare your strategy to get in. This approach takes a bit of time every day (between 1 and 2 hours). You have the option to take their monthly service where you receive by email trading suggestions (entry and exit points as well as stop loss positions). Their sucess rate is about 53% with their first strategy and above 80% with their second strategy. Their % average gain is much higher than their % loss which makes it a quite reliable service.
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