Welcome

 

Welcome to Binary Options Trading

By: The Rookie DayTrader

Trading in the currency (FOREX), Stock, Commodities Markets, with Binary Options involves risks. You should only trade with monies that you can afford to lose. You should never use funds from your retirement accounts, children’s school accounts, personal savings accounts, or credit card accounts that you can’t afford to pay.

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The trends in the stock markets are very volatile and constantly fluctuating. If you are interested in Binary Options Trading in this economic jungle, you might find yourself surprised and confused with the differing trends and patterns in the market. It may be very difficult to find good stocks that you can trade with much ease.

Getting to know the right stocks and markets for Binary Options Trading is very critical and in doing so, it is very important that you understand how the company you are giving your investment to, makes a substantial amount of its money. Unless you have a good understanding of a company’s market, its products, as well as its competitive strengths and weaknesses, it would be pretty difficult for you to foresee whether or not your investment is profitable. When you trade in the currency markets you are not trading in actual stock certificates. You are trading in the value of one currency against that of another.

This report on Binary Options Trading is intended as informational and educational material for you to study. You should always do your own research and make your own decisions. DO NOT let anyone force you into making a decision that you don’t want to make. Remember, “NO” is a complete sentence.

With that said, I’ll leave you with one thought…

How do you make a small fortune in the Markets? You start with a large one!

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Join Us and Good Trading,
The Rookie DayTrader

Binary Options have now Evolved with the Introduction of Barrier Options

Forex trading, is evolving quite rapidly in the Binary Options Arena. Barrier options trade hourly and have a 300% return rate when the trading period expires “In the money”.

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300% Barrier Options are offered on Gold futures and will trade on a variety of stocks, commodities and currencies in the near future at Start Options. When the market starts to become active and the Trader sees that Gold futures are trending with support a trade of a Call Barrier Option can be made at anytime during the trading period at the current price. When a Barrier Price above the Strike Price is set and if the Gold futures expires at the end of the trading period above the Barrier Price, the return is 300%. Put Barrier Options allow traders to trade barriers below the current price.

barrier options
Barrier Options are available for trading in the $250, $500 or $1000 stakes on the Start Options platform.

The 300% return rate is significantly higher than standard binary options.

Check out Barrier Options. They add flexibility to the On-the-Go investor’s portfolio.

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Your Questions About Options Trading

Carol asks…

Option trading?

Hello everyone. I have been buying stocks for my portfolio for about 3 years now. However, for the past year or so, I’ve been hearing a lot about Options. Are Options for short term traders or long terms traders. Also, is there validity to all the hype? Would it be worthwhile to learn about it or should I just stay with stocks? I would appreciate info from anyone who has extensive knowledge. Thanks

Broker answers:

Options can be played for short -term [days], intermediate [weeks] to long-term [months].

I tend to be in the trade or position for a couple days to a few weeks.

You can trade longer term options, which are known as LEAPS [Long-term anticipated participation], but they usually cannot be bought for any longer than 2 years. Options expire or run out of time..

When folks don’t know what they are doing or how to do things, they are just taking potshots.

Options give a trader leverage or “more bang for the buck”.

To learn more about the world of Options, here’s a free site, which virtually “spoon-feeds” traders about options:

http://optionseducation.org

Thanks for asking your Q! I enjoyed answering it!

VTY,
Ron Berue
Yes, that is my real last name!

David asks…

How do option trades affect stock prices?

I would guess that only when an option is exercised that the stock price is affected. Is that correct?

Broker answers:

Option trades are important to stock prices in several ways, particularly low-volume stocks:

1) If there is a big option trade, it could be an indication that the “smart money” knows something. For example, the SEC is investigating some March BSC puts at $2.5 that were bought while BSC was in the 50s two weeks ago

2) I’ve found that for low-volume stocks, stock prices often “stick” near option strike prices near expiration. For example, if the strike prices are $20, $25, $30, then the stock would be more likely to trade near $19-21, $24-26, $29-31, etc. During expiration week.

3) The put/call ratio is often a good contrarian indicator for price movement. When the option market is extremely pessimistic, lots of puts are sold (the buyers think the stock will go down) so the ratio goes up. The market usually ends up higher when the put/call ratio spikes up.

