options learning sessionoptions+trading+… · “death cross” patterns seen on charts. the...

Options Learning Session

April 18th 2020

This webinar is intended for informational and educational purposes only. We are not investment advisors orsecurities brokers. All information provided herein is made to subscribers, investors and speculators in generalstrictly for informational and educational purposes without regard to their individual investment goals,

financial circumstances, investment knowledge and abilities or personal attitudes toward investing ortrading. Investors can and do lose money from investments. Options involve substantial risk and are notsuitable for all investors. You have 100% risk in all options investments. Option trades lose 100% of their valuethe majority of the time. You must accept that any trade you place can result in the loss of all the moneyadvanced for that trade.

Be sure to read the OCC’s Characteristics and Risks of Standardized Options to learn more about options trading which can be found at http://www.optionsclearing.com/about/publications/character-risks.jsp .

This link is provided as a courtesy only. We encourage you to utilize the information at the SEC(http://www.sec.gov) and the Financial Industry Regulatory Authority (FINRA) at (http://www.FINRA.org).Public filings are available at SEC’s EDGAR page. FINRA has published information on how to invest carefullyat its website. We encourage you to get personal advice from your professional investment advisor and/or tomake independent investigations before acting on information that you read here and its product offerings,as it is intended for informational and educational purposes only.

LEGAL DISCLAIMER

What is a Call/Put ?

[email protected] ©2020 Options Cafe Inc. All Rights Reserved. www.optionscafe.org

An option is a contract to buy or sell a stock, usually 100 shares of the stock per

contract, at a pre-negotiated price (premium) and by a certain date (expiry).

Call – Bullish Strategy

Call - A call option is bought if the trader expects the price of the underlying index

or stock to go up within a certain time frame.

Put – Bearish Strategy

Put - A put option is bought if the trader expects the price of the underlying index

or stock to go down within a certain time frame.

mailto:[email protected]

http://www.optionscafe.org/

Options Terminology

Strike Price - The price per share at which stock may be bought or sold under the terms ofan option contract.

Contract Size - The quantity of the underlying security that the holder ofan option possesses the right to buy or sell. For an equity option, the contract size is

100 shares.

In the Money (ITM) - For call options, this means the stock price is above the strike price.So if a call has a strike price of $50 and the stock is trading at $55, that option is in-the-

money.

Out of the Money (OTM) - For call options, this means the stock price is below the strikeprice. For put options, this means the stock price is above the strike price. The price of

out-of-the-money options consists entirely of “time value.”

At the Money (ATM) - An option is “at-the-money” when the stock price is equal to thestrike price. (Since the two values are rarely exactly equal, when purchasing options the

strike price closest to the stock price is typically called the “ATM strike.”)




Options Terminology

Volume - Volume basically refers to the number of transactions being made that involve aparticular contract.

Open Interest - It’s the number that shows the amount of currently open positions of optionscontracts. The higher the open interest of a contract, the more open positions there are for

it.

Expiration - It’s the date on which the options contract expires.

Implied Volatility - Implied volatility (IV) is one of the most important concepts for optionstraders to understand for two reasons. First, it shows how volatile the market might be in the

future. Second, implied volatility can help you calculate probability.

Time Decay - Time decay refers to how the extrinsic value of a contract will diminish as theexpiration date gets closer. The effect of time decay can significantly impact the returns

you make when trading.




Options Basics

✓ Option trades lose 100% of their value majority of the times.

✓ Position Sizing is very important when trading options. Do not invest more than 3-5% of

your portfolio worth in one options trade. Example, if your portfolio is worth $10,000, do

not use more than $500 per trade.

✓ Respect 30% or 50% stop loss on every trade as per your risk appetite.

✓ Have an exit strategy when in profits.

✓ Book profits for 30%/50%/75% returns as you desire. If you double your money, sell 50%

of your position and ride the remaining half.

✓ Hedging your positions may help you to avert risk.

✓ Don’t aim moonshot trades. Have a trading plan.




Order Entry/Exits


✓ What If I missed a trade idea alert ? Do Not Chase. If it's within +/- 5% premium price range , you can still enter the trade idea.

✓ What If I don’t like a trade idea ? You are free to Skip It.

