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If you are looking to start in options trading, then it is important to have a good understanding of what options are, how the market works, and what other information you need in order to make this venture profitable .

Just like any other investment venture, options too have their share of terms with which you need to acquaint yourself. In addition, knowing the appropriate strategies to use will be crucial to guarantee success in your options trading business.

Furthermore, in order to apply the right techniques when trading require a more advanced form of education. However, with a simple option trading tutorial, you should be able to get started in your investment venture.

Here are a few topics to help you get started in options trading:

What is an Option?

An option refers to a contract sold by one party to another, which gives the buyer the right but not obligation to buy or sell a stock at the agreed price within a certain period.

What are the types of options?

Technically, there are two types of options — the call option, and the put option. Buying a call option gives you the right, but not the obligation, to purchase a stock at the strike price before the expiration date. Buying a put option on the other hand, gives the right, but not the obligation to sell a stock at the strike price any time before the expiration date.

What is the importance of a call option?

A call option represents the right to buy a security at a specified price on or before an expiration time. It is a type of security that is preferable when the stock or market is expected to rise significantly in price. In this case, if you happened to be correct, your reward could be quite substantial.

When should you use a put option?

A Put option is a contract that gives the owner the right to sell a stock at a specified price prior to expiration. However, this may tend to differ depending on whether you are selling in the US or UK — this is because, in the US you can sell a stock on or before the expiration date, while in the UK you can only sell a stock at the end of the contract, the same applies to the Call option.

A Put option is more desirable when the stock or market is expected to fall in price. A Put option is often used in combination with stock purchase in order to hedge against the possibilities of purchasing a stock only to have its price fall suddenly.

In order to determine when to buy (Call) or sell (Put) a stock, you need to have knowledge on conducting market analysis. Therefore, it will be important for you to learn more about the necessary techniques that you will require when trading options. Of course, this should also inform you on the kind of strategy to use in a given market condition. You can get most of this information from books, the Internet, and many other sources.

 

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I had to wait about 15 minutes or so and then I simply locked in my profits as I showed you on the Qs last week.  What I did was I combined both my Q position and my IWM position into the profit graph here on this analyze tab.  It shows you that I have both the IWM and the Q positions on the three-legged box and basically this is where we are right now.

The live price is $75.47 which is right in here.  Remember that the green line is our expiration and the white line is our current price.  What I’ve done is I’ve locked in a profit.  I have an open profit of $554 on this position.  But what exactly has this combined position of the Qs and the IWM ETF done for me?   Well what it’s done, really,is given me not only a guaranteed profit of $478 at expiration,even if it doesn’t move,but it also has given me unlimited upside potential and unlimited downside potential.  As you can see.I can’t lose money on this position.  It’s impossible.  It just can’t happen.  I’ve locked in my profits so if the market just stays the same well I’ve got $554 open profit.  I’m guaranteed a profit of $478 at expiration.

Now remember that we’re only using a few contracts.  This is just fordemonstration.  I’m showing how you can make money even with smallamounts of contracts.  If I was doing ten times as many contracts, obviously I’d have a guaranteed profit of $5,000.  I mean it doesn’t get any easier than this.

The upside to this and the real potential these types of three-legged box in locking the box positions is that not only are you guaranteed a profit if the market doesn’t do anything,but if it starts to go up dramatically or if it starts to drop dramatically, it doesn’t matter.  The market can go up or down and you can make an unlimited amount of money.  Here’s the profit area.  Your zero line is down here.  You have nothing but profit whether it goes down or it goes up.

So that’s the power of thekind of trading that we do.  You try to hedge your positions asmuch as possible.  You try to manage the risk.  We manage these risks by the numbers.  So in other words, when we first put on our IWMposition, we looked specifically at the delta.  I wanted to be long a certain amount of delta because based on the analysis that we doon a regular basis, and you see those in the technical analysis modules, we knew the market was going to go up today.  Just like we knew it was goingto go down earlier in the week on Monday and Tuesday.  Today is June 5.  We knew over the weekend that the market was going to decline.

Wetook a position that gave us an opportunity to lock in these profits.  So we locked in the profits on the downside and we knew the market was going up.  Now we’ve locked in our profits on the upside and it doesn’t matterwhere it goes because we’re guaranteed a profit.

I have never seen anybody else explain this concept in 20 years of trading and going to all of the seminars and the marketing stuff that these people put out.  This is a pretty dynamic way to trade because you can’t lose money at this point.  You have no other costs.  You initiated the positions.  You have no other costs at all because all of these are June expiration contracts and in the next week-and-a-half they are going to expire and you are guaranteed at least the $500 profit.  And remember, as I said we’re only doing small contracts.

So that’s how you trade with confidence.

This is the kind of information that you aren’t going to find anywhere else.  As we go through these types of trades in the future, especially after we get through Module 11, you are going to see the dynamics of how to lock in profits on just about any kind of position that you have.  And not only lock in profits butgive you unlimited upside or downside potential.

So that’s it for today, guys.  Hey, trade with confidence

 

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