BTW, as others have mentioned, I don’t think that option exercising affects the prices much either.

John asks…

how does stock options trading work?

how do you trade stock options? how does it work exactly, all i know is how to trade stock. helpful links would be appreciated as well as a thorough explanation.. what is the risk and reward. How is it different than trading stocks? thanks

Broker answers:

Options in a nutshell…..This is an explaination of equity options. Basics – Strike price is the price paid at execution or which intrinsic value is based. Expiration- The date the contract expires. Options have cycled expiration dates, all of which expires on 3rd Saturday of the month. The last day to trade is the third friday of the month. A contract represents 100 shares. There are puts and calls. There are four types of options and depending how ther are initiated they are either bull or bear strategies. Each contract represents 100 shares of the underlying equity. The four are: Long Calls – This is buying the right to purchase a stock at a fixed price within a predetermined period of time. This stategy is most commonly used to control a larger position of a stock then you could by simply buying the stock outright. I will use Intel symbol “intc” in all examples to illustrate. Fridays price was 21.50 a share. To buy 100 shares of intel you would need $2,150. However for 1.85 per share or $185 you can control 100 shares of the November 20 Calls. This contract gives you the right to purchase 100 shares of intel @20 between now and Nov. 18th when the contract expires. Notice you have to pay a .35 premium for each share. However, if intel goes to 25 your options would have a minimum value “intrinsic” of $5. Which is a 65% return. When the stock only went up 22%. With long calls your loss is limited to the original invesment…$185. Max gain is theoritically unlimited. There are two ways in which to realize the gain in your position. You can simply sell the option contract for its current value which would be its “intrinsic” or true value plus any time value that still remains. In the example above, if the gain in intel happened the first day of ownership. The option would be worth more than $5 because of the the time premium still remaining. The time value would be less than $.35 You can also exercize you call and purchase 100 shares of intell at $20 per share. You would use this if you wanted to keep the shares for a longer period of time or to delay to the capital gain.
Long Puts- Would be used in the same manor as calls. With puts you are looking for a stock to trade down. Puts give you the right to sell a stock at a fixed price within a fixed time period. With Long puts your loss is also limited to the original investment.

Now Short Options are where the game gets more complicated and should only be used by an experience options investor. Your risks are much greater with short or “naked” options. An easy way to differentiate is with long calls and puts you are the gambler, risking a small amount of money to potentially win big. In selling options you are the booky. However, your capital exposure is much greater. Naked or short calls are the riskiest option strategy. Selling to “open” calls is giving someone the right to buy stock at a fixed price for a certain time period. It is a bearish strategy and you are betting the stock will not go up over time. In return if you are correct you get to keep the premium. Go back to the origianl intel example. If intel trade down below 20 you would get to keep the 185. However if the stock trade above 21.85 the loss matches the difference penny for penny. Stock goes to 25. The short call writer “seller” looses 3.15 per share. The loss is theoretically unlimited . Very risky.

Now shorting or selling “naked” puts is a very useful way to purchase a security at a discount. With short puts you are selling someone the right to sell you their shares at a fixed price. You are committing yourself to purchase a stock. Lets say you wanted to own intel stock. However you think 21.50 a share is a bit pricey. You would be willing to buy intel at 21. Instead of tring to time intel and placing a limit order to buy at 21. You can sell a dec 22.5 put for $1.50. Your cost basis for intel if forced to purchase would be $21 (22.5 less the 1.50 premium you collect for the naked put) If you are wrong about intel and it continues up above 22.5 you get to keep the $1.50. If it trades down below 21 you will still have to pay net 21 per share. But than you own the stock and you can wait as long as you want to see the stock back above your $21 cost basis.

Options are very useful in a more conservative way. They can be used to cover an existing Long or Short position of a stock. Cover calls are used for long equity positions. Covered Calls, in return for giving up the profits above a fixed point you get some down side protection.
A “Married put” is buying a put to place a floor on the loss that can be experience with a long position.

Donald asks…

Question about trading stock options?