✓ Trade Ideas are always provided with the strike, expiry and entry prices.

✓ Please follow Strict Stop Loss when stop loss is explicitly mentioned in the trade idea.



Put/Call Ratio


What is Put/Call Ratio ? How to Interpret it ?

It is simply the Put volume divided by the Call volume on a particular day.

Put Volume

P/C Ratio = --------------

Call Volume

✓ If the Put/Call ratio is equal to 1, then there is a balance between puts

and calls being traded on a particular day.

✓ If the Put/Call ratio is less than 1, then the number of calls being traded is

higher than the number of puts being traded.

✓ If the Put/Call ratio is greater than 1, then the number of puts being

traded is higher than the number of calls being traded.



Call and Put Vertical Debit Spreads

A call spread refers to buying a call on a strike and selling another call on a

higher strike of the same expiry. This is a Bullish Strategy.

A put spread refers to buying a put on a strike and selling another put on a

lower strike of the same expiry. This is a Bearish Strategy.

Call Spread Example

Let’s assume that AAPL is at $300 at end of April.

We may want to buy a May15 300 call for $7.50 and sell a May15 310 call for

$4.50, a net cost of $3 per contract,

Buy to Open AAPL May15 300 Call at $7.50

Sell to Open AAPL May15 310 Call at $4.50

Net Cost of the Spread: $3

Say if AAPL goes up and holds above $310 on May15, the spread would be

worth $10, thus tripling the invested amount.

Call and Put Vertical Debit Spreads

Put Spread Example

Let’s assume that GOOGL is at $1300 at end of April.

We may want to buy a May15 1300 put for $15 and sell a May15 1280 put for

$5, a net cost of $10 per contract,

Buy to Open GOOGL May15 1300 Put at $15

Sell to Open GOOGL May15 1280 Put at $5

Net Cost of the Spread: $10

Say if GOOGL goes down and holds below $1280 on May15, the spread

would be worth $20, thus doubling the invested amount.

Note: When placing an order for debit spreads, For BTO leg, select ASK price and for STO leg, select BID price.

50-DAY MOVING AVERAGE (50 DMA)

What is a 50-Day Moving Average?

The 50-day moving average is a popular technical indicator which investors use to analyze price trends. It is calculated using average closing price of a

stock over the last 50 days.

How to Calculate a 50-Day Moving Average

You can calculate the 50-day moving average by taking the average of a stock’s closing price over the last 50 days.

Stock Closing Price (Day 1 + Day 2 + Day 3 + Day 4 ...... + Day 49 + Day 50) ---

--------------------------------------------------------------------------------------

50





How to use the 50-Day Moving Average

✓ Stock price above the 50-day moving average is considered Bullish.

✓ Stock price below 50-day moving average is considered Bearish.

✓ If the stock price meets the 50-day DMA as support and bounces upwards,

you should probably think long.

✓ If the stock price meets the 50-day DMA as resistance and bounces

downwards, you should probably think short.

✓ If the price breaches the 50-day DMA downwards, you should switch your

bias to bearish.

✓ If the price breaks the 50-day DMA upward, you should switch your bias to

bullish.





What is a 200-Day Moving Average?

The 200-day moving average is a popular technical indicator which investors use to analyze price trends. It is calculated using average closing price of a

stock over the last 200 days.

How to Calculate a 200-Day Moving Average

You can calculate the 200-day moving average by taking the average of a stock’s closing price over the last 200 days.

Stock Closing Price (Day 1 + Day 2 + Day 3 + Day 4 ...... + Day 199 + Day 200)

-----------------------------------------------------------------------------------------

200

Golden Cross & Death Cross


✓ Traders and financial analysts frequently refer to the “golden cross” and

“death cross” patterns seen on charts.

✓ The “Cross” refers to two simple moving averages “crossing” over each other.

✓ A Golden Cross is considered as a Bullish sign.

✓ Golden Cross occurs when the 50-day moving average rises above 200-day

moving average.

✓ A Death Cross is considered as a Bearish sign.

✓ Death Cross occurs when the 50-day moving average drops below 200-day

moving average.



Golden Cross & Death Cross




options learning sessionoptions+trading+… · “death cross” patterns seen on charts. the...

Documents