I need some advice from an experienced trader. So I just recently started doing my own research and learning the basics of trading options through various websites and other sources. I am all new to the world of trading, but I seem to be grasping the concepts, and it seems like something I can really see myself doing on the daily. The questions is how much knowledge should I gain before I actually start trading? It seems like an on going learning process of information that never ends. What are the essential points I should cover before I start trading? Should I start off doing virtual trading? Thanks in Advance

Broker answers:

I have answered thousands of questions about option trading over the years. This is one of the three best questions I have ever seen.

I do not know how much experience, if any, you have buying and selling stocks. Because shares of stock are the underlying security for stock options, I recommend starting by getting reasonable good background in stocks before trading options on stocks. You don’t have to be a great stock trader to trade options on stocks, but you better undertand what is involved. What kinds of events cause big changes in the price of a stock? How would you compare two companies in the same industry? Can you tell which one is more likely to succeed? What numbers do you look at in financial statements?

Probably the most important thing to learn when trading options is how to control the risk factors involved. Among other things, that means respecting every risk factor, even if you have traded for years and never experienced something, you can be sure that if you trade long enough you will see it at some point in the future.

<<>>

(1) Exactly what an option is and when options are adjusted ater being issued.
(2) The mechanics of buying and selling an option and exercising an option.
(3) Your maximum potential profit and maximum potential loss from an options position.
(4) What implied volatility is and why it is significant.
(5) What factors are used to determine the price of an option (“the greeks”) and what the number associated with each of the greeks represents.
(6) The chracteristics of the underlying security (the stock in the particular company).

With that backgound it is reasonable to do limited options trading where either
(1) the maximum potential loss would not have a significant impact on the value of your portfolio or
(2) where you write an option and if the option is exercised the result will be a stock trade you would make if you had not written the option.

Before making larger trades you should
(1) Have a firm understanding of each of the greeks and how to control the risks associated with each of them after a position is opened.
(2) Have a good understanding of the standard options spreads, inluding which spreads are best in each circumstance and why they are best.
(3) Have a brokerage account that allows you to enter spread orders and how to use spread orders.
(4) Have an understanding about the liquidity of different options and why it is (or isn’t) important for a particular position.
(5) Have a firm understaneding about synthetic equivalents, arbitrage positions and put-call parity.
(6) Know what impact stock dividends will have on open option positions.
(7) Know when American-style options should be exercised early.
(8) Know when to sit on the sidelines and wait for an opportunity instead of trying to force a trade.

<<>>

It should be. No one knows everything about options trading. There are always new books coming out about options trading, and you need a certain amount of knowledge to determine which are worthwhile. Just remember that many of the people writing books (and many people making web sites) think they know more than they do.

<<>>

Yes, but there are a couple of caveats.
(1) Be very honest. Buy at the ask quote and sell at bid quote. Only fill orders if the market hits your price after you enter the order. Saying you would have made a trade at a particular price after the trade has occurred is cheating.
(2) Most people find that trading with real money is different than virtual trading because there are more emotions involved.

James asks…

What is Options Trading all about?

I have the opportunity to take that class or Final cut. I lost my house and I’m desperate for money I figure options trading might be my solution. or I can take Final Cut which I need to graduate. CanI really make money trading options?

Broker answers:

Option trading is about buying and selling option contracts. If you do not know what option contracts are I recommend going through some of the basic tutorials/classes at

http://www.optionseducation.org/

There are a lot of different ways to trade options, but in general you need to understand that they are highly leveraged securities. Losses of 100% are common with long positions. Losses of more than 100% are common with short positions. Profits of more than 100% are much more common with options than with stocks, but they are a lot less common than 100% losses.

<<>>

I strongly encourage you to make graduation a higher priority than option trading.

<<>>

You probably can if

(1) You invest enough time and effort to understand all the risk factors associated with options and how to control those risk factors
(2) You have sufficient self discipline to always control those risk factors, even when that significantly reduces your potential profit.
(3) You start with enough money to absorb significant losses, particularly when you first starting trading.

One class will not teach you enough about the risk factors and how to control them. You would be better off reading some good books about option trading.

Lawrence McMillan, one of the few acknowledged experts in option trading, is on the record as saying a $20,000 portfolio is not large enough to start trading options and have much of a chance of making money.

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